Debt Collection Improvement Act: Significant Challenges Remain to
Effectively Implement Treasury's Administrative Offset Program
(Testimony, 06/05/98, GAO/T-AIMD-98-195).

Pursuant to a congressional request, GAO discussed the Department of the
Treasury's implementation of the administrative offset provision of the
Debt Collection Improvement Act (DCIA) of 1996, focusing on: (1) the
status of referrals by agencies of delinquent nontax debts to Treasury
for administrative offset; (2) actions Treasury has taken and plans to
take to include all eligible federal payments in the administrative
offset program; and (3) actions Treasury has taken, or plans to take, to
consolidate the administrative, tax refund, and federal salary offset
programs.

GAO noted that: (1) Treasury has recently made progress in getting the
24 agencies covered by the Chief Financial Officers (CFO) Act of 1990 to
refer nontax debt over 180 days delinquent for administrative offset;
(2) as of April 1998, the CFO Act agencies had referred to Treasury
about $16.7 billion in nontax debt over 180 days delinquent, and
Treasury has entered these delinquencies into its debtor database; (3)
this is a substantial increase over the $9.4 billion that had been
referred to Treasury about 7 months earlier, at about the time the
congressional subcommittee held DCIA oversight hearings in November
1997; (4) as of April 1998, about $26.4 billion of reported nontax debt
over 180 days delinquent had not been referred to Treasury and is
unlikely to be referred in the near future; (5) on the payment side,
Treasury does not yet have a system capable of matching all federal
payments against the delinquent debtor database; (6) as of April 1998, 2
years after DCIA's enactment, Treasury had collected about $1.2 million
of delinquent nontax federal debt through its administrative offset
program; (7) payments subject to offset through the administrative
offset program are limited to those made by Treasury to vendors and to
federal retirees by Treasury disbursing offices in fiscal year 1997; (8)
also, Treasury has made little progress in fully determining the extent
to which federal payments can be made available for offset; (9) Treasury
has not yet consolidated the administrative, tax refund, and federal
salary offset programs; (10) Treasury's systems development problems
have also caused delay in consolidating these programs and thus, any
debt collection efficiencies envisioned by such a consolidation have not
yet been realized; (11) in developing an administrative offset system,
Treasury did not apply a disciplined systems development process; (12)
the resulting system, which was planned for implementation in January
1998, was not placed into operation, and a subsequent systems
development effort is under way; (13) in efforts to develop an
administrative offset system, Treasury has recently taken several
actions to address systems development issues; (14) it will be important
for Treasury's top management to ensure that the planned corrective
actions are effectively and expeditiously completed prior to making any
significant investment in the development of an administrative offset
system; and (15) otherwise, Treasury is significantly exposed to risks
that it may experience costly modifications and additional delays in
developing a system for implementing the administrative offset provision
of DCIA.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-AIMD-98-195
     TITLE:  Debt Collection Improvement Act: Significant Challenges 
             Remain to Effectively Implement Treasury's
             Administrative Offset Program
      DATE:  06/05/98
   SUBJECT:  Systems design
             Information resources management
             Debt collection
             Federal agency accounting systems
             Data bases
IDENTIFIER:  Retirement, Survivors, and Disability Insurance Program
             IRS Refund Offset Program
             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************


Cover
================================================================ COVER


Before the Subcommittee on Government Management, Information and
Technology, Committee on Government Reform and Oversight, House of
Representatives

For Release on Delivery
Expected at
9:30 a.m.
Friday,
June 5, 1998

DEBT COLLECTION IMPROVEMENT ACT -
SIGNIFICANT CHALLENGES REMAIN TO
EFFECTIVELY IMPLEMENT TREASURY'S
ADMINISTRATIVE OFFSET PROGRAM

Statement of Gary T.  Engel
Associate Director, Governmentwide Accounting and Financial
Management Issues
Accounting and Information Management Division

GAO/T-AIMD-98-195

GAO/AIMD-98-195T


(901774)


Abbreviations
=============================================================== ABBREV

