T H E   W H I T E   H O U S E

John A. Koskinen - April 18, 1997

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APRIL 18, 1997

Mr. Chairman and distinguished members of the Subcommittee on Government Management, Information, and Technology, I am pleased to appear before you today with the Treasury Department which is responsible for implementing many of the core provisions in the Debt Collection Improvement Act (DCIA). The Department of Treasury has been working very closely with the Federal Credit Policy Working Group, the Chief Financial Officers, Department of Justice and the program agencies to implement the administrative offset and debt collection methods authorized by the Act. My colleagues from the Treasury Department will provide you many of the specifics on implementation.

The Debt Collection Improvement Act was signed into law almost one year ago. It was the result of a bipartisan effort in Congress to reform the management of Federal non-tax receivables. The Administration appreciates the leadership and efforts of the Chairman and the ranking member in obtaining passage of this Act. Your sponsorship was instrumental in giving agencies modern management tools for their credit programs and other non-tax receivables.

Interagency Cooperation

The management of Federal credit programs is basically the responsibility of each agency. However, a major tenet of the Act is that, when agencies work together to prevent and collect delinquent debt, loan recipients and taxpayers will benefit, and public confidence in the Federal government's management of cash and loan assets will increase. Since enactment, the Chief Financial Officers' Council and the Federal Credit Policy Working Group have been monitoring the implementation of the Act. As the chairman of these interagency groups which were instrumental in development of the Act, I think it is clear that Treasury and the major debt collection agencies are making real progress in implementing the Act.

The rate of implementation varies by agency due to differences in program requirements and operational issues. However, there is no question that agencies are committed to working together in using the authorities in the Act.

Overall Trends

Federal loan and cash assistance programs benefit tens of millions of Americans. At the end of Fiscal Year 1996, total non-tax receivables totaled $252 billion. Of the total, $204 billion are loan receivables. Receivables due for civil monetary penalties, grant overpayments, audit disallowances, royalties, and insurance premiums totaled $48 billion.

Of the total $252 billion in receivables, $51 billion was delinquent in Fiscal Year 1996. Compared to 1995, there was no growth in delinquencies in 1996. From 1990 through 1995, delinquent debt increased by over 10 percent. Delinquent receivables more than one year old totaled $42 billion, a slight decrease since 1995.

Our experience, not unlike the private sector, is that a debt that is delinquent for more than one year is uncollectible without the use of special collection tools such as offset and referral to private collection agencies and litigation. In 1996, more than $3 billion was collected through offset, private collection agencies, and litigation.


The Act significantly improves the ability of the Departments of Treasury and Justice, along with loan making agencies, to maximize collection of delinquent debt by ensuring quick action, such as sharing payment and collection information between agencies when an account is over 180 days overdue. Also, agencies have a range of new tools for improving credit program and debt collection performance. In the President's 1998 Budget, several of these tools were highlighted as Administration management priorities:

Obtain higher recoveries on delinquencies with enhanced payment offset: The Act requires that all disbursing agencies withhold and offset Federal payment to those who are delinquent on loans from the Federal Government. Implementation of this provision is a top priority for monitoring by the Chief Financial Officers' Council and the Federal Credit Policy Working Group.

Lower cost of program administration: The Act encourages agencies to use the private sector to contact delinquent debtors as well as private attorneys to support Justice Department litigation enforcement of past due claims. A new government-wide contract to acquire private sector debt collection services is nearing completion by the Treasury Department.

Gainsharing for increased collections: The Act allows agencies to keep up to 5 percent of any increase in their collections and to use the funds on improved credit management and debt collection. The Small Business Administration, the Environmental Protection Agency, the Department of Health and Human Services, and the Federal Emergency Management Agency are piloting this authority and their requests are included in the President's 1998 Budget.

Coordinated and expedited asset sales: The Act encourages agencies to sell loan assets when the Federal Government will benefit financially. Both performing and non- performing loan assets have been sold successfully by the Department of Housing and Urban Development, the Department of Veterans Affairs and the Federal Deposit Insurance Corporation which now houses the asset disposition staff transferred from the Resolution Trust Corporation. The Federal Credit Policy Working Group has formed a subcommittee to identify successful loan sales practices and to assist agencies that are considering asset sales. This subcommittee is currently offering assistance to the Small Business Administration which is planning the sale of approximately $1billion in loans in 1998.


The challenges to speedy implementation of the Act include organizing and training personnel, revising procedures, issuing new regulations, notifying debtors, upgrading systems, and modifying reporting requirements. The need to upgrade and enhance systems is proving to be most challenging, especially for interagency debt collection system requirements which must be synchronized to track and report on referred accounts.

Most agency systems will require some modification to identify debt to be referred to Treasury for offset. Agencies that consider cross-servicing or designation as a debt collection center must be adept at using all the debt collection tools. In addition, a center must have the ability to report data on portfolio performance monthly. Specifically, a debt collection center must be able to track its portfolio, by program, age of debt, dollars, referrals, and collections on a monthly basis.

Timely and reliable information on the status of each account is critical for agency managers in dealing with loan customers, avoiding potential losses, and improving recovery rates. For policy makers and managers, timely information is critical for reviewing performance and as an early warning of impending problems.

The implementation of the Debt Collection Improvement Act is an opportunity to upgrade systems and to improve the quality of performance information. One of the goals of the Federal Credit Reform Act of 1990 is to measure the cost of credit programs so that managers and policy makers have the information needed to accurately budget for credit programs. "Recoveries of defaulted loans" is a critical factor in estimating the costs and budgeting for credit programs. A key element of the Government Performance and Results Act is to measure actual performance against long-term objectives. Taken together, these acts serve as a mandate to improve the information management of credit and debt collection programs.

A Task Force on Credit Program Performance Indicators was created by the Federal Credit Policy Working Group to review the information requirements of each act related to loan programs. The Task Force established a framework for agencies to integrate the requirements of these acts and to measure performance using a set of common performance indicators.

During the next year, the Office of Management and Budget working closely with the Chief Financial Officers' and the Federal Credit Policy Working Group will continue to support interagency efforts to improve their receivables management information systems.


In a time of fiscal constraint and tightly budgeted staff resources, Treasury and the major receivables management agencies face many operational and systems challenges. The development of a government-wide approach to receivables management is a formidable task. We look forward to continuing to work with you and the Congress in meeting these challenges and implementing this significant legislation.

Mr. Chairman, this concludes my statement. I'd be pleased to take any questions you may have.

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