Detailed Information on the
Financial Management Service Debt Collection Assessment

Proposals Passed into Law in 2008: Ten-Year Statute of Limitations for Offset: The Farm Bill, containing the elimination of the 10-year statute of limitations for offset of nontax payments, passed on June 18, 2008, over the President's veto, and is now law. FMS has drafted and placed in clearance amendments to the related regulations conforming the regulations to the change in the law and will make the necessary operational adjustments to implement it. Offset and Levy of CMS (Medicare) Payments: The Medicare bill, H.R. 6331, P.L. 110-275, signed into law on July 15, 2008, allows FMS to offset CMS payments for nontax and child support debts and sets a timetable for payment levy. Offset to Collect Unemployment Compensation Debts: The SSI Extension bill, H.R. 2608, P.L. 110-328, containing a provision to allow offset of federal tax refunds to collect past due state unemployment compensation debts resulting from fraud, was passed and signed into law on September 30, 2008. Proposals Rejected for the FY 2009 Budget: Proposal to authorize post-levy due process for levies under the Federal Payment Levy Program. Proposal to authorize FMS to charge the IRS a fee for tax levies. Proposal to authorize offset for Federal income tax refunds for delinquent state tax for out-of-state residents. Proposal to authorize offset of Social Security, Railroad Retirement Board and Black Lung payments to collect delinquent child support. Proposal to authorize offset of payments made to debtors in bankruptcy without obtaining relief from the automatic stay. FMS will continue its legislative strategy for implementing new initiatives that would enhance the government's debt collection capability.

The debt long-term measure was evaluated as part of FMS' update to its Strategic Plan and been updated with a target of collecting $8 billion per year by 2018.

Level fund the debt collection program for 2005.

Develop a more ambitious long-term performance measure.

Set interim targets and describe interim actions necessary to achieve the long-term performance measure. FMS establishes annual performance measures for collections and referrals of debt by agencies. To achieve long-term measures FMS uses various collection tools and initiatives, such as: ?? Administrative Wage Garnishment (AWG) ?? DebtCheck ?? Continuous Agency Outreach ?? President's Management Agenda (PMA) ?? Receivables Reporting

As debt fee revenue increases, redirect salary and expenses funding for debt management operations to other FMS operations. As a result of increased debt revenues, in FY 2008 FMS' Debt Collection Budget Activity will be fully funded by fee revenue. A Federal Contractor Tax Compliance Task Force consisting of FMS, IRS, and the Center for Medicare and Medicaid Services is examining the issue of how best to incorporate CMS payments to Medicare providers into the Federal Payment Levy Program.

Measure: By 2012, there will be $4.0 billion collected annually from delinquent debt referrals.

Explanation:This measure is set for the year 2012.

Measure: Amount of delinquent debt collected through all available tools.

Explanation:This measure determines the amount of delinquent debt collected by FMS using all available tools.

Measure: Percentage of delinquent debt referred to FMS for collection compared to amount eligible for referral.

Explanation:This measure compares the amount of delinquent debt referred to FMS for collection to the amount eligible for referral.

Measure: Amount of delinquent debt collected per $1 spent

Explanation:This measure analyzes the amount of debt collected for every dollar of debt collection program cost.

Is the program purpose clear?

Explanation: In response to a steady increase in the amount of delinquent non-tax debt owed to the United States, and concern that appropriate actions were not being taken to collect this delinquent debt, Congress enacted the Debt Collection Improvement Act of 1996 (DCIA). The Debt Collection Program's purpose is to improve the quality of the Federal Government's financial management by increasing the collection of delinquent debt owed to the Government, by providing debt management services to all Federal agencies, and by protecting the financial interests of the American taxpayer.

Evidence: Title 31, Section 3701 of the DCIA (P.L. 104-134). The IRS Restructuring and Reform Act of 1998 (P.L. 105-206) amended the Internal Revenue Code to authorize offsetting tax refund payments to collect delinquent state income tax obligations. Also, the Taxpayer Relief Act of 1997 (105-34) and Executive Order 13019 - Collecting Delinquent Child Support Obligations (signed September 28, 1996).

