FROM THE OFFICE OF PUBLIC AFFAIRS

Good morning. I am pleased to be here and to have this opportunity to discuss the Department of the Treasury's role in the implementation of the debt collection provisions of the Debt Collection Improvement Act of 1996 (DCIA).

Within the Department of the Treasury, the Fiscal Service and, specifically, the Financial Management Service (FMS) has the responsibility for the implementation of the debt collection provisions of the DCIA. We have embraced these responsibilities with both willingness and enthusiasm because we are uniquely situated to accomplish this mission, and because we strongly believe in the purposes and goals of the legislation.

We have been involved in the development of governmentwide debt collection policies and procedures since 1986 when FMS was designated the lead agency in the Executive branch for credit administration and debt collection under a Memorandum of Understanding with the Office of Management and Budget. Accordingly, we in the Fiscal Service are thoroughly familiar with governmentwide debt collection procedures, standards and tools.

The DCIA strengthened existing delinquent debt collection tools and created new ones. For example, centralized administrative offset conducted by disbursing officials will assure that the Federal Government doesn’t pay money to delinquent debtors which could be used to pay their delinquent debts owed to the Government. Under the cross-servicing provisions of the DCIA, Federal creditor agencies will be able to obtain debt collection services from other Federal agencies which expertly collect delinquent debts as part of their regular operations. Cross-servicing will assure that delinquent debts are serviced in an efficient and cost effective manner using all appropriate debt collection tools. In addition, the schedule of debt collection contractors that is being developed in accordance with the provisions of the DCIA will result in prompt and effective referrals to and debt collection actions from private sector debt collectors. New delinquent debt collection tools such as administrative wage garnishment, debt sales and

RR-1626

the publication of the identities of delinquent debtors provide new methods for increasing collections on delinquent debts owed to the Government and will result in improving the fiscal integrity of the United States.

The new and improved delinquent debt collection tools created by the DCIA are being implemented by Federal agencies on a governmentwide and cooperative basis, and through the use of interagency teams. Within that framework, we at Treasury have taken the central role under the DCIA in the implementation and development of these debt collection tools.

Mr. Chairman and members of the Subcommittee, we strongly believe in the purposes and goals of the DCIA, and we share the common goal of effectively implementing the provisions of the DCIA as quickly as possible.

I can say without hesitation or qualification that Treasury is taking aggressive action to implement the numerous provisions of DCIA. We have assumed responsibility where the DCIA has placed responsibility upon us, and we are moving forward in a logical and organized manner.

I would like to point out specific programmatic initiatives Treasury has taken to ensure implementation of the law:

Treasury Offset Program

o FMS has established an operational Treasury Offset Program (TOP) system that began executing offsets under the DCIA in September 1996. We would be remiss not to acknowledge the Federal Reserve Bank in San Francisco, our partner in the development of the system. Over $300,000 was collected in calendar year 1996, and currently 10 agencies have submitted debts into TOP for collection.

o Two Treasury bureaus, FMS and the Internal Revenue Service (IRS), entered into an agreement on August 30, 1996, to merge the tax refund offset program into TOP, creating a single offset program within Treasury for the collection of nontax debts owed to the Government. IRS and FMS personnel are currently working to make the merger operationally effective on January 1, 1998.

o FMS and IRS also are revising the tax refund offset regulations to make them consistent with the processes under the merged program. FMS and IRS have developed a draft interim rule, and the target date for publication of this draft rule is next month.

o FMS and HHS are developing procedures for the inclusion of past-due child support debts into TOP pursuant to the DCIA and the President’s Executive Order No. 13019, dated September 28, 1996. This will result in the collection of past-due child support by offsetting eligible Federal payments, in addition to tax refunds which currently are offset to collect past-due child support.

o FMS is working with the Office of Personnel Management to bring the existing Federal Salary Offset Program into TOP in late 1997.

o FMS issued standard operating procedures entitled "Delinquent Federal Debts into the Treasury Offset Program" (January 1997) and "Standards for Exemption of Federal Payments into the Treasury Offset Program" (January 1997). These standard operating procedures have been distributed to the Federal agencies and other interested parties.

