Uncle Sam isn’t fooling around any more with delinquent debts, and he is using automated tools to get the word out and the cash in.
In the past few years the Reagan administration has begun to cast off the federal government’s old image as a spineless supplier of loans that need not be repaid and a toothless enforcer of fines and other penalties. Agencies as diverse as the Department of Education, the Small Business Administration and the Army have launched sophisticated, high-tech campaigns to drive that point home to deadbeats.
The relationship between the how and the how much of federal debt collection is a close one. Computer matching has helped to bring in cash, and bigger budgets have led to more and more sophisticated debt collection tools. Once they have a Social Security number federal officials can locate virtually any defaulter.
Once the borrower has been found, federal officials have several options as to how to collect: by contacting the defaulter or, failing an immediate response, by using a tax offset or a salary offset if he is a federal employee. Cases of large debts also can be referred to a private collection agency, to a law firm or to the Department of Justice for litigation.
Officials interviewed by GCN spoke of hours and days spent tracking people, working only from a mussed-up sheet slid inside a manila envelope. Those days fortunately are history almost everywhere, and most agencies provide their collection agents with the most up-to-date tools. The most fundamental automated tool is a complete data base, with easy on-line access to each case.
In addition to assisting collection agents, the debt collection systems also help managers prepare and analyze statistics about borrowing and lending.
What doesn’t exist is one omnipotent system that services all the debt collectors across the board. A 1981 Office of Management and Budget report on strengthening federal credit management expressly addressed the issue of automated collection. It urged all agencies to install useful and accurate data bases–which had not always been in place. It also called for flexible management information systems, citing instances of poor judgment by agency officials as to how they used available information. For example, the report said, at that time the Department of Energy had-only a sporadic and manual system for processing accounts receivable schedules against other data.
Agencies do not establish their systems in a vacuum. Starting with its 1985 Circular A-129, OMB has devoted staff and resources to assisting federal agencies in the modernization and/or application of debt collection efforts.
Jack Donahue, OMB’s director of credit management, keeps a bird’s-eye perspective on all such activities. He advised that agency officials should first map out their strategies for debt collection, then develop the corresponding automated tools. Risk assessment is a key component of this two-pronged effort, he said. Agencies should decide early on which debts to write off and tailor their data base management systems accordingly.
Diane Dogan, director of credit administration at the Treasury Department’s Financial Management Service, said automated collection systems that provide case data quickly to all debt collection personnel usually pay for themselves in six months to a year. “You are putting more demands on the basic accounting structure. It must be accurate,” she said.
As a complement to A-129, Treasury has developed guidelines for implementation of automated collection systems, based on a standard reporting format developed by the National Consumer Finance Association. Treasury staff also helps agencies perform the newly authorized function of reporting federal debts to credit bureaus, just as charge card companies do.
First Treasury, then OMB must approve any agency plans for a new system. “It’s not easy at any stage of the game,” Dogan said, while also cautioning against any frenetic attempts to magically clear up years’ worth of debt backlogs.
In the five years since publication of the OMB report, technology and enforcement of the law have both changed. Agencies put people behind terminals in vastly different ways and operating under different schedules and guidelines. Depending on the type of loan and the size and delinquency of the debts at hand, representatives have different needs for information.
At the latter stages of a long-term collection effort, the tapes sent to IRS–or to the payroll staff of another agency in the case of federal employee debtors–do not discriminate. First the agency receiving the tape must verify each name appearing on it, assuring that the correct individual’s tax refund or paycheck is affected. Once the names are verified, another computer computes the amount to be deducted.
In the initial stages, though, agencies must tailor their systems to their mission and to their own history of debt collection.
Minding the Mines
The Office of Surface Mining Reclamation and Enforcement, an Interior Department agency, found itself a few years ago pressed from all sides to reinforce its notoriously timid attempts to collect civil penalties. The fines are slapped on violators of laws that prohibit environmentally unsound mining practices.
In 1985 the agency acquired the dubious distinction of being the only federal agency under court order to set up a computerized debt collection system. Between 1977 and 1985 the agency had accumulated a backlog of almost $150 million in uncollected penalties. OSMRE officials argued that many of their creditors had in some way or another disappeared, but congressional overseers still were not satisfied.
As recently as last fall, a House committee lambasted OSMRE officials for not processing either the new or the old accounts swiftly enough [GCN, Oct. 24]. The officials faced a barrage of criticism when Rep. Mike Synar (D-Okla.) learned that the automated system had enabled the office to retrieve only a fraction of a percentage point more money in overdue fines than it had two years earlier.
The Synar hearing followed a General Accounting Office report chiding the office for maintaining insufficient control over its court-manadated Collection Management Information System (CMIS). At the hearing, OSMRE spokesmen blamed the delays on the magnitude of the task of cleaning up almost a decade worth of paperwork.
In a recent interview, OSMRE deputy director Robert Boldt said 80 percent of the debt money is uncollectable. His office, unlike many others, plans to wipe the old books clean and concentrate on the newer debts because so many of the violators have moved or gone out of business, he said. “A penalty is the first kind of debt people will not pay,” he said.
The GAO auditors had taken issue with several aspects of the office’s computerized systems. At the hearing, Boldt and other OSMRE officials assured their congressional watchdogs that the office would further improve the data base. But they argued that they had already taken strides toward cleaning up their data, simplifying data access and converting CMIS to a mainframe environment.
Not everyone has had it as rough as OSMRE. The Small Business Administration, for example, prides itself on developing the first federal system to make life easier for both the debtor and the SBA employee who must contact him. Before 1984, though, like those in other agencies, SBA staff members “spent a lot of time shuffling paper when they should have been on the phone,” said Fred Hanus, a financial analyst in SBA’s portfolio management division.
