oversight

Review of the Administration of Debt and Payment Claims

Published by the Government Accountability Office on 1971-08-31.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

Review Of The Administration Of
Debt And Payment Claims B-1776o4(171
General Services   Administration




UNITED STATES
GENERAL ACCOUNTING                  OFFICE
                                                  LJNKEB STATES GENERALACCOUNTINGOFFICE
                                                               WASHINGTON,    D.C.   20548


CLAIMS          DWISION
         IN   REPLY       PLEASE   QUOTE




                               B-117604(11)




                               Dear         Mr.   Kreger:

                                       This is our report       on a review       of the administration        of
                      I        debt and payment       claims     at the General       Services     Administra-          17
                 ,’            tion Central   Office and Region 3, Washington,                D.C.; Federal
                               Supply Service,     Arlington,      Virginia;    and Regions       9 and 10, San
                               Francisco,    California,      and Auburn,      Washington,       respectively.
                               We shall appreciate        being advised of the actions taken or
                               planned on the matters         discussed      in this report.

                                             Copies of this report  are being            sent to the Director,    Of-
                               fice        of Management    and Eudget.

                                                                             Sincerely        yours,




                                                                             Director,        Claims   Division

                               The Honorable     Rod Kreger
                               Deputy Administrator                                      I-
                               General  Services    Administration




                                                            50TH ANNIVERSARY 1921-1971
I
I   ' GENERAL ACCOUNTING OFFICE                                   REVIEW OF THE ADMINISTRATION OF
i
I     REPORT TO THE DEPUTY ADMINISTRATOR                          DEBT AND PAYMENT CLAIMS
I     GENERAL SERVICES ADMINISTRATION                             GENERAL SERVICES ADMINISTRATION
I                                                                 B-117604(11)
I
I
I
I
    DIGEST
    ------
I
I
I
     WHY THE REVIEW WASK4DE

            As a part of its continuing        program to review agency instructions,         proce-
I           dures, and operations       in the areas of claims against     the GovernmentLpay-
I
I           ment claims)    and of claims by the Government (debt claims),          the General
I           Acc&nting    Office   (GAO) made reviews at the General Services          Administra-
I           tion (GSA) Central     Office    and Region 3, both in Washington,      D.C.; the
I
I           Federal Supply Service,       Procurement  Operations Division,    Arlington,      Vir-
I           ginia;   and at Regions 9 and ID located      in San Francisco,    California,       and
I
I
            Auburn, Washington,     respectively.
I
I           Our objective    was to evaluate   ppactices      in          the settlement of claims and
I           to ascertain   if there was-compliance       with           the General Accounting   Office
I           Policy and Procedures     Manual for Guidance               of Federal Agencies and the
I
I           Joint Standards    issued under section      3 of           the Federal Claims Collection
I           Act of 1966 (31 U.S.C. 9521,
I
I
I
I    FINDINGS AND CONCLUSIONS
I
I
I           Payment c2aims
I
I
I           GAO was satisfied  that determinations  of actions  to be taken on payment
I
I
            claims were being made at a responsible   level but found that the Army
I           Hold-Up List was not being used to make offsets    against amounts payable
I           to contractors.   (See p. 4.)
f
I           Debt claims
I
I
!           Instructions   relating to debt claims               generally  were consistent    with the
I                                                                                                               .
1           GAO manual and the Joint    Standards.               GAO pointed out, however, that GSA
I           Order ADM 1215.2A should be modified                 to reflect  more clearly   the intent
I
I
            of the Joint Standards.     (See pp. 6,              7, and 8.)   Debt claims collections
I           operations   could be improved by:
I
I
I              --Utilizing   additional        available    sources      to locate     debtors.     (See pp.
I                 11 and 12.)
I
I
I              --Obtaining      financial     information       about   debtors.      (See pp.    12 and 16.)
I
I
I              --Making      demand letters     more forceful.          (See p. 12.)
I
I
I
I

f
                                                                                     AUG.31J97I
I     Tear Sheet                                            1
I
                                                                                                                                    I
                                                                                                                              . I
      --Processing        demand letters         on a more timely                   basis.        (See p. 14.)                  I
                                                                                                                                I
      --Setting        off debts against         amounts          payable       to debtors.             (See pp. 15
        and 22.)
      --Contacting        debtors       personally,        when feasible.                   (See p. 16.)
                                                                                                                                I
      --Terminating     claims only           after       all     required          co1 lection     action     has been         I
         taken.     (See p. 17.)

      --Disposing        of claims       on a timely            basis.       (See p. 19.)

      --Exploring        feasibility        of compromise.               (See p. 20.)                                           I

      --Placing    names of debtors on the Hold-Up                           List     for    possible      setoff       of
         available   funds.  (See p. 22.)