Does the program address a specific and existing problem, interest, or need?

Explanation: The Financial Management Service (FMS) serves as the Government's central debt collection agency, managing the government's delinquent debt portfolio. The Debt Collection Program exists to increase the collection of delinquent debt owed to the government. Delinquent debt can include everything from unpaid education loans to unpaid housing loans to money owed via the Medicare program by secondary payers. FMS has also been charged with collection State income tax debt and child support debt. FMS promotes sound financial and debt management practices Governmentwide by performing its debt collection activities.

Evidence: There is more than $54.4 billion in non-tax delinquent debt owed to the Federal Government as of the end of 2002. Including tax debt, delinquencies total $186.6 billion. Agency referrals of debt more than 180 days delinquent have significantly increased. For example, referrals of debt for cross-servicing (a centralized debt collection process that manages delinquent debts referred from agencies across a variety of collection tools) increased from 43 percent of eligible debt in 1999 to 92 percent in 2002.

Is the program designed so that it is not redundant or duplicative of any Federal, state, local or private effort?

Explanation: FMS' Debt Collection Program has been given the responsibility for providing efficient and effective centralized delinquent debt collection for the Federal and State Governments. Further, FMS' Debt Collection Program has been given authority to designate and exempt payment types from centralized collection. The FMS Debt Collection Program leverages and supports other debt collection efforts across multiple levels of government (i.e., continuous levy of Federal tax debt, assisting states in collecting delinquent child support debt and offsetting delinquent state tax debt). The Program also reflects an effective public/private sector partnership through the extensive use of private collection agencies and credit bureau organizations.

Evidence: The DCIA provides that any non-tax debt or claim owed to the U.S. Government that is 180 days delinquent, with certain exceptions, will be referred to the Department of the Treasury for collection.

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: Since 1996, the Debt Collection Program has evolved and grown in both its scope and number of responsibilities. In addition, the ability of the Program to effectively form public/private sector partnerships through the extensive use of private collection agencies and credit bureau organizations is a credit to its design and flexibility. FMS works to address areas of improvement as identified by GAO audits, but none are considered major flaws.

Evidence: The design and flexibility of the Program has enabled it to accomplish the following: 1) Collections have steadily increased in both programs since inception -- the Treasury Offset Program (TOP) has increased from $1.73 billion in 1996 to $2.77 billion in 2002, and Cross-Servicing has increased from $1.2 million in 1997 to $85.7 million in 2002; 2) The Program effectively merged the IRS Tax Refund Offset (TRO) program with TOP in 1999, and enhanced the program to increase TRO collections; 3) The TOP system was sufficiently flexible, robust, and scalable to incorporate tax levy, benefit offset, and the offset of tax rebate checks ($470 million in collections in 2001); and 4) Administrative Wage Garnishments (AWG) was incorporated into the Cross-Servicing Program.

Is the program effectively targeted, so program resources reach intended beneficiaries and/or otherwise address the program's purpose directly?

Explanation: In FY 2002, FMS collected $2.84 billion while program costs were about $53.5 million. Approximately $53 of debt was collected for each dollar of program cost. In addition, 93 percent of the debt identified as eligible for referral was referred to FMS in FY 2002.

Evidence: Through April 2003, FMS has collected $17 billion since inception of the DCIA. Funds collected by these programs go back for agency use, to the Treasury General Fund, through the States to child support families, and to the States for other programs. Child Support collections totaling $10 billion has gone back to families in need. More than 1,100 agency participants attending FMS workshops, conferences, symposia, and seminars on debt collection throughout the country in FY 2002. FMS also conducts meetings with agency Chief Financial Officers and finance offices on debt referral and other debt collection developments.

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: FMS recently developed a long-term (out to 2010) performance measure. It is: "There will be $3.5 billion collected annually from delinquent debt referrals.