Cross-servicing

o FMS has also established a baseline computerized debt collection workflow system that became operational in September 1996. FMS is using this system to perform its cross-servicing functions. The system identifies and prompts Federal debt collectors to take the next appropriate action in a timely manner to enforce recovery on a debt. Additional enhancements are being identified and developed.

o FMS developed a brief instruction letter detailing the procedures and the responsibilities of FMS and Federal creditor agencies for cross-servicing, and has provided this letter to creditor agencies. Currently, 15 agencies have signed letters agreeing to these terms, and 13 agencies have submitted debts to FMS for cross-servicing.

o FMS has collected $833 thousand as of March 31, 1997, through cross-servicing. FMS is using all appropriate debt collection tools including sending demand letters, using the General Services Administration (GSA) schedule of contractors for debt collection services, submitting debts into TOP, reporting debts to credit bureaus, and forwarding debts to Justice for litigation. FMS has had a 30 percent success rate in collecting delinquent pre-judgment debt.

To implement both TOP and cross-servicing, FMS has published in the Federal Register notices amending its Privacy Act systems of records to permit maintenance of information and disclosures contemplated under the DCIA. FMS has also developed a procedure for meeting the computer matching requirements under TOP, and has published a Notice of Matching Program which is necessary under the Computer Matching and Privacy Protection Act of 1988. We would also note that FMS has provided guidance to other agencies regarding Privacy Act and Computer Matching Act questions.

Treasury In Partnership with Other Federal Agencies

Treasury is a key partner in the Office of Management and Budget’s Chief Financial Officer’s Council and OMB’s Federal Credit Policy Work Group, and has worked within these two organizations to further governmentwide implementation of the DCIA. Treasury has also been very active in establishing other partnerships with Federal agencies to implement the DCIA. Some of these other partnerships have been formalized by law, Memoranda of Understanding and Executive Order, and others are less formally established. All of these partnerships have proven to be and will continue to be a key part of the strategy to fully implement the DCIA.

There are some partnerships which have no formal agreements or terms, but truly evidence the commitment by the Fiscal Service, FMS and its employees to implement the DCIA. These partnerships were established at the staff level with employees of different Federal agencies to cooperate in work efforts and achieve the best and most efficient results in implementation of the DCIA. We at the Fiscal Service are proud of our employees who participate in these partnerships and wish to publicly commend the employees of other Federal agencies who work with us and share the same spirit.

The following are some of our partnership activities and accomplishments:

Training and Communication

o Treasury has taken the lead in communicating to the agencies the existence of the DCIA, interpreting its provisions and informing agencies of their own responsibilities under the DCIA. Between August and December 1996, FMS conducted 17 conferences nationwide concerning content and implementation of the DCIA. FMS also prepared written responses to frequently asked questions concerning the DCIA and distributed this document at the conferences, and circulated a list of contacts within FMS available to answer specific questions concerning the DCIA. We would like to publicly acknowledge the assistance we received from the Department of Justice in this endeavor and thank their employees who served as speakers and disseminated additional debt collection information at our conferences.

o FMS visited almost every Federal agency directly to discuss the DCIA’s requirements concerning administrative offset and cross-servicing; and how agencies operationally could meet the requirements of the DCIA concerning these two functions.

o FMS answered numerous other questions and concerns on a daily basis regarding implementation of the DCIA including Privacy Act issues, Computer Matching Act issues, and the interrelationship of agency specific laws and regulations with the DCIA.

o To provide electronic access to information concerning the DCIA, FMS established a home page on the Internet [at http://www.fms.treas.gov/debt/dms.html] and has made available to the public its publications and other relevant information concerning the DCIA.

TOP Implementation

o FMS has established interagency workgroups with Postal Service and the DoD to develop effective methods to share information and conduct offsets by all Government disbursing officials as contemplated under the DCIA.

o The DCIA provides authority to collect delinquent child support debts by administrative offset of Federal payments. On September 28, 1996, the President signed Executive Order 13019, "Supporting Families: Collecting Delinquent Child Support Obligations." The Executive Order tasked both the Treasury and the Department of Health and Human Services (HHS) to take prompt action to initiate administrative offset. Officials at Treasury, FMS and HHS, in partnership, have been working aggressively to implement the DCIA provisions and the President's directive.

o Treasury is working with the Office of Management and Budget and the large credit granting agencies to establish debt sales programs for appropriate debt portfolios.

o Treasury is developing regulations in consultation and in partnership with other affected Federal agencies. Our regulatory partnerships shall be discussed in greater detail under the regulatory agenda portion of this testimony.

