In addition, we obtained and analyzed FMS’s  cross-servicing database for the period from inception of the cross- servicing program in fiscal year 1996 through February 28, 2003, to  determine what collection actions in-house FMS collectors performed on  debts that had been returned uncollected from its PCA contractors and  whether the in-house FMS collectors properly identified all uncollected  debts that could be reported to IRS, including amounts that had been  forgiven through compromise. Passive collection entailed no further  collection action other than minimal efforts through offsets, and certain  debts in passive collection were not eligible for such offsets. Consequently, opportunities for maximizing  collections or other recoveries were lost. FMS Did Not Perform Collection and Close-Out Reviews for All Debts Returned to Referring Agencies and Debts in Inactive Status

Through February 28, 2003, FMS returned to referring agencies about  $1.1 billion of delinquent nontax debts that had been returned uncollected  to FMS by secondary PCA contractors during fiscal years 2000, 2001, and  2002. Neither OMB nor FMS monitored or reported on  the extent to which agencies governmentwide closed out debts and  reported them to IRS. Specifically, as of February 28,  2003, only about $30 million of the approximately $6.6 billion of debts with  FMS for cross-servicing were at DOJ. The queries, while conceptually  good, did not cover most of FMS’s cross-servicing portfolio. According to FMS officials, in fiscal year 2002, FMS began to review  repayment and compromise agreements made by its PCA contractors as  part of its annual PCA contractor compliance reviews. This is a significant  difference given that FMS officials consider the cross-servicing program to  be fully mature and federal agencies should be referring eligible debts  when they are over 180 days delinquent. Conclusions

FMS continues to have opportunities for enhancing the effectiveness of its  cross-servicing of delinquent nontax debt. In our August 2002 letter to the Secretary of the Treasury and  our subsequent entrance conference with FMS officials in October 2002,  we stated that our objectives were to evaluate (1) actions taken by FMS on  uncollected nontax debts returned from its PCA contractors; (2) FMS’s  efforts to ensure that eligible uncollectible nontax debts, which federal  agencies rely on FMS to report on their behalf to IRS as income to the  debtors, are promptly identified and accurately reported; and (3) actions  taken, if any, by FMS to ensure that federal agencies are reporting their  eligible uncollectible nontax debts to IRS as income to the debtors. Rather, we stated that many of the debts kept in  TOP for passive collection were unlikely to yield any collections through  offsets because they were beyond the 10-year statutory and regulatory  limitations applicable to offset or had other barriers, such as bankruptcy,  that would prevent offset of the debts. 3. 7. 9.
Why GAO Did This Study

GAO has previously reviewed facets of Treasury's Financial Management Service's (FMS) cross-servicing efforts. These reviews did not include FMS's handling of nontax debts that were returned to FMS uncollected by its private collection agency (PCA) contractors because FMS officials did not consider the cross-servicing program to be fully mature. During fiscal years 2000, 2001, and 2002, FMS's PCA contractors returned about $3.9 billion of uncollected debts to FMS. This report focuses primarily on (1) actions taken by FMS on uncollected nontax debts returned from its PCA contractors and (2) actions taken, if any, by FMS and the Office of Management and Budget (OMB) to ensure that federal agencies are reporting their eligible uncollectible nontax debts to IRS as income to debtors.

What GAO Found

Although FMS has made progress in implementing its cross-servicing program and considers it to be fully mature, opportunities exist to improve the program. FMS had not reviewed most of the debts returned to it by its PCA contractors to determine whether any opportunities for collection or other recoveries remained, including those possible from reporting closed-out debts to IRS as income to debtors. For example, about $3.7 billion of the $6.6 billion of debts that were at FMS for cross-servicing as of February 28, 2003, were being kept in the Treasury Offset Program (TOP) for passive collection after they had been returned uncollected to FMS by PCA contractors. Passive collection entailed no further collection action on the part of FMS other than minimal efforts through offset, and collections on debts in passive collection through offset totaled only about $9 million through February 28, 2003. Various problems hindered collections through offset, including the fact that many of the debts were beyond the 10-year statutory and regulatory limitations for offset. GAO's analysis also showed that relatively few debts in cross-servicing were being referred to the Department of Justice for more aggressive enforced collection action. This analysis further showed that FMS continues to have problems with debt compromises and the reporting of a key cross-servicing performance measure. Finally, neither FMS nor OMB monitored or reported the extent to which federal agencies governmentwide were closing out all eligible uncollectible debts and reporting those amounts to IRS as income to debtors.