Debt Collection Improvement Act of 1996: Major Data Sources	 
Inadequate for Implementing the Debtor Bar Provision (29-MAR-02, 
GAO-02-462).							 
                                                                 
The Debt Collection Improvement Act of 1996 seeks to maximize	 
collections of delinquent nontax debt owed to the federal	 
government. However, the act also seeks to reduce losses by	 
requiring proper screening of potential borrowers and information
sharing within and among federal agencies. The major information 
sources of data on delinquent federal debtors are credit bureau  
reports, the Department of Housing and Urban Development's Credit
Alert Interactive Voice Response System (CAIVRS), and the	 
Financial Management Service's (FMS) Treasury Offset Program's	 
(TOP) database. There is no effective mechanism for federal	 
implementation of the act's debtor bar provision. Although credit
bureau reports, CAIVRS, and FMS's TOP database each contain some 
information on delinquent federal nontax debtors, none provides  
all-inclusive, timely data or maintains them long enough to serve
as an adequate data source for successfully barring future	 
financial assistance to currently delinquent debtors or those who
did not meet their past obligations. The TOP database, with	 
modifications, now provides an adequate reference point for	 
identifying delinquent debtors to deny them additional financial 
assistance. Maximizing the TOP database as a delinquency	 
reporting tool would require several changes, such as improving  
agencies' delinquent debt referral practices and enhancing or	 
supplementing information in the TOP database.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-462 					        
    ACCNO:   A02939						        
  TITLE:     Debt Collection Improvement Act of 1996: Major Data      
Sources Inadequate for Implementing the Debtor Bar Provision	 
     DATE:   03/29/2002 
  SUBJECT:   Debt collection					 
	     Delinquent loans					 
	     Data bases 					 
	     Information resources management			 
	     Interagency relations				 
	     FMS Barring Delinquent Debtors Program		 
	     HUD Credit Alert Interactive Voice 		 
	     Response System					 
                                                                 
	     Treasury Offset Program				 


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GAO-02-462
     
A

Report to the Chairman, Subcommittee on Government Efficiency, Financial
Management and Intergovernmental Relations, Committee on Government

Reform, House of Representatives

March 2002 DEBT COLLECTION IMPROVEMENT ACT OF 1996

Major Data Sources Inadequate for Implementing the Debtor Bar Provision

GAO- 02- 462

Letter 1 Results in Brief 2 Background 4 Objectives, Scope, and Methodology
6 Major Sources of Information on Delinquent Federal Debtors 8 Conclusions
16 Recommendations for Executive Action 17 Agency Comments and Our
Evaluation 17

Appendixes

Appendix I: Respondents to the Debt Reporting Practices Survey 22

Appendix II: Debt Reporting Practices Survey 24

Appendix III: Comments from the Financial Management Service 45

Appendix IV: Comments from the Department of Housing and Urban Development
49

Appendix V: Comments from the Department of Veterans Affairs 50

Appendix VI: GAO Contact and Staff Acknowledgments 51

Abbreviations

CAIVRS Credit Alert Interactive Voice Response System CFO Chief Financial
Officers CNC currently not collectible DCIA Debt Collection Improvement Act
of 1996 DOE Department of Energy EPA Environmental Protection Agency FHA
Federal Housing Administration FMS Financial Management Service HHS
Department of Health and Human Services HUD Department of Housing and Urban
Development IRS Internal Revenue Service SBA Small Business Administration
SSA Social Security Administration TOP Treasury Offset Program USDA
Department of Agriculture VA Department of Veterans Affairs

Lett er

March 29, 2002 The Honorable Stephen Horn Chairman, Subcommittee on
Government Efficiency,

Financial Management and Intergovernmental Relations Committee on Government
Reform House of Representatives

Dear Mr. Chairman: On October 10, 2001, we testified before your
subcommittee on agencies? implementation of the Debt Collection Improvement
Act (DCIA) of 1996. 1 While a primary purpose of DCIA is to maximize
collections of delinquent nontax debt owed to the federal government,
another significant aim of the

law is to reduce losses arising from debt management activities by requiring
proper screening of potential borrowers and sharing of information within
and among federal agencies. As such, DCIA contains a

provision that is intended to bar delinquent federal nontax debtors from
obtaining additional federal financial assistance in the form of certain
loans, loan insurance, or loan guarantees until the debtors resolve their

delinquencies. 2 This report assesses the adequacy of existing tools and
addresses the advantages and disadvantages of major information sources
currently available or under development that federal credit agencies and
lenders can use to identify delinquent federal debtors for the purpose of
denying them additional federal financial assistance.

Presently, the major information sources that contain data on delinquent
federal debtors are credit bureau reports, the Department of Housing and
Urban Development?s (HUD) Credit Alert Interactive Voice Response System
(CAIVRS), and the Financial Management Service?s (FMS) Treasury Offset
Program?s (TOP) database. To varying degrees, federal agencies

report certain delinquent debtors to these data sources in accordance with 1
U. S. General Accounting Office, Debt Collection Improvement Act of 1996:
Agencies Face Challenges Implementing Certain Key Provisions, GAO- 02- 61T
(Washington, D. C.: October 10, 2001). 2 Section 3720B of title 31, United
States Code, as amended by section 845( a) of the Agriculture Appropriations
Act, fiscal year 2001, Public Law No. 106- 387, sec. 1( a) 114 Stat. 1549,
1549A- 65 (2000), bars delinquent federal nontax debtors from obtaining
federal

financial assistance in the form of federal loans, loan insurance, or loan
guarantees, except for disaster loans, marketing loans, or loan deficiency
payments under subtitle C of the Agricultural Market Transition Act.

various statutes or regulations. However, to help ensure that federal
financial assistance is denied to delinquent debtors as required by DCIA,
federal credit agencies must have access to delinquent debtor information
that (1) includes all debtors delinquent 90 days or more on federal nontax
debts and (2) is maintained and updated until the delinquencies are
resolved.