  CFO -
  DCIA -
  DMDC -
  DOD -
  DOJ -
  FRBSF -
  GTOP -
  HUD -
  IRS -
  ITOP -
  NFC -
  NTDO -
  OPM -
  SSA -
  TIN -
  TROP -
  USDA -
  USPS -
  VA -

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

Thank you for the opportunity to testify on the Department of the
Treasury's implementation of the administrative offset provision of
the Debt Collection Improvement Act of 1996 (DCIA).  The act,
developed under the leadership of this Subcommittee, among other
things, requires that agencies notify the Treasury of all legally
enforceable\1

nontax debts over 180 days delinquent for the purpose of offsetting
federal payments, including tax refunds, and provides authority for
disbursing officials to conduct payment offsets. 

As you requested, our testimony today describes (1) the status of
referrals by agencies of delinquent nontax debts to Treasury for
administrative offset, (2) actions Treasury has taken and plans to
take to include all eligible federal payments in the administrative
offset program, and (3) actions Treasury has taken, or plans to take,
to consolidate the administrative, tax refund, and federal salary
offset programs. 


--------------------
\1 Treasury generally considers a debt legally enforceable when the
final agency determination regarding the debt is made or any legal
bar to further collection is removed. 


   SUMMARY
---------------------------------------------------------- Chapter 0:1

Treasury has recently made progress in getting the 24 agencies
covered by the Chief Financial Officers (CFO) Act of 1990\2 to refer
nontax debt over 180 days delinquent for administrative offset.  As
of April 1998, the CFO Act agencies had referred to Treasury about
$16.7 billion in nontax debt over 180 days delinquent, and Treasury
has entered these delinquencies into its debtor database.  This is a
substantial increase over the $9.4 billion that had been referred to
Treasury about 7 months earlier, at about the time the Subcommittee
held DCIA oversight hearings in November 1997. 

Also, as of April 1998, about $26.4 billion of reported nontax debt
over 180 days delinquent had not been referred to Treasury and is
unlikely to be referred in the near future.  These delinquencies
involve about (1) $12.3 billion of debts involved in bankruptcies,
foreclosures, and forbearance and formal appeals actions, (2) $3.6
billion of foreign debt, (3) $3 billion\3 of debts referred to the
Department of Justice (DOJ) for litigation, and (4) $525 million of
debts owed to the Department of Housing and Urban Development (HUD),
much of which will be scheduled for sale.  Approximately $7 billion
of nontax debt over 180 days delinquent has not been referred
primarily because agencies have not yet completed actions such as (1)
ensuring due process, which is necessary before debts can be referred
for offset, and (2) determining whether loan workout procedures have
been established with debtors, which precludes referral for offset. 

On the payment side, because of systems development problems,
Treasury does not yet have a system capable of matching all federal
payments against the delinquent debtor database.  As of April 1998, 2
years after DCIA's enactment, Treasury had collected about $1.2
million of delinquent nontax federal debt through its administrative
offset program.  Currently, payments subject to offset through the
administrative offset program are limited to those made by Treasury
to vendors and to federal retirees, representing about 5 percent of
the total number of payments made, and about 21 percent of the total
dollars paid, by Treasury disbursing offices in fiscal year 1997. 
Also, Treasury has made little progress in fully determining the
extent to which federal payments, such as those made by the
Department of Defense (DOD), can be made available for offset. 

Further, Treasury has not yet consolidated the administrative, tax
refund, and federal salary offset programs.  Treasury's systems
development problems have also caused delay in consolidating these
programs and thus, any debt collection efficiencies envisioned by
such a consolidation have not yet been realized. 

In developing an administrative offset system, Treasury did not apply
a disciplined systems development process, including the development
of an overall concept of operations and functional requirements.  The
resulting system, which was planned for implementation in January
1998, was not placed into operation, and a subsequent systems
development effort is underway. 

