On July 28, 1999, the OIG issued Audit Report 9-11, 1999 Audit of Non-Tax Delinquent Debt. This audit was performed as part of a President’s Council on Integrity and Efficiency (PCIE) project to evaluate the effectiveness of the Government’s efforts to collect non-tax delinquent debt. The audit objectives were to determine whether the SMA complied with the collection requirements in the Debt Collection Improvement Act of 1996 (DCIA) and whether the amount of delinquent debt reported to the Department of the Treasury (Treasury) was accurate.
The SBA had 21, 510 loans valued at $1.7 billion that were delinquent over 180 days or charged off as of December 31, 1998. The OIG statistically selected 88 loans valued at $6.6 million to review. With the enactment of the Debt Collection Improvement Act of 1996 (DCIA), Congress placed new emphasis on the collection of delinquent debt. One of the primary purposes of the DCIA is to maximize the collection of delinquent debts by ensuring quick action through the use of all available collection tools contained in OMB Circular A-129, Policies for Federal Credit Programs and Non-Tax Receivables. When a debt becomes seriously delinquent—over 180 days past due— agencies are required to refer the debts to Treasury. Delinquent debt can be referred for the Treasury Offset Program (TOP) whereby Treasury diverts all or part of a Federal payment due the debtor to the debtor agency or for cross servicing whereby Treasury pursues collection through demand letters, telephone calls, tracing, or negation of a compromise. Delinquent debts referred for cross servicing are automatically included in TOP, but those referred for TOP are not automatically included as part of cross servicing.
In October 1997, the SBA requested that Treasury designate the SBA as a collection center for its own debt. The SBA based this request on the fact that it had the structure needed to collect delinquent debts. This structure included the accounting and information systems to needed to provide comprehensive reports on collection activities and ongoing use of the available collection tools also specified in the guidance. Designation as a collection center would all the SBA to use the same collection techniques used by Treasury. In March 1999, the SBA requested a waiver from the requirement to transfer to Treasury debt that is over 180 days delinquent if it was unlikely the SBA would be designated a debt collection center. As of the date of this report, the SBA had no received a decision from Treasury.
The OIG found that the SBA has neither fully implemented all of the provisions of the DCIA nor established timeframes for full implementation. It its collection efforts, the SBA used many of the collection tolls described in the DCIA and in Office of Management and Budget (OMB) Circular A-129. Some delinquent debt, however, was not referred to Treasury when established referral criteria were met. Twenty-two (25 percent) of the 88 loans reviewed, valued at $1.5 million should have been referred to Treasury. In addition, administrative wage garnishment and Federal wage matching collection tools were not used.
The OIG also found that the $1.7 billion in delinquent debt reported to Treasury on the Report on Receivables Due from the Public was reliable as of September 30, 1998. Guarantee fee receivables, however, were overstated by approximately $22.6 million. This occurred because cancellations and modifications to the Guarantee Fee Accounts Receivable were not being posted.
The OIG made three recommendations to the Associate Administrator for Financial Assistance, specifically: (1) Revise Loan Accounting System procedures to automatically refer all loans delinquent over 180 days to Treasury, unless an exemption code is entered into the system; (2) Refer purchased loans that continue to be serviced by the lender to Treasury for offset, and (3) Establish a time frame for implementing administrative garnishment of non-federal wages.