Results in Brief The federal government does not yet have an effective data
source for implementing DCIA?s debtor bar provision. Although credit bureau
reports, CAIVRS, and FMS?s TOP database each contain certain information on
delinquent federal nontax debtors, none of those information sources
currently provides all- inclusive, timely data or maintains them long enough
to allow it to serve as an adequate data source for successfully barring

future financial assistance to debtors who are currently delinquent or who
did not meet their obligations in the past. In general, the constraints
relate to scope of reporting, adequacy of the data for this purpose, and the
fact that data are subject to being routinely purged from these sources
after a

specified number of years. In view of these constraints, the risk of credit
agencies? not barring all delinquent federal nontax debtors from obtaining
additional federal financial assistance is increased. As it now stands, it
would appear that information from the TOP database, with modifications,
provides the best opportunity to offer an adequate reference point for
identifying delinquent debtors for the purpose of denying them additional
financial assistance. Credit bureau issues are largely beyond the immediate
influence of the federal government, and CAIVRS reporting is voluntary.
Referral of delinquent debt to FMS for offset is already legislatively
required, and agencies have major incentives to refer debt because
collections through TOP have proven quite effective. Accordingly,
information from the TOP database offers the major advantage of one referral
addressing two purposes- collections as well as delinquency reporting.

Notwithstanding present advantages, maximizing the effectiveness of
information from the TOP database as a delinquency reporting tool would call
for a number of changes, including improvements in agencies? delinquent debt
referral practices and enhancing or supplementing information currently
maintained in the TOP database. Accelerating the referrals of delinquent
debt to TOP to 90 days versus waiting 180 days to

refer the debt is an option already available to agencies for certain types
of debt and, regardless of agency in- house collection initiatives, may be
in the best interest of the government since it could help accelerate
collections. 3 Other matters, such as retaining data from the TOP database
concerning

certain discharged or closed- out debts and debts more than 10 years
delinquent and adding data on delinquent debts that are generally excluded
from offset by FMS, could be addressed by FMS; however, FMS currently does
not have plans to deal with these issues because it believes that
information from the TOP database should be used in conjunction with

other information sources, such as credit bureau reports and CAIVRS, to
identify delinquent debtors for the purpose of denying them additional
financial assistance. We believe FMS has a number of opportunities to
improve the delinquent debtor information available to federal agencies in
order to enhance the effectiveness of agencies? implementation of DCIA?s

debtor bar provision, directed at achieving improvements in the available
information. Six of the nine CFO Act agencies that participated in our
review by completing a survey on delinquent debt reporting responded they
had no comment on a draft of this report, and one of the nine agencies did
not respond to our request for comments. The other two CFO Act agencies
agreed with our recommendations. FMS, however, disagreed with our conclusion
that existing data sources are inadequate for implementing

DCIA's debtor bar provision and also disagreed with our recommendations
intended to improve the effectiveness of FMS's Barring Delinquent Debtors
Program by enhancing or supplementing information from the TOP database. In
disagreeing with our recommendations, FMS raised questions about the level
of effort and resources required to have a database of the scale we
envisioned; said there were uncertainties regarding its authority to
collect, maintain, and use the data for this purpose; and noted that in 3
DCIA requires federal agencies to transfer nontax debts delinquent more than
180 days to Treasury for the purpose of offsetting federal payments and for
cross- servicing to collect

delinquent debts owed to the federal government. Federal agencies may, at
their discretion, refer valid, legally enforceable debts for administrative
offset and cross- servicing that are less than 180 days delinquent.

general, existing data were adequate for implementing the debtor bar
provision. We disagree. Although cost associated with having a more
comprehensive database of delinquent debtors needs to be considered, there
may be relatively little extra cost because agencies are already required to
provide much of this information for purposes of administering TOP. Also,
FMS did not mention the tradeoffs involved- the associated benefits in the
form of increased collections and avoiding making loans to applicants
already

delinquent on other federal loans. Regarding its authority to use
information provided to TOP to implement the debtor bar provision, we do not
see insurmountable issues. The options we asked FMS to pursue did not
include any roles or responsibilities not already contemplated by the debtor
bar provision of DCIA. However, given its role as the lead agency for
federal debt collection, we would encourage FMS to seek any additional

authority that it may deem necessary. Regarding the adequacy of existing
data sources for carrying out the DCIA debtor bar provision, our review
showed that individually and collectively, they currently fall short of what
is needed to more fully implement this provision. Therefore, we continue to
believe that FMS should pursue enhancing or supplementing information from
the TOP database to provide agencies with a more comprehensive database of
delinquent debtors to be used in barring such debtors from obtaining
additional federal financial assistance.

Background During a hearing on DCIA implementation held by your subcommittee
in June 2000, concerns were raised that there were federal nontax debtors
who were delinquent on more than one federal debt. Our October 10, 2001,

testimony before the subcommittee reiterated concerns about delinquent
federal nontax debtors? obtaining additional federal financial assistance
because of the lack of an adequate information source that would facilitate
agencies? identification of such applicants prior to approval of financial
assistance. 4 As previously stated, DCIA bars certain delinquent federal
nontax debtors

from obtaining federal financial assistance in the form of federal loans,
loan insurance, or loan guarantees until the debtors resolve the
delinquencies. FMS published final regulations on this statutory

4 GAO- 02- 61T.

requirement on December 8, 1998. According to the regulations, for the
purpose of denying federal financial assistance, a person?s delinquent debt
is resolved only if the person (1) pays or otherwise satisfies the
delinquent debt in full; (2) pays the delinquent debt in part if the
creditor agency accepts such partial payment as a compromise in lieu of
payment in full;