In current efforts to develop an administrative offset system,
Treasury has recently taken several actions to address systems
development issues.  We identified and discussed with Treasury
several areas where additional actions are needed, including giving a
higher priority to developing a concept of operations, the functional
requirements, and a risk management plan for the entire system.  We
are encouraged by Treasury's commitment to address these issues.  But
it will be important for Treasury's top management to ensure that the
planned corrective actions are effectively and expeditiously
completed prior to making any significant investment in the
development of an administrative offset system.  Otherwise, Treasury
is significantly exposed to risks that it may experience costly
modifications and additional delays in developing a system for
implementing the administrative offset provision of DCIA. 


--------------------
\2 The CFO Act, as expanded by the Government Management Reform Act,
covers the federal government's 24 largest departments and agencies,
which account for 99 percent of federal expenditures. 

\3 According to Treasury reports, agencies have referred about $3.5
billion of delinquent debt to DOJ for litigation, and DOJ has
referred about $500 million of this debt to Treasury for
administrative offset. 


   RECENT PROGRESS TO IDENTIFY AND
   REFER DELINQUENT NONTAX DEBT
   FOR OFFSET
---------------------------------------------------------- Chapter 0:2

The Subcommittee's November 1997 oversight hearing on DCIA's
implementation underscored the need for progress in referring
delinquent nontax debts to Treasury for offset.  At about the time of
the hearing, agencies had referred $9.4 billion of nontax debt over
180 days delinquent to Treasury for administrative offset. 

Initially, agencies had been slow to refer delinquent nontax debt for
administrative offset under DCIA largely because of uncertainty as to
the delinquent nontax debt that should be referred.  Also, Treasury
had not made a concerted effort to identify delinquent nontax debt
that could be offset or to develop time frames for agencies to refer
the debt for offset. 

In January 1998, Treasury began actively working with agencies to
reach agreement on the outstanding nontax debts over 180 days
delinquent that can be referred for administrative offset and to
obtain commitments from the agencies on referral of those debts. 
Treasury initially met with the five major credit agencies--the
Departments of Agriculture, Education, Housing and Urban Development,
and Veterans Affairs (VA) and the Small Business Administration. 
Later, Treasury expanded its work to include the other CFO Act
agencies. 

As of April 1998, the CFO Act agencies had referred about $16.7
billion of delinquent nontax debt to Treasury for administrative
offset--a 78 percent increase over about 7 months.  Most of this
increase resulted from Treasury's work with the agencies to bring the
nontax delinquent debts they submitted for the Internal Revenue
Service's (IRS) tax refund offset program into Treasury's
administrative offset database.  Debts that agencies normally would
have referred to IRS for tax refund offsets in calendar year 1998
were, instead, referred to Treasury's Financial Management Service. 
These debts were incorporated into the database Treasury uses for
matching debts for administrative offset and then referred to IRS,
which maintains a separate database. 

In addition to the delinquent nontax debt that has been referred for
offset, the CFO Act agencies also hold considerable delinquent nontax
debt that has not been referred to Treasury.  According to Treasury
reports, in April 1998, these agencies held $43.1 billion\4

of nontax debt over 180 days delinquent, including the $16.7 billion
of referred debt.  Treasury and the CFO Act agencies have determined
that $19.4 billion, or almost 75 percent, of the $26.4 billion in
unreferred nontax delinquent debt would not be referred for
administrative offset, at least not in the near term, for the
following reasons: 

  -- about $12.3 billion relates to nontax delinquent debts that are
     involved with bankruptcies, foreclosures, statutory forbearance,
     or formal appeals.  An automatic stay that generally prevents
     the government from pursuing collection against debtors in
     bankruptcy is provided by 11 U.S.C.  Section 362.  In addition,
     debts in foreclosure are governed by state laws that may
     preclude the government from pursuing foreclosure if collection
     is attempted through offset.  Further, debts subject to
     forbearance generally are not legally enforceable, thus
     precluding collection of the debt until the forbearance process
     is completed.\5 Also, agencies generally cannot certify debts
     under appeal as valid and legally enforceable until the appeal
     process is completed.  Consequently, Treasury has agreed with
     agencies that these types of debts should be excluded from
     referral for offset. 