Utilization of Private Sector Expertise

Treasury is tasked under the DCIA to establish and maintain a schedule of debt collection contractors. To accomplish this task, FMS published a Request for Proposal (RFP) on March 11, 1997. The RFP, which contains many new and unique terms designed to increase contractor competition and agency use, was developed by FMS staff based on the examination and analysis of current debt collection contracts in effect at GSA and the Department of Education. Further, before issuance of the RFP, FMS published a Request For Comment which generated over 450 comments and questions from the private sector. These comments were analyzed and answered, with appropriate changes being incorporated in the RFP. Contract award is anticipated to take place in August 1997.

In the interim, Treasury is coordinating with GSA to assure that governmentwide debt collection services offered under the existing GSA contract remain in effect until the new contract is in effect.

To ensure that the public is fully informed of the Federal Government's debt collection policies and that debtors are aware of their financial obligations to repay amounts owed, FMS initiated development and implementation of a public awareness campaign to inform the public of the implications of the DCIA and encourage voluntary repayment of delinquent debts. FMS awarded the contract in September 1996 to develop and implement the campaign, and creative concepts are currently being considered. Advertisements under the campaign are scheduled to begin in June 1997.

Treasury’s Role in Promulgating Regulations

FMS is in the process of developing all the major regulations needed to implement the DCIA. FMS has issued guidance documents where formal regulations are not specifically needed. FMS is also developing regulations in consultation and partnership with affected agencies. Below we have detailed the current state of development of each of the major regulatory actions, and have provided targets for publication. It should be realized that all our target dates are aggressive, that is, to meet these targets we will have to work closely with the affected agencies, as well as the Office of Management and Budget through the clearance process.

Federal Claims Collection Standards

o The Federal Claims Collection Standards (FCCS) were last published in 1984 by the Department of Justice and the General Accounting Office. The FCCS provide guidance to Federal agencies in drafting their own debt collection regulations. Since 1991, efforts have been underway to revise these standards, so that at the time the DCIA was enacted there existed a draft revision of the standards with program personnel at the Department of Justice. The DCIA added Treasury as a co-promulgator of the FCCS and the GAO Reform Act (October 19, 1996) removed GAO as a co-promulgator. In partnership, FMS and Department of Justice officials have modified the draft revision of the FCCS to incorporate the changes to debt collection procedures resulting from the passage of the DCIA and a proposed rule is currently going through the clearance process within both agencies. We have a target for publication of the proposed rule of May 1997, with a target for publication of the final rule as August 1997.

Regulations for the Treasury Offset Program

o FMS officials analyzed the requirements contained in the DCIA. FMS considered that authority for conducting administrative offset existed prior to the passage of the DCIA, and Federal agencies should have had regulations covering administrative offset. FMS determined that, in general, regulations published in the Federal Register specifically for disbursing official administrative offset are not statutorily necessary except in specific cases. Accordingly, as previously mentioned, FMS issued standard operating procedures concerning debts into TOP and the exemption of payments into TOP.

o For collection of delinquent child support by administrative offset, FMS, in consultation with HHS, has developed a rule which is currently in the clearance process. We have aggressively targeted publication of this interim rule for May 1997, with publication of the final rule targeted for August 1997.

o FMS is currently developing a draft rule for offset of certain benefit payments, particularly Social Security, Railroad Retirement, and Black Lung. We anticipate completing the draft and will begin consultations with the Social Security Administration, Railroad Retirement Board and the Office of Management and Budget concerning the provisions of this draft in April 1997. We have aggressively targeted publication of a proposed rule for July 1997, and publication of a final rule in October 1997.

o FMS is currently developing a draft rule concerning the DCIA requirement that agencies include the taxpayer identifying number on all payment certification requests. This rule will ensure that taxpayer ID numbers are available to facilitate offset.

Administrative Wage Garnishment

o FMS, after consultations with the Department of Education and the Department of Justice, has drafted a proposed rule which it is finalizing for the clearance process. We have aggressively targeted publication of the proposed rule for June 1997, and a final rule for October 1997.