Evidence: Appendix A of the FMS Strategic Plan (FY 2003 - FY 2008). The Programs' long-term strategic goal is to "maximize collection of Government delinquent debt by providing efficient and effective centralized debt collection services." This goal is supported by underlying objectives, strategies, and action plans that are intended to move the Program forward (i.e., Central salary offset, AWG, Debt Check, FedDebt). Further, FMS uses activity based costing to track costs and to assess actuals for the current and preceding years. This data and other information is used as part of the budget deliberation process to project future strategic goals, performance measures and targets, two years out.

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: The FMS long-term performance measure is not ambitious. Based on past performance and anticipated improvements in debt collection activity, we believe that FMS likely could collect more than $3.5 billion in 2010. In addition, FMS does not provide a schedule of annual performance targets beyond FY 2005.

Evidence: FY 2001 actual performance was $2.7 billion collected. FY 2002 and FY 2003 actual collections were $2.84 billion and $3.1 billion respectively. Growth in collections was about $133 million per year from FY 2001 to FY 2003. Based on collections of $3.5 billion by 2010, the growth in collections would need to be only $57 million per year.

Does the program have a limited number of specific annual performance measures that demonstrate progress toward achieving the program's long-term measures?

Explanation: FMS has concrete, quantifiable, and measurable annual goals to help manage the Program's progress toward the collection of debt (the long-term outcome and purpose of the program). The Program reports results based on its annual performance measures on a monthly basis. In addition, program performance data is collected and reviewed on a monthly basis (e.g., eligible referrals, $'s collected for each collection tool, and $'s collected per major collection program).

Evidence: The FY 2004 FMS Congressional Justification. The Debt Collections' annual Performance Measures are to: 1) Increase the amount of delinquent debt collected through all available tools; 2) Increase the percentage of delinquent debt referred to FMS for collection compared to amount eligible for referral; and 3) Increase the amount of debt collected for every dollar of Debt Collection Program cost, compared to FY 2002 baseline of $52.53.

Does the program have baselines and ambitious targets and timeframes for its annual measures?

Explanation: FMS will have three performance measures to monitor the performance of its Debt Collection Program beginning in FY 2004. The targets established for each of these measures are aggressive and exemplify a strong management commitment towards the continued success and improvement of this Program. The new performance measure (number 3) has a baseline to measure performance against.

Evidence: The FY 2004 FMS Congressional Justification links actual performance to performance targets.

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, etc.) commit to and work toward the annual and/or long-term goals of the program?

Explanation: The Federal Reserve Banks (FRB), Private Collection Agencies (PCA), States, and Federal Program Agencies (FPA) work towards FMS achieving its annual performance goals, as is evident by the continued success of the Treasury Offset and Cross-Servicing Programs. FMS has a continuing program to encourage states to participate in the State Tax Offset Program. PCAs are used by FMS as a method to collect delinquent debt and support the Debt Collection Program's goals. FPAs refer debts in accordance with the Debt Collection Improvement Act of 1996 (DCIA).

Evidence: FMS has collected $17 billion (through April 2003) since inception of the DCIA, and collections have shown consistent growth. Thirty states plus DC currently participate in offsetting state tax debt; FMS has collected $158 million since FY 2000 in state tax offsets. During FY 2003, FMS added five more states to the State Tax Offset Program, increasing the number from twenty-five to thirty states plus DC. A minimum of two new states will be added in calendar year 2003. To date, $70.9 billion of child support debt has been referred. Activities of the PCAs are monitored by personnel of the Private Collection Branch (PCB), Debt Services Division of FMS' Debt Management Service. PCA collections increased by 55 percent in 2002 compared to 2001, in large part due to the success of the new PCA contract. Debt referrals increased from 89 percent in FY 2001 to 93 percent in FY 2002.

Are independent and quality evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: Weekly and/or monthly reports are run on tools used in the debt collection process, including TOP and the Cross-Servicing Program. The OIG and GAO regularly audit the Debt Collection Program. FMS also has an integrated evaluation, planning and budgeting process to ensure ongoing feedback and improvement. FMS' Management Controls Branch conducts internal control reviews of the Debt Collection Program as required by the FMFIA and FMS' five-year Management Control Plan.

