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Testimony of
Commissioner Richard L. Gregg
Financial Management Service - U.S. Department of the Treasury
before the
Subcommittee on Government Efficiency, Financial Management
and Intergovernmental Relations
House Committee on Government Reform
December 5, 2001
"The Debt Collection Improvement Act of 1996: How Well Is It Working?"

Mr. Chairman and Members of the Subcommittee:

I am pleased to join Agriculture Deputy Secretary Moseley and Mr. Engel from the General Accounting Office in a continued discussion of the implementation of the Debt Collection Improvement Act of 1996 (DCIA). In my October 10 statement before the subcommittee, I reported on Fiscal Year 2001 collections, described the significant new elements of the Financial Management Service's (FMS) debt collection program, and provided a status report on those that are near completion. This morning, I will share the most recent data on collections and discuss the Department of Agriculture's (USDA) participation in debt collection.

Collections

As I stated at the October 10 hearing, $12 billion in delinquent debt owed to the federal government has been collected since the enactment of the DCIA, with a record amount of $3.2 billion collected in Fiscal Year 2001. I attribute this success to a strong and effective payment offset and cross-servicing operation, an expansion of the capabilities of the collections systems, improved management by the agencies of their debt portfolios, and a steady increase in the amount of delinquent debt referred to Treasury for collection by agencies. For purposes of this hearing, I will provide collections statistics for the first two months of Fiscal Year 2002, that highlight continued growth in the offset and levy programs. During this time period, through November, $16.2 million has been collected through the offsets of federal payments other than tax refunds. This compares to $25.3 million in collections for all of Fiscal Year 2001. The full implementation of the Social Security benefit payment offset program in October, accounts for this significant increase in offset collections. In the first two months of Fiscal Year 2002, $2.8 million has been collected in delinquent federal tax debts through the continuous federal tax levy program. For the same reporting period in Fiscal Year 2001, $1 million was collected. I believe these statistics are a strong indication that the levy program will be even more successful in February, at which time the Internal Revenue Service will begin levying Social Security benefit payments. Mr. Chairman, before proceeding with the remainder of my statement, I would like to give a brief update on Treasury's use of private collection agencies for debt collection. Treasury successfully implemented a new contract that went into effect October 1. Since that time, 44,879 debts for an associated dollar amount of nearly $831 million have been distributed to the five agencies under contract.

Debt Collection Program - USDA Participation

Mr. Chairman, as you know, critical to the success of the debt collection program is the referral of delinquent debts by agencies to Treasury for collection. Moreover, referring the debts in a timely manner is equally important and can make the difference between collecting and not collecting.

With respect to referrals of debts to the Treasury Offset Program, USDA has consistently complied with the DCIA requirement that debts more than 180 days delinquent be referred for collection. Specifically, I would like to single out and commend USDA's Food and Nutrition Service, with which Treasury has a long-standing and close working relationship. The agency is exemplary in its referral of food assistance program debts owed to the agency and serves as a model for other program agencies. On another front, USDA is the first major payroll payment processing organization, of which there are five, to participate in the centralized federal salary offset program. As I stated at the October hearing, this debt collection program is a fully automated system designed to centralize the offset of federal salary payments to collect non-tax debts, and delinquent child support debts. Ultimately, the system will be used to levy federal salary payments to collect tax debts. USDA's National Finance Center participated in the program pilot, was closely involved in system planning and development, and has established itself as a leader in program implementation.

In contrast, USDA's participation in Treasury's cross-servicing program has lagged behind other agencies. Based on data supplied by USDA, as of September 30, 22 percent of USDA's delinquent debts that are eligible for collection have been referred to Treasury. The governmentwide average for cross-servicing referrals is 73 percent. Participation by two USDA agencies in particular, the Farm Service Agency (FSA), and the Rural Housing Service (RHS) is marginal at best.

While USDA has provided several reasons for this low rate of referrals, I believe that any barriers to participation can be overcome providing it is a USDA priority. Currently, FMS is in discussions with USDA to establish ambitious cross-servicing referral goals for Fiscal Year 2002, for both RDA and FSA. FMS will assist USDA in developing individual DCIA implementation plans, and will closely monitor USDA's debt performance indicators, devoting special attention to identifying all debts eligible for referral.

On the subject of administrative wage garnishment, USDA has stated its intention to authorize the use of this important tool as part of the cross-servicing program. I encourage the Department of Agriculture to work with Treasury on developing a plan to take full advantage of this collection process. It is important to note, however, that a significant percentage of USDA's delinquent debt portfolio, such as Food Stamp Program debts, is exempt from cross-servicing by Treasury and therefore not eligible for collection through Treasury's administrative wage garnishment program.

Mr. Chairman, I will conclude my remarks by stating that Treasury stands ready to work with USDA to overcome the barriers to program participation. Working together, we can improve our debt collection performance. I would be happy to answer any questions you or the members of the subcommittee might have.