Agencies told to improve debt collection efforts

Federal agencies need to do a better job of referring delinquent debts to the Treasury Department on time, witnesses at a House Government Reform Subcommittee hearing said Thursday.

The Debt Collection Improvement Act (DCIA) of 1996 requires agencies to refer non-tax debts that have been delinquent for more than 180 days to the Treasury Department. Non-tax related debts include defaults on loans provided to students, small businesses and homebuyers. Debt delinquencies also occur when an agency overpays federal beneficiaries and vendors.

At the end of fiscal 1999, the federal government was owed almost $60 billion in such debts.

The Treasury Department's cross-servicing program, which allows the department to collect debts directly from debtors or refer them to a private collection agency, and its Financial Management Service (FMS), which runs the cross-servicing program and also recovers delinquent debt through other programs, aren't working effectively, witnesses said.

"For these programs to work, agencies must refer their delinquent debts to Treasury in a timely fashion. That is not always the case," said Stephen Horn, R-Calif., chairman of the Government Management, Information and Technology Subcommittee.

Agencies' recent focus on Y2K conversion as well as difficulty in identifying debts eligible for cross-servicing are among the reasons for delays, said Gary T. Engel, associate director of accounting and financial management issues at the General Accounting Office.

The longer agencies wait to refer debts to FMS, the more costly the debts become to the government, witnesses said.

"Time is money," said Barry G. Cloyd, chairman of the Government Services Program at the American Collectors Association Inc. After two years of delinquency, only about one percent of debts are collected, according to an analysis by PricewaterhouseCoopers.

Cloyd offered several suggestions for improving the federal debt collection system. He said the Treasury Department should be given greater enforcement power on the issue, and that multiple debts from the same individual or organization should be consolidated so that different contractors are not contacting the same debtors over and over.