Evidence: FMS is continually subject to OIG and GAO audits. These audits provide a regular, independent stream of information on collection programs. Congress conducts annual hearings on FMS' implementation of the DCIA as well as to provide performance status on debt collection activities.

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: FMS' budget is aligned by program activity and is tied to the purpose of the program. The budget request includes amounts for overhead, retirement costs, and other direct and indirect costs.

Evidence: The FY 2005 FMS budget request clearly indicates the full cost of achieving performance goals.

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: In 1997, FMS shifted its strategic focus on debt collection to prioritize implementation of individual provisions of the DCIA and to focus on Program achievement. In addition, FMS has recognized the need for long-term performance goals/measures and will work to establish and support such goals/measures.

Evidence: Over the last several years, FMS has been successful in implementing DCIA provisions and Program enhancements to strengthen and improve the Debt Collection Program. Examples are: Merger of IRS TRO and TOP; implementation of continuous tax levy program; implementation of offset of state tax debt; implementation of benefit (SSA) offset and levy; development of AWG; centralized salary offset; debt check (barring delinquent debtors); and non-Treasury disbursing office payments. FMS has revamped the PCA process by redoing the contract, improving oversight of the PCAs, shifting the focus to performance, and decreasing the number of PCAs from 13 to 5. The results have been increased efficiency and the doubling of collections annually. The Tax Refund Offset (TRO) Program has significantly increased collections each year, since the transfer to FMS in 1997. Collections currently exceeds $2.6 billion each year which is $900 million over the 1997 level.

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: The process of collecting and reporting debt collection data is performed on a monthly basis. The methodology and the origin of the data are consistent from month to month. FMS collects monthly performance data on Private Collections Agencies (PCA's) and uses that data to reward best performing contractors on a tri-annual basis - - the reward consists of a larger portion of the debt portfolio for the next servicing period.

Evidence: FMS has made enhancements to the Treasury Report on Receivables Due from the Public which enables FMS to more thoroughly monitor and evaluate agency referral and collection performance by generating computerized five-year trend analysis reports. FMS also prepares an Annual Debt Collection Report, which covers governmentwide accomplishments in debt collection. Collection data is generated by the program systems (TOP and Cross-Servicing) and is reported on a monthly basis. The data from the program systems is validated against the data contained in the Debt Management Account System (DMAS). Referral data is loaded from files received from Federal program agencies, which are responsible for certifying debt referrals to Treasury.

Are Federal managers and program partners (grantees, subgrantees, contractors, cost-sharing partners, etc.) held accountable for cost, schedule and performance results?

Explanation: The PCA contract is performance-based, and PCAs are rewarded for successful debt collection performances. FMS managers are held accountable by the inclusion of cost, schedule, and performance goals in their annual performance plans. FMS holds seminars and workshops throughout the year to educate the Federal Program Agencies (FPAs) about the Debt Collection Program. FMS continuously meets with agencies to discuss debt referrals in efforts to ensure debts are referred timely for better opportunities for collection. The FRB, as the fiscal agent, provides services under FMS' guidance and direction.

Evidence: Steering Committee Meetings are held quarterly to report on the progress of milestones. PCA performance is measured and awarded accordingly. Debts are distributed to the 5 PCAs based on its performance in prior years. Annual compliance reviews are conducted by the Private Collection Branch (PCB) of the Debt Services Division of Debt Management Services to ensure the PCAs are acting in accordance with established guidelines set forth in the contract. FMS works with the FRB to develop requirements for necessary services and products, monitors the FRBs progress, and approves the deliverables. FMS provides data on agency debt collection statistics (receivables, collections, referrals, etc) to OMB.

Are all funds (Federal and partners') obligated in a timely manner and spent for the intended purpose?

Explanation: This Program is funded through revenue and an annual salaries and expenses account; the Program follows a predictable spending pattern largely driven by payroll and contract costs. On a weekly basis, collections are electronically disbursed to the Federal Program Agencies and participating state agencies. Over 50 percent of the Program collections are returned to the states for child support.