(3) cures the delinquency under terms acceptable to the creditor agency in
that the person pays any overdue payments, plus all interest, penalties,
late charges, and administrative charges assessed by the creditor agency as
a result of the delinquency; or (4) enters into a written repayment
agreement with the creditor agency to pay the debt, in whole or in part,
under terms

and conditions acceptable to the creditor agency. For purposes of denying
federal financial assistance under Treasury regulations, a debt is in
delinquent status if it has not been paid within 90 days of the payment due
date. Treasury has established 90 days delinquent as the trigger for denying
federal financial assistance because it (1) allows sufficient time for debts
to be referred to credit bureaus and (2) is consistent with standard lending
practices, which classify a loan as nonperforming at 90 days past due. The
DCIA debtor bar provision does not expire as the debt ages. It applies even
if the creditor agency has suspended or terminated collection activity on
the debt or, in certain cases, discharged the debt. 5 As specified in
Treasury regulations, for the purpose of denying federal financial
assistance, a debt is in delinquent status unless (1) the person seeking

federal financial assistance has been released by the creditor agency from
any obligation to pay the debt, or there has been a determination that such
person does not owe or does not have to pay the debt; (2) the debtor is the
subject of, or has been discharged in, a bankruptcy proceeding, and, if
applicable, the person is current on any court- authorized repayment plan;

or (3) the existence of the debt or the delinquency of the debt is being
challenged under an ongoing administrative appeal that was filed by the
debtor in a timely manner. 5 According to the Federal Claims Collection
Standards, before discharging a delinquent debt

(also referred to as a close- out of the debt), agencies must terminate all
collection action. Upon discharge of an indebtedness, agencies must report
the discharge to the Internal Revenue Service (IRS) in accordance with the
requirements of 26 U. S. C. 6050P and 26 C. F. R. 1.6050P- 1. IRS Form 1099C
is used to report the uncollectible debt as income to the debtor, which may
be taxable at the debtor?s current tax rate.

Objectives, Scope, and The objective of our review was to determine the
advantages and

Methodology disadvantages of existing major information sources, namely,
credit bureau

reports, CAIVRS, and the TOP database, to promptly identify delinquent
federal debtors for the purpose of denying them federal financial
assistance. To accomplish this objective, we developed and pretested a
survey instrument to obtain agency responses to a uniform set of questions.
The scope of this effort included the nine largest civilian Chief Financial

Officers (CFO) Act agencies 6 -the Departments of Agriculture (USDA),
Education, Energy (DOE), Health and Human Services (HHS), HUD, and Veterans
Affairs (VA); the Environmental Protection Agency (EPA); the Small Business
Administration (SBA); and the Social Security Administration (SSA). These
nine agencies held about $40 billion of reported delinquent nontax federal
debt as of September 30, 2000, which

represented more than 90 percent of all CFO Act agencies? reported
delinquent nontax debt. We surveyed these nine agencies on their
debtreporting practices. Because these agencies typically perform
debtreporting activities at the entity level rather than at the department
level- within USDA, 22 individual entities (for example, the Rural
Development Insurance Fund, Agricultural Credit Insurance, and Rural
Communication

Development) report debt information to Treasury- our surveys were completed
at the entity level. We achieved 100 percent response from the 90 entities
involved in our review. See appendix I for the number of participating
entities, by agency and bureau, and appendix II for a copy of our survey
instrument.

6 The 24 CFO Act agencies are set forth at 31 U. S. C. 901( b).

We reviewed the survey responses and followed up with appropriate agency
officials, where necessary, to obtain clarifications. Although we discussed
certain survey responses with agency officials, we did not independently
verify the reliability of the information that was provided. In addition, we
conducted interviews with officials from four national creditreporting

agencies and HUD regarding credit bureau reports and CAIVRS, respectively. 7
We also conducted interviews with FMS officials concerning the TOP database
and using the information from that database to bar delinquent debtors from
receiving additional financial assistance.

We performed our work in accordance with U. S. generally accepted government
auditing standards from January 2001 through October 2001. We requested
written comments on a draft of this report from FMS and from the nine CFO
Act agencies that responded to our survey on delinquent debt reporting.
Although one of the nine agencies did not respond to our request for
comments, six of the nine agencies responded that they had no

comment on the draft report. FMS and the remaining two CFO Act agencies
submitted written comments, which are discussed in the Agency Comments and
Our Evaluation section of this report and are incorporated in the report as
applicable. Comments from FMS, HUD, and VA are reprinted in appendixes III,
IV, and V, respectively.

7 We included Equifax, Experian, and Trans Union in our review of consumer
credit bureaus, and Dun & Bradstreet and Experian in our review of
commercial credit bureaus. Treasury provided these credit bureaus as
contacts for federal agencies for reporting delinquent debtor information in
the draft Guide to the Federal Credit Bureau Program released in September
2000. In October 2001, Treasury published its Guide to the Federal Credit
Bureau Program, and, according to an FMS official, FMS has distributed
approximately 900 copies to federal credit agency contacts, liaisons, and
senior officials. The guide was developed to assist agencies in their
compliance with current laws and regulations in an effort to encourage
credit bureau reporting, as required and as authorized, in order to stem the
rise in federal debt delinquencies. In the guide, the commissioner of FMS
notes that reporting delinquent debt information to credit- reporting
agencies, whether when required or as encouraged, is the direct
responsibility of the respective federal agency, and the intent of the guide
is to assist agencies in meeting those responsibilities. Subsequent to its
issuance, effective January 22, 2002, the guide?s designated credit-
reporting agencies section has been modified to include INNOVIS for consumer
accounts and Equifax for commercial accounts.

Major Sources of In order to comply with Treasury?s regulations implementing
DCIA?s debtor Information on

bar provision, federal credit agencies must be able to identify debtors
delinquent 90 days or more on federal nontax debts. Three major Delinquent
Federal information sources- credit bureau reports, CAIVRS, and the TOP
Debtors

database- contain certain delinquent debtor information that may be useful
in evaluating federal loan applicants. However, the extent to which
delinquent federal debtor information is sent to and maintained by each of
these information sources varies.