Other Non-Administrative Offset Regulations

o FMS program staff have drafted a discussion draft containing provisions governing other aspects of the DCIA including cross-servicing, obtaining taxpayer identifying numbers for persons doing business with the Government, salary offset matching, barring delinquent debtors, public dissemination of debtor information, and debt sales. We note that while some of the topics covered in this discussion draft involve rules and requirements which were effective upon passage of the DCIA and do not require Federal Register publication, FMS believes it is advisable to publish this information in a clear and coherent manner for public consideration. We intend to circulate this draft to other members of the Federal Credit Policy Working Group to elicit their comments and we have aggressively targeted publication of the proposed rule for August 1997, and the final rule for October 1997.

Internal Treasury Actions to Assure Proper Implementation of the DCIA

Last in the list of key accomplishments in implementing the provisions of the DCIA, I would like to point out that Treasury has taken organizational steps to assure that implementation of the DCIA receives high priority.

o We have approved and implemented a reorganization plan within the Financial Management Service, our lead agency for implementing the requirements of the DCIA, creating a new Assistant Commissioner, Debt Management Services (DMS). The primary goal of this new area is to increase and improve delinquent debt collection governmentwide.

o FMS also established a "debt collection center" in its Birmingham Regional Finance Center. Employees in that center have been given extensive training in debt servicing and collection.

o We increased staffing at Debt Management Services. At the time the DCIA passed, staffing dedicated to the FMS office involved in debt collection activities was 17. Recruitment has brought the current level of staffing to 65, and additional recruitment is underway.

These structural changes to our organization are directly in response to the passage of the DCIA. While these changes put FMS in the position of meeting current needs, it is clear that additional resources will be needed as we continue to implement the requirements of the DCIA. We are committed to supplying such resources to assure prompt, continuous and effective action in implementing all the provisions of the DCIA.

Mr. Chairman, I have detailed a long list of accomplishments, and we, along with our partners have worked hard to achieve them. While we are proud of what we have accomplished to date, we know our work is not completed.

This past year we made significant investments to implement the DCIA by:

· informing Government personnel of the existence and requirements of the DCIA;

· developing an operational cross-servicing system, creating an operational debt collection center, setting standards for debt collection centers, training personnel, and conducting cross-servicing;

· developing an operational offset system, setting operating procedures for participation in the program, and beginning offsets; and

· drafting regulations.

These investments will provide dividends in the coming year. Our expectations of achievements for the coming year are as follows:

Administrative Offset

· We will continue to operate the administrative offset system and continue our efforts with our fellow agencies to assist them in incorporating their debts into the system;

· We will continue our partnership efforts to add Federal payments into the offset process;

· We will begin collecting child support debts by administrative offset;

· We will be publishing regulations concerning administrative offset to collect child support, movement of the operational responsibility of tax refund offset from IRS to FMS, and offset of certain benefit payments;

· We will conduct an inter-agency workshop and provide follow-up guidance for Federal agencies that are participating in tax refund offset to assure the seamless transition of the program to FMS effective January 1, 1998; and

· We will continue our partnerships with Department of Defense and Postal Service for the purpose of initiating offsets of their respective payments no later than January 1, 1998.

Cross-servicing

· We will continue to develop our basic computerized debt collection management system, making the necessary enhancements to implement all the provisions of the DCIA;

· We will continue to service and collect debts currently referred to us, and to help other agencies refer debts to FMS as required by law; and

· We will award a competitive debt collection contract which will result in increased use and improved collection rates over the current governmentwide debt collection contract in effect.

Wage Garnishment

· We will publish a regulation establishing requirements for conducting administrative wage garnishment; and

· We will develop procedures and processes to implement wage garnishment as a debt collection tool.

Other DCIA responsibilities

· We, in partnership with the Department of Justice, will publish the Federal Claims Collections Standards;

· We will publish a regulation covering DCIA topics other than offset and administrative wage garnishment;

· We will begin a comprehensive public awareness campaign and analyze its effectiveness; and

· We will revise and update Treasury publications and guides to reflect revisions to governmentwide debt collection procedures and processes resulting from the enactment and implementation of the DCIA.

Finally, Mr. Chairman and distinguished members, while we have more than a full agenda of work, we will remain open and flexible to assist our fellow agencies in new debt collection initiatives and efficiencies which may arise in the upcoming year.

Thank you, Mr. Chairman. This concludes my remarks this morning. I would be pleased to address any questions regarding the implementation of this legislation or our debt collection efforts that you or other Members of the Subcommittee may have.