Evidence: During FY 2002, FMS' Debt Collection Program obligated 97.5 percent of its funds for debt related program expenses.

Does the program have procedures (e.g., competitive sourcing/cost comparisons, IT improvements, approporaite incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: FMS has a variety of procedure and cost measures which it uses to help evaluate and achieve improved efficiencies.

Evidence: FMS has made enhancements to the Treasury Report on Receivables Due from the Public which enables FMS to more thoroughly monitor and evaluate agency referral and collection performance by generating computerized five-year trend analysis reports. FMS also uses an Activity-Based-Costing method to track costs and set fees for services. FMS program managers use Exhibit 300 [cost and schedule goal section] to monitor program performance and to ensure swift correction of any programmatic deficiencies that may arise. This has led to marked improvement in ensuring that cost and schedule goals are adequately monitored for success.

Does the program collaborate and coordinate effectively with related programs?

Explanation: FMS holds workshops throughout the year across the country. The goal of these workshops is to improve the Debt Collection Program and increase the amount of referrals and collections. FMS maintains constant agency liaison with agencies. FMS relies heavily on the willingness of agencies to refer debts to FMS for offset and cross-servicing. Working with Health & Human Services, FMS has substantially increased the number of Medicare secondary payor debts referred to FMS for collection through PCAs.

Evidence: Critical to the success of collection efforts is the role of the federal program agencies: referring eligible debts. At the close of FY 2002, 93 percent of the eligible federal non-tax debts had been referred to the TOP for collection. For the same time period, 96 percent of the eligible debts had been referred to the Cross-Servicing Program for collection. Collections under Continuous Tax Levy totaled $60 million in FY 2002, a 264 percent increase from the $16.5 million collected in FY 2001.

Does the program use strong financial management practices?

Explanation: FMS has no material weaknesses from audits for its Debt Collection Program. The Debt Management Accounting System (DMAS) provides all the accounting information for the Debt Collection Program. The DMAS reports all financial information timely and accurately, and meets all statutory requirements.

Evidence: The DMAS accounts for all debt collection activity that is processed through the Treasury Offset and Cross-Servicing programs. The DMAS meets statutory requirements for financial management systems, and has procedures in place to ensure proper accounting procedures are followed. Financial information is reported in a timely and accurate manner. The DMAS has no material weaknesses as part of the Treasury Managed Account audit and received a clean audit opinion the past two fiscal years. FMS also uses an Activity-Based-Costing method to track costs.

Has the program taken meaningful steps to address its management deficiencies?

Explanation: FMS has taken steps to address its management deficiencies. In 1997, FMS shifted its strategic focus on debt collection to prioritize implementation of certain provisions of the DCIA, and to focus on program achievement. FMS also has an integrated evaluation, planning, and budgeting process to ensure ongoing feedback and improvement.

Evidence: FMS' Management Controls Branch conducts internal control reviews of the Debt Collection Program as required by the FMFIA and FMS' Five-Year Management Control Plan. FMS has received recognition, awards, and leadership praise from the Department for its debt collection efforts.

Has the program demonstrated adequate progress in achieving its long-term outcome performance goals?

Explanation: Although FMS exceeded its debt collection performance targets for FY's 2002 and 2003 and has established ambitious annual performance goals and targets, it has not established a long-term performance measure that is ambitious and does not provide a schedule of annual performance targets beyond FY 2005.

Evidence: Appendix A of the FMS Strategic Plan (FY 2003 - FY 2008). The Programs' long-term strategic goal is to "maximize collection of Government delinquent debt by providing efficient and effective centralized debt collection services." The long-term performance measure is to collect $3.5 billion annually from delinquent debt referrals by 2010.

Does the program (including program partners) achieve its annual performance goals?

Explanation: FMS exceeded all of its performance goals for debt collection, as set out in Treasury's FY 2002 and FY 2003 performance reports.

