According to RHS documents and Treasury officials, RHS has referred all  of the loans that it has reported as eligible for cross-servicing. According to RHS officials, the  agency will report the entire unpaid principal balances for its direct SFH  loans that have been accelerated beginning with the TROR for the fourth  quarter of fiscal year 2002. RHS is currently working on making the regulatory changes that are  needed to refer losses on guaranteed SFH loans to Treasury’s offset  program; however, the agency will not be able to refer such losses until  regulatory action is completed and guaranteed loan applications are  modified. After the hearing, to address these problems, we recommended that the  Secretary of Agriculture direct the Administrator of FSA to develop and  implement (1) automated system enhancements to make the Program Loan  Accounting System capable of identifying all judgment debts eligible for  referral to Treasury for collection action, (2) oversight procedures to  ensure that FSA field offices timely and routinely update the Program Loan  Accounting System to accurately reflect the status of delinquent debts,  including whether the debts are eligible for referral to Treasury for  collection action, and (3) oversight procedures to ensure that all debts  discharged through bankruptcy are promptly closed out and reported to  the IRS as income to the debtor in accordance with the Federal Claims  Collection Standards and OMB Circular A-129. FSA has developed an action plan to improve its process and controls for  identifying and referring eligible debts to Treasury and, based upon our  review of documents provided by FSA, the agency has made progress  toward implementing such improvements. In addition, actions are being taken to improve field office oversight for  DCIA implementation. After the  hearing, we recommended that the Secretary of Agriculture direct the  Administrator of FSA to monitor effective completion of the planned  automated system modifications to refer eligible debt to Treasury’s offset  program on a quarterly, rather than annual, basis. Agriculture Is Working toward Departmentwide Implementation of AWG

At the December 2001 hearing, we stated that Agriculture and eight other  agencies we surveyed still had not utilized AWG as authorized by DCIA to  collect delinquent nontax debt even though experts had previously testified  before this Subcommittee that AWG could potentially be an extremely  powerful debt collection tool. Although Agriculture has completed its departmentwide AWG  implementation plan, components of the plan still need to be carried out. For example, the CFO plans to obtain individual AWG implementation  plans from Agriculture’s agencies that include each agency’s timetable for  implementation, written policies and procedures, and types of debt subject  to AWG. In addition, Agriculture still needs to work with its agencies to  provide Treasury with authorization to use AWG as part of cross-servicing  and to complete the agreement with Veterans Affairs to conduct AWG  hearings on Agriculture’s behalf. Treasury’s Debt Collection Improvement Account Has Not Been Activated

DCIA includes a voluntary “gainsharing” provision that allows agencies to  deposit a limited and defined portion of their debt collections into a special  fund account maintained and managed by Treasury. The Secretary may make payments from amounts  appropriated to agencies for purposes related to credit management, debt  collection, and debt recovery. Treasury has established a debt collection improvement account that can  be activated if its appropriations authorize the expenditure. However, the Congress made no amounts available in Treasury’s  appropriations to fund the account. According to Treasury, because the debt collection improvement account  has never been utilized, it is difficult to assess how effective the account  could be in enhancing federal agencies’ debt collection or what changes, if  any, should be made in the financial incentive area to improve debt  collection governmentwide.
Why GAO Did This Study

In December 2001, GAO testified at a hearing, before the Subcommittee on Government Efficiency, Financial Management and Intergovernmental Relations, House Committee on Government Reform, that the Department of Agriculture, primarily the Rural Housing Service (RHS) and the Farm Service Agency (FSA), faced challenges in implementing key provisions of the Debt Collection Improvement Act of 1996 (DCIA). The testimony focused on RHS's and FSA's progress in referring delinquent debt for administrative offset and cross-servicing and Agriculture's implementation of administrative wage garnishment (AWG). During the hearing, Agriculture pledged to place a higher priority on delinquent debt collection and to substantially improve its implementation of DCIA by December 31, 2002. After the hearing, GAO made recommendations The Subcommittee requested GAO to review and provide an update on actions Agriculture has taken to resolve these problems. In addition, the Subcommittee requested that GAO report on the status of Treasury's implementation of a debt collection improvement account, a vehicle authorized by DCIA to give agencies financial incentives to improve their debt collection efforts.

What GAO Found

Recent actions taken by Agriculture demonstrate increased commitment to DCIA implementation. However, it will take sustained commitment and priority by top management to fully address the problems we identified. RHS has worked to address systems limitations that hampered it from promptly referring debts to Treasury for cross-servicing and is now referring all reported eligible debt. RHS will begin reporting certain loans' entire unpaid principal balances on accelerated debt as delinquent, beginning with its report for the fourth quarter of fiscal year 2002. RHS is working on making regulatory changes needed for it to refer losses on guaranteed loans to Treasury's offset program, but the changes are not expected to be completed until about August 2003. FSA has developed an action plan to improve its process and controls for identifying and referring eligible debts to Treasury. GAO's review of documents related to the plan indicates that FSA has made progress toward implementing the improvements. In addition, by December 2002, FSA expects to be able to begin reporting information for some codebtors when referring delinquent debts for collection action; to begin referring debts quarterly, rather than annually; and to be able to refer eligible losses on guaranteed loans. Agriculture has taken steps toward departmentwide implementation of AWG. Agriculture has completed its AWG implementation plan but still needs to carry out certain elements of the plan, including obtaining from its component agencies specific information on the types of debt subject to AWG and finalizing an agreement with the Department of Veterans Affairs to conduct AWG hearings on Agriculture's behalf. Agriculture has also drafted regulations necessary for implementing AWG, which may not be published until May 2003. Treasury has established a debt collection improvement account but, to date, it has not been activated because no amounts have been made available in Treasury's appropriations to fund the account. Agencies would be allowed to contribute a portion of their debt collections into the account, and amounts could be used to reimburse agencies for certain expenses related to credit management and debt collection and recovery. Because the account has not been activated, it is difficult to assess how effective it might be in improving federal debt collection beyond the debt collection improvements that have resulted directly from DCIA's major debt collection requirements for federal agencies.