[Final Audit Report on Debt Management, Office of Surface Mining Reclamation and Enforcement and Office of the Solicitor]
[From the U.S. Government Printing Office, www.gpo.gov]
Report No. 96-I-639
Title: Final Audit Report on Debt Management, Office of Surface
Mining Reclamation and Enforcement and Office of the Solicitor
Date: March 29, 1996
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United States Department of the Interior
OFFICE OF THE INSPECTOR GENERAL
Washington, D.C. 20240
MEMORANDUM
TO: The Secretary
FROM: Wilma A. Lewis
Inspector General
SUBJECT SUMMARY: Final Audit Report for Your Information -
"Debt Management Office of Surface Mining
Reclamation and Enforcement and Office of the
Solicitor" (No. 96-I-639)
Attached for your information is a copy of the subject final audit report.
We found that the Office of Surface Mining Reclamation and Enforcement and the
Office of the Solicitor have improved their debt collection programs since our last
audit in 1990. Although we found no material weaknesses that resulted in significant
amounts of unprocessed collectible debt, we identified actions needed to improve the
efficiency and effectiveness of these programs and to ensure full compliance with
Federal debt collection requirements.
Since 1987, Surface Mining significantly reduced the staffing level in its Division of
Debt Management by about 75 percent in response to a decreasing work load.
However, based on our analysis of the Division's fiscal year 1994 work load, we
concluded that further staff reductions were warranted, which could result in savings
of about $820,000 annually. Surface Mining officials indicated that they were
committed to making further staff reductions as the debt work load decreased. We
also found that further action to enforce collection of delinquent accounts is needed,
even though only a relatively small amount of Surface Mining's reclamation fee
receivables became delinquent (in fiscal year 1994, for example, about 98 percent of
all fees were paid in a timely manner). Specifically, Surface Mining needed to
ensure that bureau, Departmental, and Federal regulations pertaining to the debt
collection function were implemented comprehensively.
Although the Solicitor's Office has made significant progress in reducing the backlog
of debt cases, we found that debt processing delays may be exacerbated by recent
staff reductions and additional case work assignments. At the two Solicitor's offices
reviewed, $8.0 million of debt had not been processed in a timely manner, consisting
of $6.3 million that should have been written off and $1.7 million that required
further processing to determine whether the debt was collectible. An additional $2.5
million of uncollectible debt (consisting mainly of cases closed by the Solicitor) had
not been deleted from Surface Mining's accounting records, and $1.6 million of
uncollectible charges had accrued on bankruptcy debt. However, we did not find
significant amounts of unprocessed collectible debt.
Surface Mining and the Solicitor agreed to ensure the timely processing of debt and
to facilitate the termination of uncollectible debt. Also, Surface Mining agreed to
implement the other recommended improvements to its debt collection activities,
including: (1) maintaining the Division of Debt Management staff at the level needed
to process delinquent debt efficiently; (2) implementing administrative controls to
ensure that required debt collection functions are performed in compliance with
Federal regulations; and (3) reviewing the status of debt that has been referred to
the Solicitor to ensure that receivables are reported accurately and accounted for
fully.
If you have any questions concerning this matter, please contact me or Ms. Judy
Harrison, Assistant Inspector General for Audits, at (202) 208-5745.
Attachment
E-IN-OSM-024-94
United States Department of the Interior
OFFICE OF THE INSPECTOR GENERAL
Washington, D.C. 20240
Memorandum
To: Assistant Secretary for Land and Minerals Management Solicitor
Subject: Final Audit Report on Debt Management, Office of Surface Mining
Reclamation and Enforcement and Office of the Solicitor (No. 96-I-639)
This report presents the results of our audit of debt management activities in the
Office of Surface Mining Reclamation and Enforcement and the Office of the
Solicitor. The objective of the audit was to determine whether Surface Mining and
the Solicitor conducted their debt collection programs in an efficient and effective
manner.
We found that Surface Mining and the Solicitor's Office have improved their debt
collection programs since our last audit in 1990. Further, we found no material
weaknesses that resulted in significant amounts of unprocessed collectible debt.
However, we identified further actions that are needed to improve the efficiency and
effectiveness of these programs and to ensure full compliance with Federal debt
collection requirements.
Since 1987, Surface Mining significantly reduced the staffing level in its Division of
Debt Management by about 75 percent in response to a decreasing work load.
However, based on our analysis of the Division's fiscal year 1994 work load, we
concluded that further staff reductions were warranted, which could result in savings
of about $820,000 annually. Surface Mining officials indicated that they were
committed to making further staff reductions as the debt work load decreased and
that these reductions would occur after staff reduction plans are developed, approved
by the Department, and presented to the local union. Prior to the completion of our
audit, Surface Mining reduced the Division's staff from 21 to 17 employees. Since
completion of our audit, Surface Mining had a reduction in force which further
decreased the Division's staff to seven employees, the staffing level suggested in our
report. This action will result in substantial cost savings in the debt management
program.
We also found that further action to enforce collection of delinquent accounts is
needed, even though only a relatively small amount of Surface Mining's reclamation
fee receivables became delinquent (in fiscal year 1994, for example, about 98 percent
of all fees were paid in a timely manner). Specifically, Surface Mining needed to
ensure that bureau, Departmental, and Federal regulations pertaining to the debt
collection function were implemented comprehensively.
Surface Mining's fiscal year 1994 financial statements presented fairly the net amount
of reclamation fee and civil penalty receivables because Surface Mining used an
allowance to offset doubtful accounts. However, we found that gross accounts
receivable were overstated because Surface Mining had not written off uncollectible
debt, improperly reinstated previously terminated debt, and overstated bankruptcy
debt, contrary to Department of the Treasury guidance.
Although the Solicitor's offices had made significant progress in reducing the backlog
of debt cases, we found debt processing delays that may be exacerbated by recent
staff reductions and additional case work assignments. At the two Solicitor's offices
reviewed, $8.0 million of debt had not been processed in a timely manner,
consisting of $6.3 million that should have been written off and $1.7 million that
required further processing to determine whether the debt was collectible. An
additional $2.5 million of uncollectible debt (consisting mainly of cases closed by the
Solicitor) had not been deleted from Surface Mining's accounting records, and
$1.6 million of uncollectible charges had accrued on bankruptcy debt. However, we
did not find significant amounts of unprocessed collectible debt.
We recommended that Surface Mining and the Solicitor enter into an agreement to
ensure the timely processing of debt and to facilitate the termination of uncollectible
debt. We also recommended that Surface Mining: (1) maintain the Division of
Debt Management staff at the level needed to process delinquent debt efficiently;
(2) implement administrative controls to ensure that required debt collection
functions are performed in compliance with Federal regulations; and (3) review the
status of debt that has been referred to the Solicitor to ensure that receivables are
reported accurately and accounted for fully.
Based on the Solicitor's March 25, 1996, and Surface Mining's March 28, 1996,
responses to the draft report (see Appendices 4 and 5, respectively), we consider one
recommendation resolved and implemented and the remaining eight
recommendations resolved but not implemented. The unimplemented
recommendations will be referred to the Assistant Secretary for Policy, Management
and Budget for tracking of implementation, and no further response to the Office
of Inspector General is required (see Appendix 6),
The legislation, as amended, creating the Office of Inspector General requires
semiannual reporting to the Congress on all audit reports issued, the monetary
impact of audit findings (Appendix 1), actions taken to implement audit recommendations, and
identification of each significant recommendation on which corrective action has not been taken.
