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OFFICE OF MANAGEMENT AND BUDGET STATEMENT OF JOHN KOSKINEN DEPUTY DIRECTOR FOR MANAGEMENT BEFORE THE HOUSE COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY
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.
Priorities
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.
Challenges
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.
Conclusion
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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