  -- about $3.6 billion involves delinquent foreign debts.  Treasury
     has stated that, for the most part, collecting these delinquent
     debts through administrative offsets is infeasible primarily due
     to foreign diplomacy considerations and affairs of state. 

  -- about $3 billion of delinquent nontax debt has been referred by
     agencies to DOJ for litigation.  (See footnote 3.) These debts
     are no longer under the control of the agencies and, therefore,
     Treasury does not hold the agencies responsible for referring
     such debt for administrative offset.  Rather, DOJ is to
     determine if, and when, such debt is referred for offset. 

  -- about $525 million of delinquent nontax debt owed to HUD, much
     of which will be scheduled for sale, is not being required to be
     referred for administrative offset at this time. 

In addition to these categories of unreferred debt, about $7 billion
of outstanding nontax debt over 180 days delinquent remains.  Most of
this debt involves circumstances that may delay or preclude offset. 

For example, the vast majority of the Department of Education's
approximate $3.1 billion of unreferred nontax delinquent debt
consists primarily of debts related to student loans, most of which
were being serviced by state or private guaranty agencies.  According
to Education officials, although delinquent debt serviced by guaranty
agencies is subject to referral for administrative offset, many
referrals have not yet been made because the required due process for
the debtors has not been completed. 

Another example involves delinquent debts related to the Department
of Agriculture's (USDA) state-administered food stamp program and
farm loans.  According to USDA officials, the food stamp program's
delinquent debts, which totaled about $775 million, must be further
reviewed by the states to determine whether these debts are in
repayment status or whether the debtors have been afforded due
process.  Also, according to USDA officials, statutory servicing
rights normally require that the farm loan debtors be offered workout
alternatives prior to collection by offset.  As such, this debt,
which totaled about $420 million, will not be made available for
offset until this statutory process has been completed. 

Finally, according to a DOD official, DOD delinquent debts totaling
about $2 billion are primarily in protest or dispute.  Accordingly,
these debts have not yet been referred to Treasury for offset. 


--------------------
\4 These delinquencies comprise over 90 percent of the debt over 180
days delinquent reported for the entire federal government. 

\5 Forbearance action taken by a creditor, generally, extends the
time for payment of a debt or postpones, for a time, the enforcement
of legal action on the debt. 


   FEW PAYMENTS BROUGHT INTO
   ADMINISTRATIVE OFFSET PROGRAM
---------------------------------------------------------- Chapter 0:3

While referring all legally enforceable delinquent nontax debts for
offset is an essential element of an effective administrative offset
program, the program's objectives cannot be achieved in the absence
of another equally essential element--payments that can be offset. 
As discussed later, systems development problems have hampered
Treasury's ability to attempt to bring additional payments into its
administrative offset program. 

Currently, payments that are available for administrative offset are
limited to (1) vendor payments disbursed by Treasury and (2)
retirement payments made by the Office of Personnel Management (OPM). 
These types of payments have been in the administrative offset
program since 1996.  Further, they comprised about 5 percent of the
total number of disbursements made, and about 21 percent of the total
dollars paid, by Treasury disbursing offices during fiscal year 1997. 

In addition, although almost all of the vendor payments disbursed by
Treasury are currently available for administrative offset, many of
these payments cannot be matched against debtor information in
Treasury's delinquent debtor database because the vendor records do
not contain Taxpayer Identification Numbers (TIN).  According to
Treasury, during March 1998, about one-third of the payment requests
submitted by the agencies for payment by Treasury did not include
TINs. 