We appreciate the assistance of officials from the Office of the Solicitor and the
Office of Surface Mining Reclamation and Enforcement in the conduct of our audit.
cc: Director, Office of Surface Mining Reclamation and Enforcement
CONTENTS
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OBJECTIVE AND SCOPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PRIOR AUDIT COVERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FINDINGS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . .
A. DEBT COLLECTION, OFFICE OF SURFACE
MINING RECLAMATION AND ENFORCEMENT . . . . . . .
B. DEBT COLLECTION, OFFICE OF THE SOLICITOR . . . . . . .
C. ACCOUNTING RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . .
APPENDICES
1. CLASSIFICATION OF MONETARY AMOUNTS . . . . . . . . . . .
2. SAMPLING RESULTS OF SOLICITOR'S OFFICES
IN KNOXVILLE AND PITTSBURGH . . . . . . . . . . . . . . . . .
3. WORK LOAD ANALYSIS OF THE DIVISION OF DEBT
MANAGEMENT BASED ON FISCAL YEAR 1994
ACTIVITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4. OFFICE OF SURFACE MINING RECLAMATION
AND ENFORCEMENT RESPONSE.. . . . . . . . . . . . . . . . . .
5. OFFICE OF THE SOLICITOR RESPONSE . . . . . . . . . . . . . . .
6. STATUS OF AUDIT REPORT RECOMMENDATIONS . . . . . .
1
1
2
3
4
4
9
13
18
19
23
24
26
30
INTRODUCTION
BACKGROUND
The Surface Mining Control and Reclamation Act of 1977 (Public Law 95-87)
established the Office of Surface Mining Reclamation and Enforcement and assigned
Surface Mining responsibility for administering programs to control the surface
effects of coal mining operations and to reclaim abandoned mine lands. Under the
Act, Surface Mining is authorized to collect reclamation fees, which are deposited
into the Abandoned Mine Reclamation Fund and used to reclaim and restore
property that was adversely affected by coal mining conducted prior to passage of the
Act. These fees, which are based on the amount of coal produced, are paid
quarterly by coal mine operators or in response to audits that have identified
underreported coal production (referred to as "audit fees" in this report). The Act
also authorizes the assessment of civil penalties against mine operators or permitters
who violate conditions of their mining permits or provisions of the Act.
Several organizations within Surface Mining are responsible for billing and collecting
reclamation fees and civil penalties. The Assistant Director, Finance and
Accounting, has overall responsibility for the management and administration of
collection activities. Under Finance and Accounting, the Division of Financial
Management maintains accounting records, issues financial reports, bills operators
for reclamation fees, and records collections; and the Division of Compliance
Management conducts audits of mine operators to ensure that all reclamation fees
are paid. At the Knoxville, Tennessee, field office and the Western Service Center
in Denver, Colorado, the Civil Penalty Section issues bills for civil penalties. Debt
of more than $200 that has not been paid after demand letters have been issued is
assigned to Finance and Accounting's Division of Debt Management for processing.
The Office of the Solicitor is responsible for collecting delinquent reclamation fees
and civil penalties, writing off uncollectible debt, compromising debt (that is,
accepting less than the full amount of outstanding debt in full satisfaction of the
amount owed), and initiating judicial action to enforce collections. While Surface
Mining may refer any amount of debt to the Solicitor for litigation, it is required by
Departmental policy to refer all uncollected delinquent debt of more than $25,000
to the Solicitor.
In fiscal year 1994, Surface Mining collected $242.6 million of reclamation fees and
$523,000 of civil penalties. As of September 30, 1994, Surface Mining reported gross
reclamation fee and civil penalty receivables of $83.2 million (of which $71.9 million
was delinquent) and a provision for uncollectible debt (an "allowance for doubtful
accounts") of $68.5 million.
1
OBJECTIVE AND SCOPE
The initial objective of the audit was to determine whether Surface Mining
conducted its debt collection program in an efficient and effective manner. We
expanded our objective to include debt collection activities performed by the Office
of the Solicitor because over 75 percent of all delinquent debt as of September 30,
1994, was reported as having been referred to the Solicitor. The scope of our audit
included debt collection activities that occurred during fiscal years 1993 and 1994 but
did not include a review of debt cases that the Solicitor had closed during this
period. We also analyzed fiscal year 1995 data on Solicitor and Surface Mining
staffing levels because both offices had reduced staff assigned to the debt collection
function subsequent to the period of our review.
During our audit, we also reviewed laws, regulations, and guidance pertaining to the
debt collection function and program and financial information pertaining to Surface
Mining's debt collection operations. We randomly selected and reviewed delinquent
reclamation fee and civil penalty receivables totaling $699,000 (41 cases) that had
been referred to the Division of Debt Management during fiscal year 1994.1 Using
statistical sampling techniques, we also selected for review 145 cases, totaling
$16.2 million of debt, that were reported to have been referred to the Solicitor's
Knoxville and Pittsburgh field offices (see Appendix 2). According to Surface
Mining reports, these two offices had $59.3 million of the $66.7 million of debt that
had been referred to the Solicitor as of September 30, 1994.
Audit fieldwork was conducted at Surface Mining and Solicitor headquarters offices
in Washington, D.C. and at Surface Mining and Solicitor field offices in Knoxville
and in Pittsburgh, Pennsylvania. We also interviewed Surface Mining officials in
Denver and in Lexington, Kentucky. We contacted officials from the Department's
Office of Policy, Management and Budget; the Department of Justice; and the
Department of the Treasury. We also interviewed Surface Mining's collection
contractor.
This audit was made, as applicable, in accordance with the "Government Auditing
Standards," issued by the Comptroller General of the United States. Accordingly,
we included such tests of records and other auditing procedures that were considered
necessary under the circumstances.
lThese cases were selected from 201 fee and 58 audit-fee cases (for $1.6 million and $2.3 million,
respectively) that had been assigned to Debt Management in fiscal year 1994. We were unable to
validate the number or dollar value of civil penalty cases assigned to Debt Management in fiscal year
1994 because Surface Mining's automated system did not produce reports showing civil penalty
referrals to Debt Management.
2
As part of our review, we evaluated the system of internal controls related to debt
management. We found that Surface Mining had not implemented adequate
controls to ensure that all required debt collection functions were performed and
that accounts receivable were reported accurately. Our recommendations, if
implemented, should improve internal controls in these areas. We also reviewed the
Department of the Interior's Annual Statement and Report, required under the
Federal Managers' Financial Integrity Act, for fiscal years 1993 and 1994 and
determined that no material weaknesses directly related to the objective and scope
of our audit were reported.
PRIOR AUDIT COVERAGE
The Office of Inspector General has issued one audit report in the past 5 years on
Surface Mining's debt collection activity. The report, "Fee Compliance Program,
Office of Surface Mining Reclamation and Enforcement" (No. 90-99), issued on
September 27, 1990, stated that timely action was not taken to collect debt owed by
87 of 100 companies reviewed. Specifically, we found that Surface Mining had not
initiated collection efforts within established time frames or monitored collection
agencies to ensure that timely collection actions were taken. We also reported that
the Solicitor had not taken timely action to process debt cases. The report
concluded that the "lack of timely collection actions substantially reduced the
Government's chances for collecting the $4.5 million in delinquent fees" reviewed.