Credit Bureau Reports DCIA requires most federal agencies to report all
delinquent consumer nontax debts to credit bureaus. 8 For delinquent
commercial nontax debts, federal agencies have been required by Office of
Management and Budget (OMB) policy to report all such debts to credit
bureaus since September

1983. FMS?s Guide to the Federal Credit Bureau Program, which was issued in
October 2001, currently recommends that federal agencies report delinquent
consumer debt to four credit bureaus- Equifax, Experian, Trans Union, and
INNOVIS- and commercial debt to three credit bureaus- Dun & Bradstreet,
Experian, and Equifax. The credit bureaus receive and integrate into their
respective databases credit information from federal agencies and from
private sector entities. In turn, this information is sold in the form of
credit reports, which are used for such purposes as determining
creditworthiness and assisting with debt collection efforts. Treasury
guidance states that federal agencies should

report consumer debts monthly and commercial debts quarterly. Credit bureau
reporting is important because federal agencies are required by OMB policy
to use credit bureaus as a screening tool to determine if applicants for
federal financial assistance are delinquent on any federal debt. Based on
responses from the nine CFO Act agencies we surveyed,

about $30 billion of these agencies? reported delinquent debt has been
subject to credit bureau reporting.

Credit bureau reports include critical information for the debtor bar
provision, including the number of days a debt is delinquent. As such,
credit bureau reports are a relatively good information source for
identifying certain delinquent federal nontax debtors. However, the
information that credit bureaus are currently able to provide is limited for
the purpose of denying federal financial assistance because (1) certain

8 31 U. S. C. 3711( e).

federal agencies? nontax debt that is 90 days delinquent, which is the
trigger associated with the bar provision, is not all reported to credit
bureaus and (2) by law, certain adverse credit information can be retained
and reported by credit bureaus for only 7 years.

In response to our survey of nine CFO Act agencies, which together reported
holding about $40 billion of delinquent nontax debt as of September 30,
2000, eight of the nine agencies indicated that they had not reported to
credit bureaus about $9.8 billion of their delinquent debt as of that date.
HHS?s survey response stated that Medicare debt, which amounted to more than
$5.2 billion, was exempted from the credit bureau reporting requirement by
31 U. S. C. 3701( d). Although reporting Medicare debt to credit bureaus is
exempted by 31 U. S. C. 3701( d), this does not mean that HHS is legally
precluded from such reporting. The exemption means that HHS may report
Medicare debt but is not required to do so. In addition, section 3701( d)
does not exclude Medicare debt from the debtor bar provision in 31 U. S. C.
3720B. Further, about $3.4 billion is not reported

because the debts are guaranteed loans made by USDA?s Commodity Credit
Corporation to foreign governments. Agency officials stated that reporting
foreign debt to credit bureaus would serve no useful purpose and, therefore,
would not be cost- effective. 9 Also, our recent work revealed that some
agencies may not be classifying certain credit losses as delinquent federal
debt. 10 Other reasons cited by the agencies for not reporting delinquent
debt included, at certain entities, (1) a lack of automated capability or
system limitations to report to credit bureaus and (2) the

validity of the debt could not be firmly established. Two of the nine
agencies we surveyed responded that they refer delinquent debts directly to
credit bureaus and do not rely on Treasury?s crossservicing for such
reporting. The other seven agencies indicated that although they may refer
some of their delinquent debts directly to credit bureaus, they rely on FMS
to report certain debts to credit bureaus on their behalf as part of cross-
servicing. However, we noted that as of September 30, 2000, these seven
agencies together reported about

$1. 4 billion of debt eligible for cross- servicing but had referred only
about $330 million to FMS. Consequently, a significant amount of delinquent
debt 9 According to Treasury, for the most part, collecting these foreign
delinquent debts is infeasible primarily because of foreign diplomacy
considerations and affairs of state.

10 GAO- 02- 61T.

is not likely being promptly captured by credit bureaus, which limits
federal credit agencies? use of credit bureau reports to identify delinquent
federal nontax debtors for the purpose of denying federal financial
assistance. Another problem with relying on FMS to report delinquent debts
to credit bureaus as part of cross- servicing is that the debts would
typically not be reported until well beyond the 90- day delinquency trigger
for denying federal financial assistance. Under DCIA, agencies are not
required to refer eligible debts to FMS for cross- servicing until they are
delinquent more than 180 days. In addition, in order to give debtors advance
notice of the

potential reporting of debts to credit bureaus and an additional opportunity
for the debtors to repay their debts, FMS waits from the date it receives
the debts at least 30 days for commercial debts and 60 days for consumer
debts before reporting these debts to credit bureaus. Based on the stated
debt referral practices of the seven agencies we surveyed that indicated
they

rely on FMS to report certain debts to credit bureaus, debts would seldom,
if ever, be referred to FMS for cross- servicing in sufficient time for FMS
to report the debts to credit bureaus at 90 days delinquent. Moreover,
according to FMS data, as of September 30, 2001, more than 50 percent of
debt referred for cross- servicing governmentwide was more than 2 years

delinquent at the time of referral. Therefore, it is important for agencies
to refer delinquent debts directly to credit bureaus in accordance with
FMS?s Guide to the Federal Credit Bureau Program. 11

11 Federal agencies have two options for credit bureau reporting once they
have referred cases to FMS for cross- servicing: (1) they may continue to
report the cases to credit bureaus, and FMS will not do so, or (2) they may
cease reporting, and FMS will report to credit bureaus on the agencies?
behalf.