Further, Treasury does not yet know the total number of federal
payments that may be available for administrative offset.  In
addition to federal payments made by Treasury, more than 50
Non-Treasury Disbursing Offices (NTDO) make federal payments. 
However, Treasury has not yet identified the total volume of NTDO
payments, which include those made by DOD, the U.S.  Postal Service
(USPS), and numerous other federal agencies.  Moreover, Treasury has
not yet fully determined the extent to which payments will be exempt
from administrative offset.  Currently, Treasury has a request
pending from the Pension Benefit Guaranty Corporation for
discretionary exemption for a number of payment types, including
those related to premium refunds to pension plans.  In the future,
other agencies may identify payments exempt by statute or request
means-tested or discretionary exemption of payments.\6

To date, Treasury has primarily relied on the agencies to identify
potentially exempt payments.  For example, VA informed Treasury that
certain payments were exempted based on Section 5301(a) of Title 38,
and Treasury confirmed the exemption.  In addition, the Social
Security Administration (SSA) and USDA requested and received
exemptions for Supplemental Security Income and certain Food and
Consumer Services payments, respectively, based on DCIA's requirement
that the Treasury Secretary exempt payments under means-tested
programs.  At this stage, Treasury does not know the total effect on
the administrative offset program of payments that will be excluded
from the program in accordance with DCIA, or other statutory
provisions, and on the basis of requests for exclusions by heads of
agencies. 

To facilitate implementation of payments into the administrative
offset program, Treasury is developing several regulations applicable
to payment issues.  Some regulations have been published as Interim
Rules (for example, those relating to federal salary offset), while
others are currently being drafted or are with another agency for
comment.  For example, the rule for offset of federal benefit
payments has been forwarded to SSA for consultation.  Retirement and
Survivors Benefits and Disability Insurance Benefits under the Social
Security Program accounted for about 61 percent of the number of
payments made by Treasury Disbursing Offices in fiscal year 1997.\7
According to Treasury's most recent DCIA Implementation Plan, it does
not intend to publish a final rule for offsetting federal benefit
payments, including Social Security payments, until October 1998.  In
addition, according to Treasury and SSA officials, even if the final
rule were published, SSA will not be ready to make required systems
changes until 1999 because of demands on its staff related to the
Year 2000 computing crisis.\8


--------------------
\6 DCIA excludes payments certified by the Department of Education
under Title IV of the Higher Education Act of 1965 and payments made
under United States tariff laws.  In addition, DCIA requires
exemptions for means-tested programs and allows other discretionary
exemptions when the head of the agency makes the request to the
Treasury Secretary, and the Secretary approves the request. 

\7 DCIA provides that, except for $9,000 a debtor may receive within
a 12-month period, all payments due to an individual under the Social
Security Act shall be subject to offset. 

\8 For the past several decades, information systems have typically
used two digits to represent the year, such as "98" for 1998, in
order to conserve electronic data storage and reduce operating costs. 
In this format, however, 2000 is indistinguishable from 1900 because
both are represented as "00." As a result, if not modified, computer
systems or applications that use dates or perform date- or
time-sensitive calculations may generate incorrect results beyond
1999. 


   OFFSET PROGRAMS NOT YET
   CONSOLIDATED
---------------------------------------------------------- Chapter 0:4

One of the DCIA's goals is to minimize debt collection costs by
consolidating related functions and activities.  To date, however,
Treasury has not yet consolidated the administrative, tax refund, and
federal salary offset programs. 

The Federal Tax Refund Offset Program (TROP) has been a cooperative
effort of IRS and the federal program agencies.  Legislation,
beginning with the Deficit Reduction Act of 1984 (Public Law 98-369),
authorized the use of tax refund offsets to recover delinquent
federal nontax debts.  The Emergency Unemployment Compensation Act of
1991 (Public Law 102-164) provided permanent authority to use tax
refund offsets.  Since TROP's inception in 1986, approximately $8.5
billion of delinquent debt has been recovered through the program. 

The Debt Collection Act of 1982 authorized, but did not require,
federal salary offsets and administrative offsets to liquidate
delinquent nontax debt owed to federal agencies.  The DCIA requires
agencies to participate in an annual matching of records to identify
federal employees delinquent on federal debts. 