In its response to the report, Surface Mining stated that it would establish a tracking
system and that it had realigned duties of the Collection Branch to improve case
processing and monitoring. The Solicitor agreed to review every active case on a
routine basis "to insure that appropriate action is being taken."
In our current audit, we found that Surface Mining had developed a tracking system
and established a 30-day performance period for processing debt. However, the
Division of Debt Management often exceeded this 30-day limit and did not ensure
that its collection contractor complied with the contract provision for 180-day debt
processing. According to a Division official, these delays did not adversely affect
collections.
Our current audit also found that the Solicitor had not fully implemented the debt
processing procedures that it had agreed to institute in response to our prior audit
report. However, we determined that the Solicitor has made significant progress in
writing off uncollectible debt.
FINDINGS AND RECOMMENDATIONS
A. DEBT COLLECTION, OFFICE OF SURFACE MINING
RECLAMATION AND ENFORCEMENT
We found that most reclamation fees were paid before the accounts became
delinquent. For example, of the $242.6 million of reclamation fees paid in fiscal year
1994, fees of about $238.1 million were paid before the accounts were referred to the
Division of Debt Management for collection enforcement. While the Office of
Surface Mining Reclamation and Enforcement performed most of the debt collection
procedures required by Federal, Departmental, and bureau regulations, we identified
areas in which actions could be taken to improve the cost effectiveness of operations
and ensure compliance with applicable Office of Management and Budget guidance
on debt collection. We found that debt collection activities were not conducted in
a cost-effective manner because Surface Mining had not made sufficient reductions
in the Division's staffing levels commensurate with a decreased work load, ordered
unneeded asset information reports on debtors, and had not fully implemented
Office of Management and Budget debt collection guidance. Based on our analysis
of the Division's 1994 work load, we estimated that appropriate staffing reductions
could save about $820,000 annually. Also, Surface Mining could better protect the
economic interest of the Government if regulations on debt collection were enforced
more comprehensively.
Cost Effectiveness of Debt Processing
According to Part 344 of the Departmental Manual, bureaus are required "to ensure
that the debt collection function is being carried out as accurately, efficiently, and
economically as possible." We believe that Surface Mining could perform the debt
collection function more cost effectively by reducing the Division of Debt
Management's staff and by implementing greater controls over the ordering of
reports on debtors' assets.
Staffing. Surface Mining significantly reduced the staffing level in the
Division of Debt Management as the number of debt cases assigned to the Division
decreased. In 1987, for example, the Division was staffed with 42 Federal and 42
contractor employees, who processed a backlog of debt cases in addition to currently
assigned cases. In 1994, the Division had reduced its staffing level to about 21 full-
time equivalent Federal employees. According to Surface Mining officials, this
reduction was the result of attrition, early retirements, employee transfers, and
termination of contractor support services.
We analyzed the Division's work load during fiscal year 1994 to determine whether
the staffing level was appropriate for processing debt cases assigned to the Division
in that year. For our analysis, we obtained information from the Division on the
tasks involved in collecting debt and on the amount of work needed to perform each
task. We also evaluated selected reclamation fee and civil penalty cases that were
assigned to the Division in fiscal year 1994 to determine the amount of time and
effort typically spent on each case. In computing work load requirements, we
estimated the amount of time spent on each debt case and on related administrative
support activities, and we factored in additional time needed to comply fully with
Office of Management and Budget debt processing requirements.
Based on our analysis, we concluded that the Division, which had a staffing level of
21.25 full-time equivalent positions in fiscal year 1994, could have processed the
assigned debt cases and performed the related administrative tasks with about 8 full-
time equivalent employees in fiscal year 1994 and 7 employees in fiscal year 1995
(see Appendix 3). Had staffing been maintained at this reduced level, we estimated
that Surface Mining could have saved about $820,000 in Division staff expenses in
fiscal year 1994, exclusive of any costs associated with staff reductions.
During the audit, Surface Mining officials indicated that they were committed to
making further reductions as the debt collection work load decreased and that these
reductions would occur after staff reduction plans were developed, approved by the
Department, and presented to the local union. Prior to the completion of our audit,
Surface Mining reduced the Division's staffing level from 21 to 17 employees and
implemented a reduction in force after the completion of our audit, which decreased
the Division's staffing level to 7 employees, the level suggested in our report. These
actions will result in substantial cost savings in the debt management program.
Net Worth Determinations. The Division obtained information on debtors'
assets by ordering net worth determination reports, which ranged in cost between
$273 and $305 in fiscal years 1993 and 1994. In fiscal years 1993 and 1994, Division
collection specialists ordered 260 net worth reports, at a cost of about $74,000.
According to a Surface Mining official, these reports are used to "decide whether to
terminate delinquent debts, refer debt to the Solicitor's Office, or whether to accept
installment payment plans from debtors." The Division established a threshold for
obtaining these reports: $3,650 for reclamation fees and $7,000 for civil penalties.
The Division also limited the number of reports that could be ordered, basing the
number on whether the debtor was a corporate or a noncorporate entity.
Our review of 39 ($11,200) of the 260 reports identified 18 reports ($4,600) that were
ordered unnecessarily. Specifically, collection specialists did not cancel orders for
reports when the debt was paid prior to the contractor's performing a net worth
review; ordered an excess number of reports on the same debtor; and ordered
reports on debtors owing less than the threshold amounts.
5
We found that there were insufficient supervisory controls to ensure that net worth
reports were obtained only when appropriate. According to a Division official, no
supervisory approval was needed to order reports, and there was no requirement that
specialists should cancel orders if the debt was paid before the contractor conducted
a financial review,
Implementation of Debt Collection Guidance
Federal guidance requires that certain actions be taken to manage debt and to
enforce collections. The Debt Collection Act of 1982, for example, requires agencies
to charge debtors interest and penalties and an administrative fee sufficient to
recover an agency's "costs of processing and handling delinquent claims." Office of
Management and Budget Circular A-129, "Policies for Federal Credit Programs and
Non-Tax Receivables," requires agencies to refer debtors to credit bureaus and to
report certain debtors to the Internal Revenue Service. According to Department
of the Treasury guidance, use of "collection tools," such as those required by Circular
A-129, "provides Federal agencies with a strong and effective tool to collect
delinquent [debt]."
Administrative Fees. We found that Surface Mining did not charge debtors
an administrative fee sufficient to recover the cost of processing delinquent debt, as
required by Federal and Departmental regulations. During fiscal year 1994, Surface
Mining assessed a $16 per month fee on each unit of reclamation fee debt and a $15
per month fee on each unit of civil penalty debt to recover the Division's
administrative costs. The administrative fee charged to each unit of reclamation debt
had been set in fiscal year 1991 and had not been updated since that time. Although
we estimated that a rate of $28 would have been required to recover the Division's
fiscal year 1994 operating costs (exclusive of space, utilities, and communications
costs), we concluded that charging such a rate would be inappropriate, considering
the overstaffing conditions in the Division. In our opinion, the administrative fee
should be recomputed once appropriate staffing reductions are made.