Aside from the fact that not all delinquent federal nontax debts are
reported to credit bureaus and that many are reported much later than would
be desirable, it is important to note that under the Fair Credit Reporting
Act, adverse credit information for consumer debts can

generally only be reported by credit bureaus for up to 7 years from the date
of the initial missed payment. Therefore, for the purpose of identifying
debtors with older delinquent consumer debts in order to deny them federal
financial assistance, federal credit agencies cannot rely solely on credit
bureau reports. Further, we noted that 3 of the 90 entities that responded
to our survey indicated that they request the removal of certain debtors
from credit bureau reports once they discharge debts, even though

such debts do not always meet Treasury?s criteria for debt resolution for
the purpose of denying federal financial assistance. 12 According to a
Treasury official, at this point, FMS is currently reviewing the issue of
whether federal agencies should be allowed to remove, or should be precluded
from removing, discharged debts from credit bureau reports. The official
stated that Treasury currently does not have an official policy on this
matter, but such policy may be established in March 2002. According to
officials from two credit bureaus included in our review, information on
discharged debts should not be removed from the credit bureaus so that the
discharged debts will continue to be reflected on the

credit bureau reports. 12 Debts that are discharged but not resolved in
accordance with Treasury?s criteria for debt resolution (e. g., the debt is
not cured or resolved under terms and conditions acceptable to the creditor
agency) should continue to be considered as delinquent debts for the purpose
of denying federal financial assistance to be in compliance with the
delinquent debtor bar provision.

CAIVRS CAIVRS was developed by HUD in the 1980s to assist its Federal
Housing Administration (FHA) lenders in determining whether a borrower or
coborrower was currently in default or had a claim on an FHA mortgage within
the last 3 years by providing limited debtor information. HUD

expanded CAIVRS during the early 1990s to include reporting of delinquent
nontax debt from other federal agencies. Although the Federal Claims
Collection Standards, which were revised in November 2000, strongly
encourage agencies to report delinquent debts to CAIVRS in part to assist
agencies in complying with the debtor bar provision of DCIA, agencies are

not required by the standards to submit such debts to HUD for inclusion in
the CAIVRS database. 13 Moreover, each federal agency determines its own
criteria for reporting specific debts to CAIVRS. Therefore, CAIVRS has
limitations as an information source for identifying delinquent nontax
debtors for the purpose of denying federal financial assistance. First, in
part because agencies are not required to report to CAIVRS, only

five of the nine agencies we surveyed indicated that they do report certain
of their delinquent debts to CAIVRS. These five agencies indicated that they
reported to CAIVRS about $23 billion, or about 58 percent, of the $40
billion of total delinquent debt the nine agencies reported holding as of
September 30, 2000. Second, CAIVRS contains limited information on
delinquent debts. For example, CAIVRS does not include the date of
delinquency or the number

of days the debt is delinquent, which is critical for denying federal
financial assistance under the authority of DCIA. While the data available
through CAIVRS provide an indicator of indebtedness, the system does not
contain sufficient data for determining whether to deny the debtor
additional federal financial assistance. As such, those accessing the data
have to contact the source agency to acquire the relevant information. Also,
each agency that reports debts to CAIVRS can use its own discretion as to
how long debts stay in the system. For example, three of the five agencies
we surveyed that report debts to CAIVRS indicated that they remove certain
debts from CAIVRS at the time they are written off, 14 and all five of these

13 31 C. F. R. 901. 4( b). 14 Generally, write- off is mandatory for
delinquent debt older than 2 years. Once the debt is written off, or removed
from the agency?s accounting and financial records, the agency must either
classify the debt as currently not collectible (CNC) or discharge the debt.
Although CNC debts have been written off for accounting purposes, CNC debts
have not been discharged and collection action can still be taken.

agencies indicated that they remove certain debts at the time they are
discharged. As noted above, debts that are written off and discharged debts
do not always meet the criteria for debt resolution for the purpose of
denying federal financial assistance. Therefore, such practices can serve to

defeat the fundamental objective of the debtor bar provision in DCIA. FMS?s
TOP Database TOP is a mandatory governmentwide delinquent debt matching and

payment offset system. Section 3716 of title 31 of the U. S. C., as amended
by DCIA, requires federal agencies to transfer nontax debts more than 180
days delinquent to Treasury for the purpose of offsetting federal payments
to collect delinquent debts owed to the federal government. Under TOP,
federal agencies may recover delinquent debt by (1) receiving offset federal
payments due the delinquent debtor or (2) using debtor locator/ address
information provided by TOP to locate delinquent debtors.

Unquestionably, information from the TOP database could provide federal
credit agencies with pertinent information about delinquent debtors for the
purpose of denying additional federal financial assistance. The TOP database
includes the date delinquency began for each referred debt; therefore, the
number of days a debt is delinquent could be readily determined. In
addition, FMS allows agencies to continually update their debt information
in the TOP database.

However, the information from the TOP database also has some limitations.
For example, one of the TOP database?s downsides as an information source
for identifying delinquent federal nontax debtors is that agencies do not
promptly refer large amounts of delinquent debt eligible for TOP. First, as
of September 30, 2000, the nine agencies we surveyed reported referring a
significant amount- about $24 billion of about $28 billion of debt reported
as eligible for TOP as of September 30, 2000- but still leaving about $4
billion out of this database that would be valuable in making loan or other
financial assistance decisions. 15

15 In addition to the $40 billion of reported delinquent debt at the nine
agencies we surveyed, these agencies held more than $25 billion in debts
classified as CNC. The $28 billion of debt reported as eligible for TOP
includes both debt more than 180 days delinquent and debt

classified as CNC. The remainder of the delinquent debt and CNC debt was not
reported as eligible for TOP because the debt was determined by the
reporting agencies to be either less than 180 days delinquent or to have met
the criteria for a TOP exclusion category (e. g., foreclosure or
bankruptcy).