Evidence: During FY 2002, in support of the goal to Maximize collection of Government delinquent debt by providing efficient and effective centralized debt collection services, FMS' performance exceeded the established targets: 1) Amount of delinquent debt collected through all available tools -- target: $2.6 billions; performance: $2.84 billion. 2) Percentage of delinquent debt referred to FMS for collection compared to amount eligible for referral -- target: 75 percent; performance: 93 percent. Source: Treasury's FY 2002 Annual Performance Report and FMS' FY 2004 Congressional Justification.

Does the program demonstrate improved efficiencies or cost effectiveness in achieving program performance goals each year?

Explanation: The amount of debt collected has increased since the Debt Collection Improvement Act of 1996, which gave FMS the authority to centrally collect debt over 180 days delinquent. The Program is robust enough to allow modifications, required within very short timeframes, which positions FMS to increase collections by offsetting payments that have been authorized by legislation, such as the Tax Rebate Program, in 2001. FMS collected over $460 million in offsets of the tax relief checks. Further, the original Treasury Offset Program was modified subsequent to a statutory requirement - the Taxpayer Relief Act of 1997.

Evidence: The FMS FY 2004 Congressional Justification demonstrates the increasing amount of collections and the decreasing level of cost. Since FMS was given the responsibility for collecting delinquent debt, it has collected $17 billion (through April 2003) and of that amount, $4.8 billion were collected from debts that were not otherwise being collected by the Federal Government. For every dollar spent on the Debt Collection Program, FMS collected approximately $51. Because of Program efficiencies and cost effectiveness, FMS has been successful in expanding the Program without an increase in Program fees over the last two years.

Does the performance of this program compare favorably to other programs, including government, private, etc., that have similar purpose and goals?

Explanation: Since passage of the DCIA in 1996, FMS has greatly improved Governmentwide collections of delinquent debt, particularly in the child support arena. FMS' use of Private Collection Agencies (PCAs) to assist in the collection of debt through its Cross-Servicing program has been a huge success, and continues to excel. FMS is the "collection agency" of last resort for delinquent Federal debt; 75 percent of the debt referred is over two years old, while approximately 10 percent is less than a year old. The older the debt, the less collectible it becomes. Since most PCAs deal with debt that is much more current [less than one year], it is not possible to make a comparable comparison to similar debt collection programs, on an aggregate basis. However, as we compare elements of the Program to that of other Federal Program agencies, the FMS performance is far better.

Evidence: The FMS FY 2004 Congressional Justification demonstrates the increasing amounts of collection and the decreasing levels of cost. Overall, the collection rate for the Debt Collection Program is approximately 2.4 percent of the delinquent debt referred. This compares favorably to PCAs although most of the debt referred to FMS is aged at 2 years or more. Since FMS was given the responsibility for collecting delinquent debt, it has collected $17 billion (through April 2003) and of that amount $4.8 billion were collected from debts that were not otherwise being collected by the Federal Government. The results have been increased efficiency and the doubling of collections annually. The Tax Refund Offset (TRO) Program has significantly increased collections each year, since the transfer to FMS in 1997. Collections currently exceeds $2.6 billion each year which is $900 million over the 1997 level. Both the United Kingdom and an Australian state government have been looking at FMS as a benchmark model for their countries' centralized Debt Collection Program.

Do independent and quality evaluations of this program indicate that the program is effective and achieving results?

Explanation: FMS' Debt Collection program has had several GAO reviews as well as independent studies of the Tax Levy. While these reviews have identified some deficiencies and improvement opportunities, overall they validate the effectiveness of the Debt Collection Program. FMS has expanded, strengthened and improved the Debt Collection Program over the last three years by setting priorities and then accomplishing them.

Evidence: Based on an independent analysis by Price Waterhouse in 1998, it was shown that FMS collected $600 million more than the IRS through Tax Refund Offset. In recent Congressional Hearings, FMS has been recognized for its outstanding work implementing the Debt Collection Improvement Act of 1996 (DCIA). FMS has continued to exceed its performance targets for referrals and collections.