Credit Bureau Referral. Circular A-129 requires Federal agencies to report
debtors who owe more than $100 to credit bureaus. Although Surface Mining
reported reclamation fee and civil penalty debtors to a credit bureau during most of
fiscal years 1993 and 1994 (it discontinued referral of reclamation fee debt in March
1994), it did not report debtors identified by audit to the credit bureau and it did not
report debtors to all the credit bureaus listed in the Department of the Treasury's
"Credit Bureau Reporting Guide." According to a Financial Management official
who said that reporting debt to credit bureaus was a "top priority," Surface Mining
needs to program its computers to implement this requirement.
Treasury Reporting. Surface Mining did not fully comply with requirements
of Circular A- 129's Tax Refund Offset Program. Under the Program, agencies are
6
required to report all debt (more than $25 and from 90 days to 10 years delinquent)
to the Internal Revenue Service for repayment through an offset to a debtor's tax
refund. Surface Mining, however, reported only a portion of this debt (only the
principal amount of debt and only debt that had been assigned to the Solicitor's
Knoxville office). A Division official said that Surface Mining did not fully
participate in the Offset Program because the Program was labor intensive and
because Surface Mining did not have a consolidated data base with information
needed for cost-effective implementation.
According to Part 344 of the Departmental Manual, bureaus need to ensure that
"aggressive action [is taken] on a timely basis with effective follow-up to collect all
debts." Circular A-129 further requires Federal agencies to service and collect their
receivables "in an efficient and effective manner to protect the value of the Federal
Government's assets." We believe that by reducing costs (through staff reductions
and more prudent net worth report ordering), by ensuring that the administrative
cost of collecting delinquent debt is recovered, and by using available collection
enforcement tools (as described in Circular A-129), Surface Mining could better
achieve Departmental and Federal debt management objectives.
Recommendations
We recommend that the Director, Office of Surface Mining Reclamation and
Enforcement:
1. Ensure that the Division of Debt Management's staff is maintained at
the level needed to process current levels of delinquent debt efficiently.
2. Establish supervisory controls over the ordering and cancellation of net
worth determination reports.
3. Recalculate the administrative cost recovery rate after the Division's
staffing level has been reduced.
4. Develop administrative systems and procedures to implement, in a more
cost-effective manner, requirements of Office of Management and Budget Circular
A-129 for reporting delinquent debt to credit bureaus and to the Department of the
Treasury.
Office of Surface Mining Reclamation and Enforcement Response and
Office of Inspector General Reply
In its March 28, 1996, response (see Appendix 5) to the draft report, the Office of
Surface Mining Reclamation and Enforcement concurred with all of the
recommendations, stating that it had implemented corrective action on
7
Recommendation 1 and that it would "implement administrative controls to ensure
that debt collection functions are performed in compliance with Federal regulations"
and develop guidelines on net worth determination report ordering. Based on the
response, we consider Recommendation 1 resolved and implemented and
Recommendations 2, 3, and 4 resolved but not implemented (see Appendix 6).
B. DEBT COLLECTION, OFFICE OF THE SOLICITOR
Although the Office of the Solicitor has made significant progress in writing off
uncollectible debt, we found that additional action is needed to process the Solicitor's
backlog of debt cases for termination and, to a lesser extent, for further collection
effort. According to Department of the Treasury guidance, agencies are required
to process debt in a timely manner and to write off debt that is uncollectible.
However, because Solicitor staff members who formerly processed Surface Mining
debt have been reassigned or terminated, and Solicitor field offices that previously
worked solely on Surface Mining cases have been assigned additional work, the
remaining backlog of debt at the Solicitor's offices may not be processed in a timely
manner. We found that $8.0 million of $16.1 million of debt that was assigned to
two Solicitor's field offices as of September 30, 1994, had not been processed in a
timely manner.
Historically, a significant amount of debt that was referred to the Solicitor's field
offices by Surface Mining has been written off, and a relatively small amount of debt
has been collected. During fiscal years 1990 through 1994, $99.4 million of debt was
referred to the Solicitor's offices. Of this amount, $82.5 million was written off and
$7.4 million was collected by the Solicitor. The amount of debt assigned to the
Solicitor's offices decreased by $10.6 million (from $64.9 million to $54.3 million)
during this same time period. In fiscal years 1993 and 1994, 1,044 new debt cases
were referred to the Solicitor, and the Solicitor closed 3,049 debt cases.2
To determine the status of cases currently assigned to the Solicitor's offices, we
reviewed 142 cases, involving receivables totaling $16.1 million, that were assigned
to the Knoxville and Pittsburgh field offices as of September 30, 1994. Overall, we
found that 77 (54 percent) of the cases had not been processed in a timely manner.
Specifically, $6.3 million of debt, or 54 cases, had not been written off, even though
the attorneys said that they considered the debt to be uncollectible. Another 23
cases, for $1.7 million of debt, had been inactive for years, or the attorneys had taken
no action to collect or to determine the collectibility of the debt during the scope of
our audit (fiscal years 1993 and 1994).
In interviews, attorneys said that recent staff reductions and the loss of administrative
support personnel who had assisted in the termination of uncollectible debt had
adversely impacted the Solicitor's ability to process debt cases. According to the
2These debt "cases" are actually units of debt that Surface Mining reported to the Department of the
Treasury as accounts receivable. The Solicitor accounts for debt differently, classifying the aggregate
debt owed by a company as a "case." Therefore, Surface Mining and the Solicitor report a different
number of debt cases. For example, in the internal report "Enforcement and Collection Statistics,"
the Solicitor reported that it had closed 738 debt cases and received 312 new debt cases in fiscal years
1993 and 1994.
9
attorneys, debt cases, particularly those having minimal collection prospects, have a
"lower priority" than other types of litigation, such as enforcement of the
environmental, health, and safety standards of the Surface Mining Control and
Reclamation Act.3
Based on staffing data supplied by attorneys at the Solicitor's Knoxville and
Pittsburgh offices, we found that the number of personnel at these field offices had
been reduced from about 28 attorneys and 13 administrative support personnel in
fiscal year 1993 to about 20 attorneys and 7 administrative support personnel in fiscal
year 1995. While the staffing level in the two field offices has decreased, we found
that the range of litigation services rendered by these offices may increase
substantially. For example, under a fiscal year 1995 reorganization, Solicitor's field
offices that previously worked exclusively on Surface Mining cases were scheduled
to assume responsibility for cases referred by other bureaus and agencies within the
Department. As such, debt write-off, which historically has not received a high
priority, may receive even less attention.
To ensure that staff reductions do not adversely affect debt collection efforts and to
comply with Department of the Treasury guidance entitled "Managing Federal
Receivables," which states that an agency should "act to resolve its delinquencies as
quickly as possible, since the collectibility of the agency's debts will decrease as the
debts become older," the Solicitor needs to change its method of processing debt.
Such a change might be accomplished if Surface Mining assumed some of the tasks
now being performed by the Solicitor. According to attorneys at the Solicitor's
offices, there are several post-referral processing tasks, such as obtaining affidavits
on debtors' assets, preparing termination memoranda, and referring cases to the
Department of Justice, that do not require an attorney's expertise. We believe that
with Surface Mining's assistance in these post-referral administrative tasks, debt
processing could be expedited.