Since 1987, the federal employee salary offset program has been a
cooperative effort between the federal agencies and DOD's Defense
Manpower Data Center (DMDC).  Under the program, DMDC performs the
computer matching necessary to identify federal employees who are
delinquent on their debts using delinquent nontax debtor files
provided by the various creditor agencies.  DMDC matches these files
against active and retired civilian employment files provided by OPM,
as well as against DOD's active, retired, and reserve military
personnel files.  Under a similar program, creditor agencies submit
delinquent nontax debtor files to USPS for matching against USPS
personnel files.  According to Treasury data, during fiscal year
1997, agencies collected over $42 million through these programs. 

Treasury's lack of progress in consolidating the offset programs is
primarily the result of its problems with the development of a new
administrative offset system.  I would now like to highlight these
problems. 


   SYSTEMS DEVELOPMENT PROBLEMS
   MUST BE EFFECTIVELY ADDRESSED
---------------------------------------------------------- Chapter 0:5

Treasury does not have a system that can perform all the
administrative offset functions envisioned as a result of DCIA.  This
can be directly attributed to problems Treasury has experienced in
managing the development of such a system.  Although Treasury has
recently taken several actions to address systems development issues,
it will be some time before enough information is available to
accurately assess the effectiveness of those actions.  In addition,
we have identified several areas where additional actions must be
taken immediately to reduce the risk of further system development
problems. 

Prior to the passage of DCIA in April 1996, Treasury in conjunction
with the Federal Reserve Bank of San Francisco (FRBSF), developed a
pilot system to demonstrate the feasibility of conducting
administrative offsets on a routine basis.  The system, referred to
as the Interim Treasury Offset Program (ITOP), is currently
operational and is used to offset vendor payments disbursed by
Treasury Disbursing Offices and OPM retirement payments.  However,
Treasury never intended the system, as it was originally developed,
to perform all of the administrative offset functions envisioned as a
result of DCIA. 

In September 1996, Treasury awarded a contract for the development
and implementation of a new and expanded administrative offset
system, known as the Grand Treasury Offset Program (GTOP).  This
system was to be used to consolidate the administrative, tax refund,
and federal salary offset programs, and was to include all eligible
delinquent federal nontax debt and federal payments.  In addition,
Treasury intended the system to be capable of incorporating state
child support debts and other state debts, which DCIA authorizes to
be recovered through federal payment offsets. 

GTOP was scheduled to be implemented in January 1998.  However,
because of systems development problems, it has not been placed into
operation.  Currently, Treasury is focusing its efforts on enhancing
ITOP to handle all eligible debts and payments for the administrative
offset program, as well as the consolidation of the administrative,
tax refund, and federal salary offset programs. 


      GTOP'S DEVELOPMENT
-------------------------------------------------------- Chapter 0:5.1

Treasury has concluded that it currently cannot use GTOP for the
administrative offset program primarily because Treasury did not
apply a disciplined system development process for that system. 
Treasury's policies, including its systems life cycle methodology,
and our guidance\9 call for the completion of a concept of operations
and functional requirements in the development of a major system. 

The GTOP development effort was undertaken without (1) completing an
overall concept of operations, which includes the high-level
information flows for the system and (2) documenting the functional
requirements that the system must meet.  Treasury's policies call for
such generally accepted steps to be completed before a system is
developed. 

We are unsure why the previous management team responsible for GTOP's
oversight allowed GTOP to be developed before these critical steps
were completed.  However, according to Treasury, the effect was that
the completeness and usefulness of the software delivered by the GTOP
contractor in October 1997 cannot be reasonably measured and the
system cannot be tested to determine if it would meet Treasury's
needs.  Thus, Treasury has not placed the system into operation. 


--------------------
\9 Strategic Information Planning:  Framework for Designing and
Developing System Architectures (GAO/IMTEC-92-51, June 1992). 