      --Ascertaining          that     excess costs        are being assessed                  properly.       (See p. 22.)     i
              .                                                                                                                 I
RECOMNDATIONS OR SUGGESTIONS                                                                                                    I
                                                                                                                                I
                                                                                                                                I
    The report  contains   specific  recommendations                          to the Deputy Administrator,                      I

    General Services Administration,      for bringing                          about the improvements dis-                     1
    cussed above.     (See pp. 9, 17, and 20.)                                                                                  I


    In general,        GSA should

      --revise  the operating             handbooks        and the order               to conform       to the GAO
         manual and the Joint             Standards        and
                                                                                                                                I
      --emphasize    the importance             of timely           execution         of all      necessary         collec-     I
         tion actions.                                                                                                          I
                                                                                                                                I


                                                                                                                                I




                                                      2
                          Contents
                                                       Page
DIGEST                                                   1

CHAPTER

  1       INTRODUCTION                                   3
  2       REVIEWOF PAYMENTCLAIMS OPERATIOXSAND
          INSTRUCTIONS                                  4

  3       REVIEWOF INSTRUCTIONSRELATING TO DEBT
          CLAIMS                                        6
              Conclusions                               8
              Recommendations                           9

  4       REVIEW OF DEBT CLAIMS OPERATIONS
              Central office and Federal Supply Ser-
                vice                                   10
              Region 3                                 10
                   Accounts Receivable Branch and
                     Credit and Finance Branch         11
                   Adjudication and Claims Section,
                     Accounts Payable Branch            12
                   Office of Regional Counsel           19
              Regions 9 and 10                          22

                          ABBREVIATIONS
                          ----
GAO       General Accounting     Office

GSA       General   Services   Administration
. GENERAL ACCOUNTING OFFICE                                    REVIEW OF THE ADMINISTRATION OF
  REPORT TO THE DEPUTY ADMINISTRATOR                           DEBT AND PAYMENT CLAIMS
  GENERAL SERVICES ADMINISTRATION                              GENERAL SERVICES ADMINISTRATION
                                                               B-117604(11)


  DIGEST
  ------

  WHY THE REVIEW WAS M4DE

       As a part of its continuing        program to review agency instructions,        proce-
       dures, and operations       in the areas of claims against     the Government (pay-
       ment claims)    and of claims by the Government (debt claims),          the General
       Accounting   Office   (GAO) made reviews at the General Services         Administra-
       tion (GSA) Central     Office    and Region 3, both in Washington,      D.C.; the
       Federal Supply Service,       Procurement  Operations Division,    Arlington,     Vir-
       ginia;   and at Regions 9 and 10 located      in San Francisco,    California,      and
       Auburn, Washington,     respectively.

       Our objective    was to evaluate practices      in               the settlement of claims and
       to ascertain   if there was compliance     with                the General Accounting   Office
       Policy and Procedures Manual for Guidance                      of Federal Agencies and the
       Joint Standards issued under section 3 of                      the Federal Claims Collection
       Act of 1966 (31 U.S.C. 952).


  FINDINGS AND CONCLUSIONS

       Payment claims

       GAO was satisfied  that determinations  of actions  to be taken on payment
       claims were being made at a responsible   level but found that the Army
       Hold-Up List was not being used to make offsets    against  amounts payable
       to contractors.   (See p. 4.)

       Debt claims

       Instructions   relating to debt claims                 generally  were consistent    with the
       GAO manual and the Joint Standards.                    GAO pointed out, however, that GSA
       Order ADM 1215.2A should be modified                   to reflect  more clearly   the intent
       of the Joint Standards.     (See pp. 6,                7, and 8.)   Debt claims collections
       operations   could be improved by:

           --Utilizing    additional       available        sources    to locate     debtors.     (See pp.
              11 and 12.)

           --Obtaining      financial     information        about    debtors.     (See pp.     12 and 16.)

           --Making      demand letters     more forceful.            (See p. 12.)




                                                        1
       --Processing        demand letters            on a more timely                basis.        (See p. 14.)          '       '

       --Setting   off       debts      against      amounts       payable       to debtors.              (See pp. 15
          and 22.)

       --Contacting        debtors       personally,        when feasible.                   (See p. 16.)

       --Terminating     claims only              after    all     required          collection        action     has been
          taken.     (See p. 17.)

       --Disposing        of claims       on a timely            basis.       (See p. 19.)

       --Exploring        feasibility        of compromise.               (See p. 20.)

       --Placing    names of debtors on the Hold-Up                           List     for     possible       setoff   of
          available   funds.  (See p. 22.)

       --Ascertaining          that     excess     costs    are      being     assessed           properly.       (See p. 22.)


RECOMVENDATIONSOR SUGGESTIONS

    The report  contains   specific  recommendations                           to the Deputy Administrator,
    General Services Administration,      for bringing                           about the improvements     dis-
    cussed above.     (See pp. 9, 17, and 20.)