At the time we completed our fieldwork, Surface Mining's Division of Debt
Management and the Solicitor's Division of Surface Mining were working on a
special project to improve debt processing. As part of this project, the Division's
collection specialists were being trained to assume greater responsibility for debt that
historically was referred to the Solicitor. Although we did not evaluate the results
of this project, we consider the collaboration to be potentially beneficial because it
may strengthen the Solicitor-Surface Mining working relationship and resolve a
3The need for additional staff resources to process debt cases at the Solicitor's offices has been a
continuing issue. In the August 1991 report "Recommendations to Expedite Collection and Minimize
Processing of Uncollectible Debt," a Solicitor-Debt Management working group wrote: "This gap
between staffing and workload has contributed to delays in processing cases. Cases in litigation are
given the highest priority, but at the expense of cases in the pre-litigation and post-judgment stages.
This has resulted in a backlog of both unfiled cases and post-judgment cases."
10
number of debt cases prior to the cases being referred to the Solicitor's offices.
However, based on the results of our audit, we do not believe that this arrangement
will ensure that once debt is referred to the Solicitor, it will be processed in a timely
manner.
Recommendation
We recommend that the Solicitor of the Department of the Interior and the
Director, Office of Surface Mining Reclamation and Enforcement, negotiate an
agreement that provides for Surface Mining to assume responsibility for the
administrative tasks related to processing debt that has been referred to the Office
of the Solicitor.
Office of the Solicitor Response and Office of Inspector General Reply
In its March 25, 1996, response (see Appendix 4) to the draft report, the Solicitor
concurred with the recommendation, stating that "planning is currently underway to
implement it." The response, however, took exception to our audit approach.
Specifically, the response stated, "By refusing to review files which were closed during
the two year period, the [auditors] eliminated the most active cases: the ones which
were successfully resolved during that time" and only included debt cases that were
"lower priority" and "less collectible." The response also stated that "collection cases
are reviewed upon receipt to determine the chances of success; and those with higher
potential for collecting money due the Government are pursued before those with
lower potential . . . a simple policy which prioritizes work to maximize collections."
Regarding the Solicitor's statement that the cases we reviewed were not
representative, our report clearly acknowledges (the transmittal letter and page 9)
that the Solicitor's Office made significant progress in reducing the backlog of cases
during fiscal years 1993 and 1994. In reducing the backlog of delinquent debt by
$47.9 million, we noted that the Solicitor's offices collected $3.7 million (8 percent)
and wrote off $44.2 million (92 percent) of debt. Notwithstanding those efforts, we
also noted that the cases referred to the Solicitor's Office as of September 30, 1994,
represented delinquent debt of $66.7 million. We focused our review on these cases
because this sampling approach provided the most current information available for
identifying causes of delays in processing cases for termination or collection;
therefore, we believe that this information will be more useful to the Solicitor's
Office. We found that approximately one-half of these open cases had been pending
at the Solicitor's Office for over 2 years, and, as such, our review covered debt
collection activities taken during fiscal years 1993 and 1994. Finally, we discussed
our sampling method with attorneys at the Knoxville and Pittsburgh offices, who did
not question our approach or suggest that closed cases be reviewed. Had comments
about our sample selection been provided before we completed our audit fieldwork,
11
we could have clarified our methodology further or possibly expanded our sample
to address specific concerns of the Solicitor's Office.
We are fully supportive of the Solicitor's policy of prioritizing debt based on an
assessment of the debt's collectibility, but since we did not review specific closed
cases, we did not comment on whether this policy was implemented effectively.
Office of Surface Mining Reclamation and Enforcement Response and
Office of Inspector General Reply
In its March 28, 1996, response (see Appendix 5) to the draft report, the Office of
Surface Mining Reclamation and Enforcement concurred with the recommendation,
stating that Surface Mining would define the administrative tasks to be assigned to
its office and would "develop a debt collection strategy to provide a systematic
uniform method for collecting delinquent debt." Based on the response, we consider
the recommendation resolved but not implemented (see Appendix 6).
12
c. ACCOUNTING RECORDS
The Office of Surface Mining Reclamation and Enforcement's fiscal year 1994
financial statements presented fairly the net amount of reclamation fee and civil
penalty receivables because Surface Mining had offset uncollectible receivables with
an allowance for doubtful accounts. However, gross accounts receivable were
overstated because Surface Mining had not written off debt cases that had been
closed by the Office of the Solicitor; improperly reinstated terminated debt; and had
not recorded bankruptcy debt at the collectible amount. The Chief Financial
Officers Act requires Federal agencies to implement effective financial management
practices to ensure that reliable financial information is provided. Further, Federal
and Departmental regulations and guidance require that debt be written off if it is
uncollectible. However, Surface Mining had not implemented effective controls to
verify the status of debt referred to the Solicitor or to ensure that previously
terminated and bankruptcy debts were recorded accurately. As a result, Surface
Mining accumulated uncollectible debt that should have been written off. According
to the Department of the Treasury, this practice has an adverse effect on receivables
management because uncollectible receivables create a "distortion" in delinquency
figures that "seriously undermines efforts to implement sound [debt] management
practices and procedures." Overall, we found that of the $16.1 million of
September 30, 1994, receivables reviewed, receivables of $2.5 million and $1.6 million
were uncollectible and overstated, respectively.
In its fiscal year 1994 financial statements, Surface Mining reported that it had net
accounts receivable of $14.7 million, of which $14.6 million was attributable to
reclamation fee and civil penalty receivables. These net receivables consisted of
gross reclamation fee and civil penalty debt of $83.2 million (of which $71.9 million
was delinquent), which was offset by a $68.5 million allowance for uncollectible debt.
Although the use of an allowance for uncollectible debt is an appropriate means of
accounting for potentially uncollectible receivables, Federal agencies are required to
write off or terminate debt when a receivable is determined to be uncollectible.
Because Surface Mining included uncollectible receivables in its allowance rather
than writing off these accounts, it overstated its gross accounts receivable in its fiscal
year 1994 financial reports.
Inactive Cases
During our review of 142 debt cases that Surface Mining reported as having been
referred to the Solicitor, we found that 23 cases, for $2.5 million, of reclamation fee
and civil penalty receivables at September 30, 1994, were uncollectible. This debt
consisted of 14 cases ($2,127,000) closed by the Solicitor that remained as receivables
in Surface Mining's accounting system, 6 cases ($283,000) for which the Solicitor had
no record of referral, and 3 cases ($54,000) for which the Solicitor could not locate
13
the files. Overall, more than 54 percent of the debt reviewed was not in a collectible
status, including the $2.5 million of uncollectible debt (15 percent of the reviewed
debt) and the $6.3 million of debt discussed in Finding B that had not been
processed for termination (39 percent of the reviewed debt).
Although Surface Mining has procedures for monitoring debt that has been referred
to the Solicitor (the written acknowledgement of referred debt and the preparation
of memoranda and coding sheets for terminated debt), these controls did not ensure
that referred debt was reported accurately in the accounting system. To determine
why referred debt was reported inaccurately, we compared Surface Mining's records
of reclamation fee receivables (referred to the Solicitor's Knoxville office) with cases
included in the Knoxville attorneys' debt tracking system. Based on a computer
match of these two data sources, we identified 23 cases, with debt totaling $538,000,
that were included in Surface Mining's accounting records but that were not listed
in the Solicitor's tracking system for the following reasons:
- The Solicitor had closed the case but had not prepared a termination
memorandum or coding sheet to terminate the debt (six cases for $221,000).