      CURRENT TREASURY EFFORTS
-------------------------------------------------------- Chapter 0:5.2

In December 1997, Treasury established a new management team for DCIA
implementation, which includes managing a new systems development
effort for the administrative offset program.  The new management
team has decided to halt all work on GTOP and enhance ITOP.  Treasury
recognizes that one of the disadvantages of this approach is that it
may result in little or no return on the approximately $5 million it
has paid to the contractor for development of the system software
that has been delivered.  However, it also believes that modifying
ITOP is the most practical way to consolidate the administrative and
tax refund offset programs for the 1998 tax year and to begin adding
federal salary and benefit payment streams in the administrative
offset program during calendar year 1998 or early 1999. 

According to Treasury officials, the enhancement of ITOP will comply
with Treasury guidance for systems development efforts.  Based on our
review of documentation recently provided to us, there are
indications that some of the critical system development requirements
are being addressed.  For example, Treasury has identified the
information flows associated with several payment types and has begun
to develop the corresponding functional requirements for those
payment types.  It has also developed a DCIA Implementation Plan that
includes many of the steps necessary to enhance ITOP and projected
completion dates for each step.  This plan should enable Treasury
management and others to promptly and objectively measure whether the
ITOP enhancement is on schedule. 

In addition, Treasury's Financial Management Service's Debt
Management Services is now routinely briefing the Under Secretary for
Domestic Finance and other top Treasury officials on progress
relating to the administrative offset program with the intention that
such high-level oversight will facilitate keeping the implementation
of DCIA on schedule and help to identify any significant problems
early so that corrective actions can be taken promptly.  While these
efforts are positive steps, we have identified several areas where
additional actions are needed. 


      ACTIONS NEEDED TO REDUCE
      SIGNIFICANT RISKS FURTHER
-------------------------------------------------------- Chapter 0:5.3

In reviewing Treasury's plans and actions to date, we have identified
several areas where additional actions must be taken immediately to
adequately reduce the risk of costly modifications and further delays
in the effective implementation of the administrative offset
provisions of DCIA.  First, a documented overall concept of
operations has not yet been developed.  A concept of operations
includes high-level descriptions of information systems, their
interrelationships, and information flows.  It also describes the
operations that must be performed, who must perform them, and where
and how the operations will be carried out. 

According to Treasury officials, they understand the importance of
such a document, but until recently, have not placed a high priority
of completing it because they believe the individuals involved with
the project have an overall view of how the offset processes should
work.  After we discussed this issue with Treasury officials, they
have agreed to increase the priority associated with this effort and
have projected completion of an overall concept of operations in July
1998. 

It is important for Treasury to place a high priority on ensuring
that this effort is completed on schedule because it is the primary
building block on which the entire systems development effort is
based.  Moreover, if personnel changes occur prior to completion of
the project, it would be difficult to effectively complete the
project promptly without such documentation. 

Second, overall functional requirements for the administrative offset
system are not yet available.  Functional requirements, which
describe a system's functional inputs, processes, and outputs, are
derived from the concept of operations and serve as the rationale for
a system's detailed requirements.  They are generally expressed in
user terminology and are the foundation that guides the development
process. 

Although Treasury has begun to develop and document functional
requirements for several key processes, such as federal salary and
tax refund offsets, it has not developed overall functional
requirements for the administrative offset system.  While the
development of functional requirements for each key process is a
necessary step in the incremental systems development approach being
used, it does not replace the need for overall functional
requirements.  Until the functional requirements for the overall
system are defined, the requirements for a given process may not be
adequate.  We discussed this issue with Treasury officials, and they
have agreed to increase the priority associated with this effort and
have projected completion of overall functional requirements by the
end of August 1998. 

Treasury is in the process of preparing functional requirements for
certain key processes.  Treasury personnel stated that for each key
process, the functional requirements would be clearly defined and
that a requirements traceability matrix would be developed so that a
test plan could be prepared. 

Treasury must place a high priority on (1) completing the overall
functional requirements, (2) clearly defining the specific functional
requirements as they are prepared for each key process, and (3)
ensuring that the key process functional requirements are consistent
with the applicable overall functional requirements.  This is
important because many system developers and program managers have
identified ill-defined or incomplete requirements as one of the root
causes of system failures.  In addition, as previously stated, the
lack of documented functional requirements is a major reason GTOP was
not able to be tested. 