Second, we identified at least one exclusion type- debts in foreclosure-
that while not eligible for referral to TOP would meet the criteria for
barring delinquent nontax debtors from receiving additional federal
financial assistance. Specifically, six of the nine agencies we surveyed

reported having collectively about $1 billion of debts in foreclosure as of
September 30, 2000. Finally, agencies are not required by DCIA to report
eligible debts for administrative offset until they are more than 180 days
delinquent. This is well beyond the 90- day trigger for the purpose of
denying federal financial assistance. Moreover, according to FMS data, as of
September 30, 2001, more than 65 percent of debt referred to TOP for offset
governmentwide was actually more than 2 years delinquent at the time of
agency referral.

It is also important to note that debt information in the TOP database also
lacks permanence in that, generally, debt information can be maintained in
the TOP database for only up to 10 years. 16 In addition, TOP does not
maintain debt information on debts that agencies discharge because

agencies are prohibited from taking further collection action on such debts
once they are reported to IRS as income. Further, we noted that four of the
nine agencies we surveyed indicated that they request the removal of certain
debts from TOP when the debts are written off. Therefore, given

the lack of permanence of the nontax debt information in the TOP database,
agencies could not rely solely on such information to identify all debtors
with certain older delinquent nontax debts for the purpose of denying
federal financial assistance.

FMS?s Barring Delinquent Information from FMS?s TOP database is currently
not available to agencies Debtors Program to identify delinquent debtors for
the purpose of denying federal financial assistance. However, FMS is
designing a new Internet- based program, to be known as the Barring
Delinquent Debtors Program, to assist agencies in identifying delinquent
debtors. According to FMS officials, the program

will supplement other tools already available to agencies, such as credit
bureau reports and CAIVRS. As currently envisioned, the program will allow
agencies to initiate searches of information from the TOP database to 16
According to Federal Claims Collection Standards, unless otherwise provided
by law, administrative offset of payments under the authority of 31 U. S. C.
3716 to collect a debt may not be conducted more than 10 years after the
government?s right to collect the debt first accrued.

determine whether applicants for direct or guaranteed loans owe delinquent
federal nontax debt. However, as currently planned, the Barring Delinquent
Debtors Program will make available only limited information on delinquent
debtors. For

example, creditor agencies and lenders will be given the debt number and
agency contact information, including the agency name, address, and phone
number, for any debt matched to the information extracted from the TOP
database. While this information will provide an indicator of indebtedness,
creditor agencies and lenders accessing the information will have to contact
the source agency to acquire the relevant information for use in denying
federal financial assistance. In this case, it appears that the Barring
Delinquent Debtors Program will supply information similar to that provided
by CAIVRS; however, because fewer agencies report their

delinquent debt to CAIVRS, potentially more delinquent debtor information
could be obtained from the TOP database.

Currently, FMS anticipates that the new program will be available before the
end of fiscal year 2002. According to FMS, however, various legal and
technical issues may influence implementation of the Barring Delinquent

Debtors Program, including making pertinent data available to (1)
appropriate agency personnel and (2) authorized private lending institutions
involved in federal lending activities, while maintaining systems and data
security.

In order to maximize the effectiveness of FMS?s Barring Delinquent Debtors
Program as a delinquent debt reporting tool, enhancements are needed that
would ideally capture additional delinquent debt information that may not
meet the criteria for TOP collection action but would be useful for purposes
of the debtor bar provision. Such enhancements could

include retaining information for delinquent debts that have been referred
to TOP but are no longer eligible for collection action even though the
debts had not been resolved in accordance with Treasury regulations. On the
other hand, enhancing the information from the TOP database for the Barring
Delinquent Debtors Program may or may not be appropriate for certain types
of debt (e. g., debt from 91 to 180 days delinquent) because federal credit
agencies are already required by DCIA to report such debt to

credit bureaus, and credit- granting agencies are required to use credit
reports as a way to determine whether an applicant for federal financial
assistance owes a delinquent debt to the government. In the case of this
newer debt, the need for augmenting the information from the TOP

database would hinge on the success of agencies? completely and timely
reporting new delinquencies to the designated credit bureaus. At a minimum,
to improve the information available to federal agencies for implementing
the debtor bar provision, information from the TOP database would need to be
enhanced or supplemented to include, among other things, (1) delinquent
debts that have been discharged but do not meet the criteria for debt
resolution, (2) debts more than 10 years delinquent, and

(3) debts that meet the criteria for exclusion from TOP but are nevertheless
delinquent for purposes of the debtor bar provision, such as foreclosures.
17 However, according to Treasury officials, Treasury does not plan as part
of its Barring Delinquent Debtors Program to expand the program to include
any types of debt outside of those that are currently maintained in the TOP
database because, as noted above, FMS plans for the program to be a resource
for federal agencies to use in conjunction with other available tools,
including credit bureau reports and CAIVRS. Yet, by not considering these
enhancements, Treasury may not be maximizing the potential of the

Barring Delinquent Debtors Program. Conclusions The federal government does
not presently have an effective mechanism

for ensuring compliance with DCIA?s debtor bar provision. None of the three
data sources we reviewed contain all of the necessary data, and the data
maintained in each of the information sources are subject to being

routinely purged after a specified number of years, even though the debtor
bar provision may still apply. Therefore, individually and collectively,
although helpful, the three data sources do not fully get the job done. We
strongly support credit bureau reporting primarily because it provides a
demonstrable incentive for delinquent debtors to repay the federal
government so that their credit ratings will not be adversely affected. In
addition, of the three major data sources, the TOP database has the 17
According to a Treasury official, only debts that are eligible for offset
and are included in the TOP database will be eligible for inclusion in the
Barring Delinquent Debtors Program. Debts that have been written off but
have not been discharged (e. g., debts classified as CNC) are included in
the TOP database and may be included in the Barring Delinquent Debtors
Program. Debts that have been discharged and are not eligible for offset are
excluded from both the TOP database and the Barring Delinquent Debtors
Program. In

addition, certain debts that are more than 10 years delinquent may be offset
and will therefore be included in the data used for the Barring Delinquent
Debtors Program (e. g., defaulted student loan debt, which remains in the
TOP database because there is no statute of limitations for collection on
that type of debt).