- The Solicitor had terminated all but a portion of the outstanding debt,
which also should have been terminated, and the remaining debt had "grown" as
additional interest, penalties, and administrative costs accrued on the balance (two
cases for $6,000).
- Neither the Solicitor nor the Division had a record of the debt, and we
were unable to determine the status or the validity of the debt (15 cases for
$311,000).
Although the Division performed periodic reconciliations on debt that had been
referred to the Solicitor, we found that these reconciliations did not provide
sufficient assurance that debt was reported accurately. For example, during a July
1992 reconciliation project, the Division asked the Solicitor to provide information
on the status of certain debt cases that had been referred to the Solicitor's Knoxville
office. In response, the Solicitor stated that although it had no record of the debt's
referral, it had terminated collection effort on other debt owed by a related company.
Despite this response, the Division took no further action to terminate or refer the
debt to the Solicitor's offices. For another company (with reclamation fees payable
from 1979 through 1982), the Division reviewed the debt in 1987, 1988, and 1990,
with the last notation on the case stating, "No [information] available on current
status of referral." Although the Solicitor's records showed that this case was closed
in 1983, Surface Mining's fiscal year-end 1994 records reported that this receivable
totaled more than $134,000.
14
To ensure that the status of debt cases is reported correctly, a comprehensive
reconciliation of Surface Mining and Solicitor records is needed. Such a
reconciliation could be performed by comparing reclamation fee and civil penalty
debt listed in Surface Mining's automated accounting systems with debt recorded in
the Solicitor's Litigation Tracking System, which provides information on both active
and closed cases.
Reinstated Debt
We identified five cases in which previously terminated debt was reinstated
inappropriately. According to the Department of the Treasury's June 1990 report
"The Governmentwide Task Force Final Report on Write-Off," agencies should not
reinstate debt that has been written off previously. Instead, at the time of collection,
the agencies should reverse the write-off to document that "recovery of the debt is
realized."
Contrary to this guidance, debt previously written off was reinstated before any
agreement was reached on the amount or date of repayment. In one case, an
attorney requested the reinstatement of debt that had been written off in July 1994
so that the case could be reopened for negotiation and so that updated financial
information could be obtained. This debt, which totaled $473,000 as of September
30, 1994, had not been repaid as of March 1995.
Bankruptcy Debt
The United States Code (11 U.S.C. 362) states that the filing of a petition for
bankruptcy "operates as a stay" and prevents creditors from "any act to collect, assess,
or recover a claim against the debtor that arose before the [filing]." As interpreted
by a Solicitor's staff attorney, this provision "expressly notes" that the Government
is not entitled to recover penalties and administrative costs that are accrued on
petition debt (that is, debt that arose before the bankruptcy filing) after the debtor
filed for bankruptcy and "interest is a low priority bankruptcy claim and is almost
never recoverable."
The automated systems that account for reclamation fees report bankruptcy debt
separately. However, these systems have not been designed to "freeze" debt at the
amount owed when the debtor filed a petition for bankruptcy or at the amount of
the claim filed by the Government. As such, the systems accrue interest, penalties,
and administrative charges on prepetition debt, even though these additional charges
are uncollectible. Of the $16.1 million of debt reviewed at the Solicitor's offices, we
identified $1.6 million of uncollectible interest, penalties, and administrative costs
that had been accrued on prepetition bankruptcy debt after the petition date.
15
Unlike the reclamation fee accounting systems, the civil penalty system can block
interest accruals on bankruptcy debt. However, when the interest accrual is
deactivated, the system eliminates all interest that has been accrued (even though
this interest might be recoverable under bankruptcy law). Also, because the civil
penalty system does not freeze penalty or administrative fee accruals, these
uncollectible charges on prepetition bankruptcy debt continue to accrue.
We also found two bankruptcy debt cases in which the Government had entered into
an agreement to accept partial payment or had been notified that funds would be
distributed to creditors for less than the full amount of the receivable. In these
cases, no action had been taken to adjust the receivables to the collectible amount.
Recording Receivables
Surface Mining established an allowance for uncollectible debt that covered over 95
percent of its delinquent receivables as of September 30, 1994. As such, any
overstatement of gross receivables in Surface Mining's financial statements was
largely offset by the allowance and did not have a material effect on the overall
reasonableness of the reported net accounts receivable. Nonetheless, Federal
guidance discourages the overstatement of receivables and requires agencies to write
off delinquent debts "as soon as they are determined to be uncollectible."
We believe that the retention of uncollectible debt in the accounting records has an
adverse effect on debt management. For example, it distorts the number of cases
that is actively being handled by the Solicitor. It also creates additional work for
collection specialists who periodically review delinquent accounts. For example, the
Division estimated that in fiscal year 1993, it spent about 1,000 hours reviewing the
status of debt that had been referred to the Solicitor.
In our opinion, the ability of Surface Mining to collect debt would not be adversely
impacted by its taking aggressive action to write off uncollectible debt. Because
Surface Mining has the Applicant Violator System, an automated system that
contains information on coal mine operator and permittee debtors, including those
having debt that was written off, it retains the ability to enforce payments by denying
permits to debtors.
Recommendations
We recommend that the Director, Office of Surface Mining Reclamation and
Enforcement:
1. Reconcile debt recorded in Surface Mining's automated accounting
system with debt recorded in the Office of the Solicitor's Litigation Tracking System.
Based on the reconciliation, the debt found to be closed should be terminated, and
16
debt should be referred to the Solicitor as appropriate if the Solicitor does not have
a record of the debt's referral.
2. Issue guidance on the reinstatement of previously terminated debt. The
guidance should be consistent with Department of the Treasury policy that authorizes
the restoration of inactive debt "at the time recovery of the debt is realized."
3. Program the automated accounting systems so that interest, penalties,
and administrative costs related to bankruptcy debt are reported accurately.
4. Decrease, as appropriate, the amount of bankruptcy debt to the
collectible amount when a payment plan or a bankruptcy court distribution plan
provides for repayment at less than the recorded amount of the receivable.
Office of Surface Mining Reclamation and Enforcement Response and
Office of Inspector General Reply
In its March 28, 1996, response (Appendix 5) to the draft report, the Office of
Surface Mining Reclamation and Enforcement concurred with the recommendations,
stating that Surface Mining would "reconcile debt reported in [Surface Mining] and
Solicitor accounting and tracking systems; issue guidance on the reinstatement of
previously terminated debt; waive interest, penalties and administrative costs for
bankruptcy debt after the petition date; and decrease the amount of bankruptcy debt
to the amount collectible when repayment will be less than the recorded amount of
the receivable." Based on the response, we consider all four recommendations
resolved but not implemented (see Appendix 6).
17
APPENDIX 1
CLASSIFICATION OF MONETARY AMOUNTS
Finding
Debt Collection Practices -
Division of Debt Management Staff Reduction
Funds To Be Put
To Better Use
$820,0001
1The cost savings have been achieved as a result of the reduction in force implemented by Surface
Mining subsequent to the completion of our review.