Third, Treasury's DCIA Implementation Plan does not yet include all
facets of the administrative offset program.  The most recent version
of the plan, dated May 1, 1998, includes the tasks and projected
milestone dates involved with several of the key processes.  However,
the plan does not include information on handling certain payment
types, such as payments made by NTDOs (other than USPS and DOD),
miscellaneous payments, and salary payments made by payroll offices
other than USDA's National Finance Center (NFC), for which Treasury
makes the disbursement.\10 According to Treasury officials, because
of the priorities they have put on merging the administrative and tax
refund offset programs, processing salary payments from NFC, and
processing Social Security Benefit payments, they have not as yet
devoted time to fully developing an overall DCIA Implementation Plan. 

We recognize that Treasury's current focus is largely directed toward
consolidating existing payment offset programs to improve efficiency
and attempt to minimize the costs of debt collection, which is an
important objective of DCIA.  In addition, the degree of specificity
associated with a particular facet of the program may vary depending
on the priority that Treasury assigns to it.  However, a complete
DCIA Implementation Plan is critical to the success of Treasury's
systems development efforts.  Such a plan is needed for Treasury
management and others to effectively evaluate (1) how the development
and implementation of the overall system is progressing and (2) when
corrective action is needed to ensure that major slippages do not
occur.  Treasury officials have agreed to more fully develop the DCIA
Implementation Plan in the near future. 

Fourth, Treasury has not yet completed a risk management plan.  A
risk management plan is critical for the successful implementation of
a systems development project because it provides management and
others the ability to focus their efforts on the areas that pose the
greatest risks.  It also outlines the actions that Treasury will take
to mitigate the risks identified.  Treasury officials stated that
although they have not developed such a plan for the overall system,
they have developed a plan for the software development efforts.  A
risk management plan takes on even more importance when tight time
frames are involved in a given effort because it outlines the actions
that will be taken should the project miss key delivery dates. 
Treasury officials agreed that an overall risk management plan is
needed and has projected completion in July 1998. 

Finally, Treasury has not yet evaluated the adequacy of the hardware
and software platforms.  Treasury has decided to use the hardware and
software platforms\11 that were selected for GTOP until it can
conduct tests to determine if these platforms are adequate.  Treasury
officials acknowledge that this decision increased project risk
because development efforts were being based on these platforms prior
to knowing whether they were adequate for the requirements of the
enhanced ITOP system.  However, they believe the risk is justified
because (1) the hardware has already been acquired and an evaluation
of the adequacy of the platforms should be completed by June 30,
1998, and (2) some work had been performed to evaluate the adequacy
of the platforms before they were selected for GTOP.  Management must
ensure that the evaluation of the hardware and software platforms is
completed by the estimated completion date of June 30, 1998. 
Otherwise, Treasury runs a risk that the system it is developing
cannot become operational without costly modification. 

Treasury's commitment to address the systems development issues we
have raised is encouraging.  But it will be important for Treasury's
top management to ensure that the planned corrective actions are
effectively and expeditiously completed prior to making any
significant investment in the development of an administrative offset
system.  Otherwise, Treasury is significantly exposed to the risk of
costly systems modifications and additional delay in developing a
system to implement the administrative offset provision of DCIA. 


--------------------
\10 During fiscal year 1997, NFC processed about 35 percent of the
payroll transactions processed by the 93 payroll offices that used
Treasury Disbursing Offices for making salary payments. 

\11 The hardware platform is the physical computer, which consists of
components such as the central processor, memory, and disk storage. 
The software platform refers to the operating system software and
other system support software.  Application software that performs a
specific task is designed to run on a specific combination of
hardware and software platforms.  Consequently, applications for one
platform generally cannot run on others. 


-------------------------------------------------------- Chapter 0:5.4

Mr.  Chairman, this concludes my statement.  I would be happy to
respond to any questions that you or other members of the
Subcommittee may have at this time. 

*** End of document. ***