SBA has produced a videotape about the transformation of an earlier harried collection agent, swimming in foot-high stacks of paper, to a calm, collected, relaxed employee sitting at a Digital Equipment Corp. terminal, ready to approach debtors in a friendly tone of voice.
It works too, they said. Delinquency rates have dropped from a hefty 22 percent to a manageable 5 percent. Automation alone does not account for the change, but coupled with referral to collection agents and with offsets, it helps.
SBA developed the software in-house and spent about $100,000 on the terminals peppered throughout its field offices. The technical people worked in conjunction with the debt specialists to develop the necessary programs, said Gail DeLaurier, an SBA systems analyst. “If we didn’t tell them and they didn’t tell us what we wanted, we would have gotten something no one could use,” she said.
She said the dialogue is constant, and field representatives constantly offer ideas for modifications to the software. Special features include the preparation of weekly past-due lists, automatic resetting of all collectors’ files and daily updating of the online data base.
The Air Force also found itself under the gun to improve its collection of three major types of debts–from out-of-service owners, from overpaid stock funds and from other types of internal and governmental loans. Like other agencies, the Air Force brought in automated tools in direct response to the debt collection laws of the early 1980s.
The overhaul of the Departmental Accounts Receivable System is still going on at the Air Force’s Accounting and Finance Center in Denver, according to Stanley M. Stotz, chief of the systems design maintenance division there.
So far, the Air Force has already obligated $1.65 million to load all its stock fund data onto an interactive on-line system developed in-house. Out-of-service data is scheduled to follow in November, and the general data in February of 1988, Stotz said. Though Air Force data processing staff tailored the system to the service’s needs, they did consult ahead of time with staff from OMB, the Labor Department and other military offices, Stotz said.
The military also performs a function above and beyond what the civilian agencies do. The Defense agencies electronically collect from people on their payrolls who owe debts to other agencies, such as HUD-insured housing loans or school loans, according to Gary Terrill, a systems accountant with Navy’s Cash Management and Financing Division in Washington.
Like the Air Force, the VA has a consolidated debt collection team. The planners work out of Washington and the collection staff out of the VA’s data processing center in St. Paul, Minn. About 10 years ago, the VA began to improve its system. First it centralized data processing in the St. Paul center. It also stopped paying out entitlements ahead of time, according to Daniel Osendorf, chief of the VA’s debt collection section in Washington.
The in-house development in St. Paul of an on-line system enabled the VA to reduce by half a staff of 200 collection agents, according to Richard Troje, chief of the central accounts receivable system in St. Paul.
The agents in St. Paul who make phone contact thus have access to the necessary information via Honeywell Inc. or Northern Telecom Inc. terminals. Not all of VA’s operations are so well automated, according to Stan Sinclair, VA’s director of debt management. Referrals of accounts to the Department of Justice now travel ploddingly through the mails, Sinclair said. But VA plans to streamline that process by May of this year, Sinclair said. His office plans an electronic voyage for so-called certificates of indebtedness, the forms that assure legal staff that money is indeed owed the VA.
The agency also is planning the overhaul of a manual system used to collect almost $100 million worth of other overpaid benefits, such as money paid to deceased individuals. Administrative and ADP staff work closely together, Sinclair said. Like Donahue, he said debt collection staff members should plan first, then make their needs known to systems specialists. “The strides we have made because of the computer are astronomical,” Sinclair said. VA plans to implement a further consolidation of all its delinquent accounts early this year.
Like other agencies participating in the income-tax refund offset effort, VA has found it effective, retrieving $8 million from 32,000 accounts. Next year, VA plans to refer 345,000 accounts to IRS, Sinclair said, while remembering that VA has the special problem of extremely politically sensitive entitlement programs. VA cannot be perceived as unfairly taking away what monies are due veterans and their families. “If a benefit is due, we pay it. If a debt is owed, then we need to have a system to collect it,” Sinclair said.
Not surprisingly, GAO once served, among other roles, as the dunning agent of the federal government. In 1980, GAO began to phase that role out, a move that was capped with the Debt Collection Act. But GAO still manages a “residue” of $9 million, according to Chris Farly, chief of the Accounts Management and Agency Review Office at GAO’s Claims Group. VA accounts represent the bulk of that money, though Farly said he did not blame the VA for that.
While moving away from the debt collector role, GAO has also embellished its 10-year-old automated system, a giant step from the “green cards” once used. What emerged in 1981 was a UNIX-based system operating on super-minicomputers. On-line access was added in the summer of 1985, and last summer GAO moved its accounts receivable functions to Washington, according to Gerald Miller, group director of the General Government Division Claims Group.
GAO’s 12 to 15 frequent users can access the system on-line with their Convergent Technologies terminals. Previously about 75 collection agents were at work, and GAO realized a cost avoidance of $300,000 in 1985-86 because of the ability to do the job with fewer employees, Miller said.
GAO has figures to support efforts to pursue rather than abandon very old debts. Farly said that in 1985, GAO unearthed 443 terminated accounts, and so far action on them has returned $90,000 to the federal coffers. In addition, GAO expects to cash in on 137 promissory notes averaging about $56 per month.
Despite its diminished role, GAO wants to stay ahead of the pack. Transition to automated tools has been “rather traumatic,” Miller said. But slowly management is moving toward a fully integrated system that will lead to a computer on the desk of all the collection agents.
GAO, though, knows as well as anyone that automated tools can only go so far. Marsha Glover, chief of the Systems Design Group, cautioned, “The computer is a tool. Some people have the misleading idea that they can use it to go about and find people.”