SAMPLING RESULTS OF
SOLICITOR'S OFFICES IN KNOXVILLE AND PITTSBURGH
(Amounts in 000's)
AML-Fee AML-Audit Civil Penalty Bankruptcy Total
Number Amount Number Amount Number Amount Number Amount Number Amount
Universe 356 $15,493 224 $11,322 316 $22,774 109 $9,689 1,005 $59,278
Sample 49 4,986 42 3,519 24 1,553 30 6,147 145 16,205
Uncollectible
Sample 10 754 1 97 7 877 5 736 23 2,464
Projection 117 4,127 4 298 74 6,115 24 1,575 219 12,115
Should be Terminated
Sample 26 3,030 12 1,034 7 303 9 1,912 54 6,279
Projection 157 7,831 67 3,217 111 8,195 21 2,374 356 21,617
Sample 5 251 18 1,764 5 198 14 3,395 42 5,608
Projection 18 775 81 4,950 72 5,183 52 5,321 223 16,229
Untimely
Sample 8 951 11 624 2 68 2 104 23 1,747
APPENDIX 2
Page 2 of 4
SAMPLE SELECTION AND ANALYSIS
Selection
We selected sample items for review from computer listings of reclamation fee and
civil penalty receivables. These receivables listings are the same data bases the
Office of Surface Mining Reclamation and Enforcement used for financial reporting
purposes.l Of $66.7 million of debt that was classified as having been referred to
all of the Solicitor's offices, we reviewed debt that reportedly had been referred to
the Solicitor's offices in Knoxville, Tennessee, and Pittsburgh, Pennsylvania. The
sample debt selected for review consisted of 145 cases, totaling $16.2 million, of the
1,005 cases and the $59.3 million of debt reported as assigned to the Solicitor's two
field offices. We excluded from our analysis three civil penalty cases, totaling
$107,000, that were pending appeal as of September 30, 1994. Therefore, we
reviewed $16.1 million of debt (142 cases).
To perform our statistical analysis, we established as our sampling unit the aggregate
amount of debt owed by each company and separated the debt into the following
categories: reclamation fee debt, reclamation fee audit debt, civil penalty debt, and
reclamation fee debt in bankruptcy status. Each category of debt was stratified based
on the age (the period of time at the Solicitor's office) and the amount of debt.
Analysis
Based on our analysis, we classified the sample debt cases into the following
categories:
- Debt that was in an uncollectible status. ("Uncollectible") These cases
included debt cases that were closed by the Solicitor yet remained as receivables in
Surface Mining's accounting systems; debt for which the Solicitor had no record of
referral; and debt cases for which the Solicitor had no file.
lFor sampling purposes, from the universe of debt referred to the Solicitor, $66.7 million, we
excluded: the $2.3 million of debt that had been referred for termination; about $300,000 of
bankruptcy debt; $700,000 of debt that the Solicitor had referred to the Department of Justice; and
$200,000 of reclassified interest. The adjusted universe from which our sample was selected totaled
$63.2 million.
20
APPENDIX 2
Page 3 of 4
- Debt that should have been terminated. ("Should be Terminated'') These
are debt cases that should have been terminated, according to the responsible
attorney.
- Debt that was processed in a timely manner. ("Timely") These debt cases
were processed for collection during the scope of our review. This category also
included cases for which the attorneys provided a valid explanation for not processing
the cases for collection.
- Debt that was not processed in a timely manner. ("Untimely") These debt
cases were not processed for collection during the scope of our audit, and attorneys
provided no explanation (other than that debt collection work had a low priority) for
the lack of collection efforts. The category also included cases that were unassigned
for long periods of time, during which no collection action was taken.
- Overstated debt. This is the amount of uncollectible debt and consists of:
(1) interest, penalties, and administrative costs charged to prepetition bankruptcy
debt after the debtor filed a bankruptcy petition; and (2) the amount of recorded
debt that exceeds the amount of recoverable debt under a settlement agreement or
a bankruptcy court notification of distribution.
We used a weighted average to compute statistical estimates of the number and
amount of debt in each category and calculated 90 percent confidence intervals for
the number and amount of debt.
21
APPENDIX 2
Page 4 of 4
90% CONFIDENCE INTERVALS FOR PROJECTIONS AT THE
KNOXVILLE AND PITTSBURGH SOLICITOR'S OFFICES
AML-Fee AML-Audit Civil Penalty Bankruptcy
Number Amount Number Amount Number Amount Number Amount
Uncollectible
Estimate
Lower Bound
Upper Bound
Should be Terminated
Estimate
Lower Bound
Upper Bound
Timely
Estimate
Lower Bound
Upper Bound
Untimely
Estimate
Lower Bound
Upper Bound
Overstated
Estimate
Lower Bound
Upper Bound
117
53
180
157
91
224
18
5
47
64
13
116
N/A
N/A
N/A
(In 000's)
$4,127
2,083
6,171
7,831
5,650
10,011
775
251
1,727
2,760
1,108
4,413
127
72
257
4
1
14
67
32
102
81
44
117
72
36
108
N/A
N/A
N/A
(In 000's)
$298
97
724
3,217
2,007
4,427
4,950
3,625
6,275
2,857
1,639
4,075
379
238
582
74
12
135
111
42
180
72
11
133
26
2
66
(In 000's)
$6,115
1,198
11,032
8,195
2,684
13,707
5,183
348
10,018
843
68
2,982
(In 000's)
24 $1,575
6 819
42 2,331
21 2,374
9 1,912
39 2,973
52 5,321
30 4,436
74 6,206
12 419
2 104
26 925
N/A 2,119
N/A 1,729
N/A 2,610
22
APPENDIX 3
WORK LOAD ANALYSIS OF
THE DIVISION OF DEBT MANAGEMENT
BASED ON FISCAL YEAR 1994 ACTIVITY
Collection
Effort
Reclamation Fee Cases
Audit Fee Cases
Civil Penalty Cases
Compromises and Settlements
Net Worth Report Processing
Tax Offset Program2
Systems Maintenance
Management Tracking
Task Force Work3
Archiving Records4
Solicitor Termination Reviews
Others
Management and Supervision
Backlog Processing6
Total
Staff Requirements7
Staff Hours
for Work
Performed
2,794
1,033
358
130
57
425
430
287
512
5,911
252
280
1,720
14,189
8.2
Staff Hours to Perform
Required Work in
Fiscal Year 19951
2,794
1,033
358
130
57
860
430
287
120
252
280
1,720
3,960
12,281
7.1
1. Fiscal year 1995 staff hours are based on a work load comparable to fiscal year 1994 and on time
needed to complete record archiving and initiate
backlog processing.
2Additional staff days to comply with all Office of Management and Budget Circular A-129
requirements.
3 Task force staff hours have been decreased to reflect reduced staffing levels.
4 Debt Management estimate. This work was largely completed in fiscal year 1994.
5 Includes affidavits. information requests. internal control reviews, and procedures development.
6 Based on 990 cases at the Solicitor's offices as of September 30, 1994, which required an estimated
4 hours per case to review.
7The staff hour requirements were computed by dividing the total number of hours by the 1,720
hours. (The 1,720 hours represents the annual
work hours per year computed based on 43 workweeks times 40 hours.)
