To determine whether any obstacles were hampering  RHS from referring eligible SFH loans, we interviewed RHS officials and  obtained and reviewed relevant documents, including the agency’s debt- referral schedule and Agriculture’s request to Treasury to exempt  delinquent SFH loans from referral for cross-servicing for up to a year after  liquidation of collateral. We did not independently verify the reliability of certain information that  RHS provided to us (e.g., debts more than 180 days delinquent and debts  classified as currently not collectible (CNC) and information in RHS’s  loan-accounting and loan-servicing systems). Because of a software deficiency that prevented  automated identification of direct SFH loans eligible for cross-servicing  and an agency plan to obtain an exemption from referring direct SFH loans  for cross-servicing, RHS had referred virtually no delinquent SFH loans for  cross-servicing as of September 30, 2000. First, the agency  included in its reporting of delinquent debts only the delinquent portions of  installment loans rather than the total unpaid loan balances as required by  Treasury. According to RHS’s debt- referral plan as of the completion of our fieldwork, the agency intends to  refer about 30 percent of eligible direct SFH loans to FMS for cross- servicing in fiscal year 2002. In addition, by underreporting direct SFH loan amounts eligible  for referral for offset through TOP, RHS is forgoing opportunities to  maximize the collection of delinquent debt. We cautioned that the reliability of the  amounts reported as excluded needed to be independently verified on a  periodic basis. Rural Development disagreed with our findings that RHS has failed to make  DCIA a priority and delayed implementation of certain key provisions. We will also provide copies to the  secretary of agriculture, the inspector general of the Department of  Agriculture, the administrator of the Rural Housing Service, and the  secretary of the treasury.
What GAO Found

The Debt Collection Improvement Act of 1996 seeks to maximize the collection of billions of dollars of nontax delinquent debt owed to the federal government. The act requires agencies to refer eligible debts delinquent more than 180 days to the Department of the Treasury for payment offset and to Treasury or a Treasury-designated debt collection center for cross-servicing. The Treasury Offset Program, includes the offset of benefit payments, vendor payments, and tax refunds. Cross-servicing involves locating debtors, issuing demand letters, and referring debts to private collection agencies. The Rural Housing Service (RHS) has initiatives to ensure the timely referral of all delinquent debt. However, the agency's failure to make the act a priority has left key provisions of the legislation unimplemented and severely reduced collection opportunities. The agency had referred no direct single-family housing (SFH) loans to the Financial Management Service for cross-servicing. Three major factors delayed implementation. First, RHS's loan-servicing system had not incorporated key features necessary to implement the act's referral provisions. Second, RHS did not refer any debts for cross-servicing while pursuing an exemption from Treasury. Third, amounts reported as delinquent and eligible for consideration for referral were materially understated. RHS had not kept the documentation needed to independently verify the accuracy and validity of the exclusion amounts in its certified fiscal year 2000 year-end report. Accordingly, GAO was unable to determine whether RHS had appropriately excluded $182 million of delinquent loans from referral for offset and for cross servicing as of September 2000.