potential to be the most comprehensive source of information on delinquent
federal debtors for the purpose of the debtor bar provision. By enhancing or
supplementing information currently maintained in the TOP database and
allowing federal agencies access to certain current and historical data on
delinquent debtors, Treasury can improve the

information available to federal agencies to enhance the effectiveness of
agencies? implementation of the DCIA debtor bar provision. Also, if agencies
successfully reported delinquent debts to credit bureaus in accordance with
FMS guidance, thus making data on newer delinquencies

available, and if information in the TOP database were enhanced to provide
additional information on ongoing and older delinquencies, there would be
opportunities to assess the necessity of CAIVRS reporting at some future
date. Unless improved access to delinquent debt information is achieved, the
risk that delinquent federal debtors would be able to secure new forms of
financial assistance from federal credit agencies will continue.

Recommendations for To assist federal agencies in identifying delinquent
debtors for the purpose

Executive Action of complying with DCIA?s debtor bar provision, we recommend
that the commissioner of FMS pursue maximizing the effectiveness of the
Barring Delinquent Debtors Program by enhancing or supplementing information

from the TOP database that will be made available for the program.
Specifically, such enhancements should include data on

 discharged debts that do not meet the criteria for debt resolution,

 debt delinquent more than 10 years, and

 debt normally excluded from TOP referral but delinquent for purposes of
denying additional federal financial assistance (e. g., foreclosures).

Agency Comments and We received written comments on a draft of this report
from FMS and two

Our Evaluation of the nine CFO Act agencies that participated in our survey
on debtreporting

practices. Six of the remaining seven CFO Act agencies advised us that they
had no comments, and one did not respond. HUD and VA agreed with our
recommendations that FMS pursue maximizing the effectiveness of FMS's
program to help agencies identify delinquent federal debtors by enhancing or
supplementing information from the TOP database. The commissioner of FMS
largely disagreed with our recommendations as well as the basic premises
underpinning the need for

improved quality of such information.

FMS stated that its Debt Check Program, known as the Barring Delinquent
Debtors Program at the time we completed our fieldwork, will result in
significant benefits to agencies and governmentwide debt collection efforts
with existing data already captured in the TOP system. FMS characterized our
recommendations as (1) essentially requiring a costly new computer system
rather than merely using information it already has,

(2) questionable from a legal perspective, and (3) not necessary because
existing data sources, particularly credit bureau reports, are adequate for
implementing DCIA's debtor bar provision.

We do not agree with FMS's characterization of our recommendations. Our
recommendations to FMS were aimed at meeting the clear requirement of DCIA
that delinquent federal debtors generally be barred from obtaining
additional specified types of federal financial assistance. In assessing the
three data sources that contain information on delinquent federal debtors,
we found that the TOP database provides the most promising information in
this area. At the same time, information from the database has some
limitations that could not be overcome fully by using credit bureaus and

CAIVRS in conjunction with the TOP database. Our recommendations were
targeted at maximizing the effectiveness of FMS's Barring Delinquent Debtors
Program by enhancing or supplementing information from the TOP database that
would be made available for the program. In this regard, we realized that
there may be alternative approaches to effectively achieving the legislative
objectives of the debtor bar provision. Accordingly, we couched our
recommendations in terminology asking that FMS consider three ways of
strengthening available data in pursuit of this goal.

During our review, we saw FMS?s effort to develop the Barring Delinquent
Debtors Program as both meritorious and necessary to address the fundamental
concerns that gave rise to the DCIA provision calling for the federal
government to be able to preclude those who had not resolved

delinquent loans from obtaining additional federal financial assistance. We
agree with FMS that the existing data already captured in TOP will result in
significant benefits to agencies and governmentwide debt collection efforts.
In no way have we questioned the merits of TOP. At the same time, we
identified basic data limitations in FMS's Barring Delinquent Debtors
Program that limit FMS?s ability to fully meet the DCIA debtor bar
provision. FMS's response to our draft report indicates it is not willing to
invest in efforts to improve the capability of an initiative that could
address the specific legislative requirement and concurrently help upgrade
the overall federal internal control environment for minimizing abuses

stemming from delinquent federal debtors applying for and receiving
additional federal financial assistance.

With regard to its three main arguments for not pursuing the enhancement of
data availability through the TOP system, FMS did not present an alternative
that would fully achieve what the law requires. We believe that a first step
in deciding the scope of an enhancement effort would

reasonably entail assessing the costs and benefits of factors such as those
FMS used in commenting on our recommendations. Among these would be changes,
if any, to current data collection methods; systems review and redesign; and
resources required. Also, there would need to be consideration of the
anticipated benefits of having stronger repayment incentives for delinquent
debtors and of ultimately avoiding additional loans to already delinquent
debtors, which logically would carry added risk

of additional losses. FMS's comments do not address these potential
benefits. As stated in our report, the federal government does not yet have
an effective data source for adequately implementing DCIA's debtor bar
provision. Limitations on the length of time that information on individual
delinquent debts is available through credit bureaus are beyond the

immediate influence of the federal government, and CAIVRS reporting is
voluntary and is not nearly as complete as the information in the TOP
database. As a result, we have taken the position that the best opportunity

to fill in some of the key data gaps for identifying delinquent debtors over
extended time frames is by augmenting and retaining data that are routinely
required to be reported to the TOP database. Enhancing or supplementing
information from the TOP database for use in the Debt