23
APPENDIX 4
Page 1 of 2
United States Department of the Interior
OFFICE OF SURFACE MINING
Reclamation and Enforcement
Washington, D.C. 20240
Memorandum
I understand that as part of the review, our staffs met to resolve
several concerns. Based on the results of the discussions, I
concur with the revised findings and recommendations.
Our specific plans for implementing your recommendations are shown
on the attachment. The Assistant Director, Finance and
Administration will be the responsible official for carrying out
the implementation plan.
If you have any questions concerning our response, please contact
George Stone, Audit Coordinator, Office of Strategic Planning and
Budget, at (202) 208-7840.
Attachment
24
APPENDIX 4
Page 2 of 2
OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT
IMPLEMENTATION PLAN - RECOMMENDATIONS RESULTING
FROM AUDIT BY OFFICE OF INSPECTOR GENERAL
DEBT MANAGEMENT
The table below reflects the actions planned to implement the recommendations and
a projected target date for completion of those actions. The official
responsible for plan implementation is the Assistant Director, Finance and
Administration.
RECOMMENDAT ION ACTION PROJECTED
COMPLETION
DATE
GENERAL : Enter into Develop a debt collection strategy 9/30/96
an agreement with the to provide a systematic uniform
Office of the method for collecting delinquent
Solicitor to ensure debt and defining administrative
the timely processing tasks to be performed by OSM.
of debt and to
facilitate the
termination of
uncollectible debt.
1. Maintain the Ensure that future budget requests Completed.
Division of Debt reflect appropriate resource
Management staff at needs.
the level needed to
process delinquent NOTE : OSM is not requesting
debt efficiently. additional resources for debt
management in its FY 1997 budget
request. Future resource needs
will be determined as a normal
course of OSM's strategic planning
activity and annual budget
submissions.
2. Implement Develop guidelines covering the 9/30/96
administrative ordering of net worth
controls to ensure determinations, the recalculation
that required debt of the administrative cost
collection functions recovery rate, and to actively
are performed in report delinquent debt to credit
compliance with bureaus and the Department of the
Federal regulations. Treasury.
3. Review the status Reconcile debt reported in OSM and 9/30/96
of debt that has been Solicitor accounting and tracking
referred to the systems; issue guidance on the
Solicitor to ensure reinstatement of previously
that receivables are terminated debt; waive interest,
reported accurately penalties and administrative costs
and accounted for for bankruptcy debt after the
fully. petition date; and decrease the
amount of bankruptcy debt to the
amount collectible when repayment
will be less than the recorded
amount of the receivable.
25
APPENDIX 5
Page 1 of 4
Attached please find comments to the draft audit report issued last
month.
26
Page 2 of 4
SOLICITOR'S COMMENTS
ON
OFFICE OF INSPECTOR GENERAL
DRAFT AUDIT REVIEW - DEBT MANAGEMENT
The Office of the Solicitor offered both documentary evidence
and verbal comments to representatives of the Inspector General
during and after a meeting last September which also included the
Office of Surface Mining. Most of the information submitted was
fairly incorporated into the draft report, eliminating any
necessity for lengthy comments at this time.
One significant comment is still necessary. On page three of
the draft under the heading "Objective and Scope," appears the
following sentence: "The scope of our audit included debt
collection activities that occurred
1994, but did not include a review of
had closed during this period.W The
during fiscal years 1993 and
debt cases that the Solicitor
second half of this sentence
was added at the request of the Solicitors representatives in an
attempt to explain that the case files reviewed were selected from
a limited category, and were not a random sample. However, the
point is not adequately explained.
The inspectors began with a list of case files which were open
on the last day of the two-year period, and examined a number of
those files for collection activity. They found that approximately
half of the cases reflected delays in processing, and reported that
finding; leading one to the conclusion that only half of the
Solicitor's collection caseload is pursued in a timely manner.
The fact is that by refusing to review files which were closed
during the two year period, the inspectors eliminated the most
active cases: the ones which were successfully resolved during
27
Page 3 of 4
that time. Cases which were pursued actively to collection in
full , or to completed documentation of uncollectibility, were
closed, and therefore omitted from review. These are the very
cases where the activity was concentrated. The pool of files from
which the inspectors took their sample were the least active files
because staff attorneys had evaluated them and determined that
their potential for successful collection was low.
All debt is not equal. In both Pittsburgh and Knoxville,
o
collection cases are reviewed upon receipt to determine the chances
of success; and those with higher potential for collecting money
due the Government, are pursued before those with lower potential.
It is a simple policy which prioritizes work to maximize
collections. This policy was explained to the inspectors, together
with the fact that high-potential collection cases are high
iority in the Solicitor's office and are pursued quickly.
However, it was mostly lower-priority, less collectible cases which
they ended up reviewing, by limiting themselves to files that were
open at the end of the two-year period. As one would expect, those
files were less active; many are simply awaiting documentation of
uncollectibility. Those are the files that should be lower-
priority. AS one would also expect, the inspectors "did not find
significant amounts of unprocessed collect ible debt" (cover letter
of Acting Assistant IG for Audits) .
The inspector General draft report correctly recognizes that
the Solicitor's Office has made significant progress in writing off
uncollectible debt, and acknowledges two important factors in case
processing delays: personnel reductions and assignments to other
28
legal work. Its recommendation for improvement is basically advice
to "change its method of processing debt" (p. 18), by getting some
help with the workload. The proposal is to obtain assistance with
the non-legal tasks of collection from the Office of Surface
Mining. The Solicitor's Office agrees with that proposal, and
planning is currently underway to implement it.
29
APPENDIX 6
STATUS OF AUDIT REPORT RECOMMENDATIONS
Finding/Recommendation
Reference Status Action Required
A. 1 Implemented No further response to the Office
of Inspector General is required.
A.2-A.4; B.l; and C.1-C.4 Resolved; not No further response to the Office
implemented. of Inspector General is required.
The recommendations will be
referred to the Assistant Secretary
for Policy, Management and
Budget for tracking of
implementation.
30
ILLEGAL OR WASTEFUL ACTIVITIES
SHOULD BE REPORTED TO
THE OFFICE OF INSPECTOR GENERAL BY:
Sending written documents to: calling:
Within the Continental United States
U.S. Department of the Interior
Office of Inspector General
1550 Wilson Boulevard
Suite 402
Arlington, Virginia 22210
Our 24-hour
Telephone HOTLINE
1-800-424-5081 or
(703) 235-9399
TDD for hearing impaired
(703) 235-9403 or
1-800-354-0996
Outside the Continental United States
Caribbean Region
U.S. Department of the Interior (703) 235-9221
Office of Inspector General
Eastern Division - Investigations
1550 Wilson Boulevard
Suite 410
Arlington, Virginia 22209
North Pacific Region
U.S. Department of the Interior (700) 550-7279 or
Office of Inspector General COMM 9-011-671-472-7279
North Pacific Region
238 Archbishop F.C. Flores Street
Suite 807, PDN Building
Agana Guam 96910
Toll Free Numbers:
1-800-424-5081
TDD 1-800-354-0996
FTS/Comrnercial Numbers:
(703) 235-9399
TDD (703) 235-9403
HOTLINE
1550 Wilson Boulevard
Suite 402
Arlington. Virginia 22210