Check Program could provide federal credit agencies access to a more
comprehensive and centralized database of delinquent federal debtors that
the agencies now lack. It is important to note that HUD, which designed and
administers CAIVRS, stated in its comments that it agreed with the
recommendations in our draft report that a single, complete, and
comprehensive source of information regarding delinquent debtors would
better support the debtor bar provision of DCIA. HUD supported our case for
recommending that information from TOP be modified and used as the primary
tool for barring delinquent debtors from obtaining additional

financial assistance. We agree with FMS that the cost associated with
creating and building a more comprehensive database of delinquent debt needs
to be considered. However, for most of the new capacity we asked FMS to
consider- namely,

the 10- plus- year- old delinquent debt and other discharged debts that are
no longer subject to TOP- there may be relatively little extra cost. In
essence, these categories of delinquent debt would have to be maintained in
such a way to ensure they were not used for the TOP program, but that they
would continue to be accessible for determining whether new applicants had
delinquent, unresolved debt. Any such added costs for FMS would have to be
considered along with costs other agencies would incur to provide data

not now provided to TOP. Any expected additional FMS and agency costs would
have to be weighed against the ongoing increased risk of not having a viable
and comprehensive tool for meeting the requirements of the DCIA

debtor bar provision. Concerning FMS's authority to obtain and use the type
of data discussed in this report, we do not see insurmountable issues. FMS
has the lead role for debt collection governmentwide and could determine
whether it now has

regulatory options or whether it would need to work with the Congress to
obtain the requisite added authority to assist other federal agencies in
identifying delinquent federal debtors in order to meet the express
requirements of the DCIA debtor bar provision. We have not recommended that
FMS carry out any roles or responsibilities not contemplated by DCIA.
Further, much of the additional information that we have asked FMS to
maintain for purposes of implementing the debtor bar provision would have
already been reported to FMS by agencies with debt more than 180 days
delinquent. From our perspective, the challenge is one of maintaining

and organizing the data for the specific use of barring delinquent debtors.
However, if FMS continues to question whether it has adequate authority to
carry out the existing DCIA debtor bar provision, we would encourage it to
seek that authority. We would be willing to collaborate with FMS on that
effort. Regarding the adequacy of existing data sources for carrying out the
DCIA debtor bar provision, our review showed that individually and
collectively, they currently fall short of what is needed to more fully
implement this provision. We agree with FMS's observation that because
lending agencies are required to obtain credit reports for creditworthiness
determinations,

credit bureaus are a primary source of the information necessary to
determine loan eligibility. However, as stated in our report, credit reports
do not typically contain data on delinquent consumer debt beyond 7 years,
which limits their use to bar delinquent debtors, and debt information in
CAIVRS is limited because reporting is voluntary. Also, debt more than 10
years delinquent and agency- discharged debt are typically removed from TOP
because they are no longer eligible for offset. Because of these

shortfalls in the existing data sources available to agencies for
identifying delinquent federal debtors, we continue to believe that our
recommendations to augment what FMS is now referring to as the Debt Check
Program presents the best opportunity for agencies to be able to implement
the DCIA debtor bar provision.

As agreed with your office, unless you announce its contents earlier, we
plan no further distribution of this report until 30 days after its issuance
date. At that time, we will send copies to the chairmen and ranking minority
members of the Senate Committee on Governmental Affairs and the House
Committee on Government Reform and to the ranking minority member of your
subcommittee. We will also provide copies to the heads of the agencies we
surveyed, the secretary of the treasury, and the commissioner of FMS. We
will then make copies available to others upon

request. Please contact me at (202) 512- 3406 or Kenneth R. Rupar, assistant
director, at (214) 777- 5714 if you or your staff have any questions about
this report. Key contributors to this report are listed in appendix VI.

Sincerely yours, Gary T. Engel Director Financial Management and Assurance

Appendi xes Respondents to the Debt Reporting Practices

Appendi x I

Survey A total of nine agencies participated in our debt- reporting
practices survey. Because debt- reporting activities typically vary within
these agencies, we provided a survey for each Treasury Report on Receivables
submitted by the agencies and requested a response that would account for
all debts contained in that report. As such, we obtained responses from a
total of 90 reporting entities within these agencies. The following is a
list of the agencies, by bureau within each agency. The number in
parentheses following each bureau or agency represents the number of
reporting entities within that bureau or agency.

Department of Agriculture

 U. S. Department of Agriculture (1)

 Forest Service (1)

 Commodity Credit Corporation (4)

 Rural Development and Farm Service Agency (5)

 Agricultural Marketing Service (1)

 Federal Crop Insurance Corporation (2)

 Rural Utilities Service (3)

 Agriculture Stabilization and Conservation Service (1)

 Food and Nutrition Service (1)

 Rural Development (3) Department of Education

 Office of Postsecondary Education (7)

 Departmental Management (1) Department of Energy

 Energy Programs (1)

 Departmental Administration (1)

 Bonneville Power Administration (1)

 Southeastern Power Administration (1)

 Southwestern Power Administration (1)

 Western Area Power Administration (1) Environmental Protection Agency (2)

Department of Health and Human Services

 Substance Abuse and Mental Health Administration (1)

 Program Support Center (1)

 Health Resources and Services Administration (5)

 Centers for Medicare and Medicaid Services (4)

 Food and Drug Administration (1)

 Office of the Secretary (1)

 National Institutes of Health (1)

 Centers for Disease Control (1)

 Health Resources and Services Administration Indian Health Services (1)

 Administration for Children and Families (1)

 Administration on Aging (1) Department of Housing and Urban Development

 Housing Programs (8)

 Public and Indian Housing Programs (1)

 Government National Mortgage Association (1)

 Community Planning and Development (2)

 Policy, Development and Research (1)

 Management and Administration (1) Small Business Administration (4) Social
Security Administration (5) Department of Veterans Affairs

 Veterans Benefits (3)

 Medical and Construction (3)

 Housing Credit Assistance (3)

 Administration and Cemeteries (1)

 Life Insurance (1)

Appendi x II

Debt Reporting Practices Survey    

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