     In general,        GSA should

       --revise  the operating              handbooks       and the order              to conform         to the GAO
          manual and the Joint              Standards       and

       --emphasize    the importance               of timely         execution         of all       necessary      collec-
          tion actions.
                             CJSAPTIZR
                                     1

                           INTRODUCTION

       The General Accounting Office has completed reviews of
the administration         of claims operations   at the General Ser-
vices Administration         Central Office and Region 3, Washing-
ton, D.C.; Federal Supply Service, Procurement Operations
Division,    Arlington,      Virginia;  and Regions 9 and 10, San
Francisco,     California,      and Auburn, Washington, respectively,
Our objective      was to evaluate the practices      of GSA in the
settlement     of claims     against the Government (payment claims)
and of claims by the Government (debt claims).            We gave spe-
cific   attention     as to whether there was compliance with:

     1. The General Accounting Office Policy and Procedures
        Manual for Guidance of Federal Agencies, hereinafter
        referred  to as the GAO manual.

     2. Regulations     issued jointly   by the Comptroller      Gen-
        eral and the Attorney General of the United States
        under section 3 of the Federal Claims Collection              Act
        of 1966 (31 U.S.C. 952).        These regulations,      here-
        inafter   referred    to as the Joint Standards, pre-
        scribe for the administrative       collection,     compro-
        mise, termination      of agency collection     action,   and
        referral    to GAO of debt claims (4 CFR 101-105).
                                 CHAPTER2

    REXIEW OF PAY!9ENT CLAIMS OPERATIONS AND INSTRUCTIONS

       We reviewed payment claims operations             to inquire      into
whether (1) doubtful       claims were being transmitted             to GAO
for settlement      or were the subject       of requests      for advance
decisions    by the Comptroller      General and (2) the Hold-Up
List maintained by the Army was being utilized                 effectively.
This list includes names of contractors             indebted to other
departments and agencies as well as to the Army and is cir-
cularized    to put all contracting        agencies of the Government
on notice of debts arising under contracts              with other agen-
cies in order that amounts due the indebted contractors                     may
be withheld     for application     against the debts.           Section
102.3 of the Joint Standards provides that appropriate                    use
be made of the cooperative        efforts    of other agencies in ef-
fecting   collections    by offset,     including    utilization        of the
Hold-Up List.

     We were satisfied that determinations    as to whether
payment claims should be handled administratively    or should
be submitted to GAOwere being m.ade at a responsible     level.

      We have been informed that voucher examiners normally
do not refer to the Hold-Up List for possible offset before
approving invoices   for payment because the Hold-Up List is,
in their opinion,  unprofitable,     cumbersome, difficult to
work with, and unadaptable     in view of the large number of
payments being made,

      We understand that Region 9 officials        have devised and
proposed to GSA Central Office officials       an automated off-
set procedure intended for nationwide       application.       Since
GSA, as one of the major contracting       agencies,     should be in
a favorable   position  to set off a substantial       amount due the
Government from delinquent    contractors,    we urge that GSA
give serious consideration    to adapting a system to make use
of the Hold-Up List.

      GSA handbook CPT P 1255.1 entitled    "Examination  of
Vouchers and Invoices"   contains,   in general, adequate policy
and instructional  material   for the guidance of employees
engaging in the examination of vouchers and invoices      or
performing  a duty       or function      affecting      the processing       of
payment documents.

        Title    4 of the GAO manual was revised              completely.      See
Transmittal       Sheet No. 4-16 dated September              1, 1967.      Chapters,
sections,       and subsections        were renumbered      to conform      to the
new numbering         system applied       to other titles      of the manual.
Chapter       5, section      3, of the Office      of General     Counsel Hand-
book, CSL P 5000.2 (September                17, 1963) makes reference         to
the old numbering           system.     Since the GAO manual is the offi-
cial    medium through         which the Comptroller        General promulgates
(1) accounting         principles,      (2) uniform     procedures,       and (3)
regulations,       we believe       that current     references     are desir-
able.
                                                                        .

                              CHAPTER3

       REVIEW OF INSTRUCTIONSRELATING TO DEBT CLAIMS

      The Joint Standards provide that regulations      prescribed
by heads of agencies pursuant to section 3 of the Federal
Claims Collections    Act of 1966 be reviewed by GAO as a part
of its audit of an agency's activities.      In discharging     this
responsibility    we examined the following  GSA instructions.

      1. Credit,   Finance and Insurance    Handbook OAD P 3000.2.

      2. Chapter 5, section 3, of the Office       of General   Coun-
         sel Handbook, CSL P 5000.2.
      3. Chapter 5 of ADM P 5450.39.

      4. Order ADM 1215.2A.

       Although the instructions      promulgated by GSA generally
are adequate, in view of the       responsibilities  placed on ad-
ministrative    agencies by the    Federal Claims Collection   Act
of 1966 and the implementing       Joint Standards, we believe
that some revisions     would be   beneficial.

      Paragraph 4, chapter 4, of the Credit, Finance and In-
surance Handbook provides for referring    a case to GAO with
the concurrence of Regional Counsel when the claim is $200
or more and when it is determined by the Credit and Finance
Branch that the claim is administratively    uncollectible  by
GSA and that collection    action cannot be suspended or ter-
minated.    We found no reference to title  4 of the GAO manual
in the handbook.

       Chapter 5, section 3, of the Office of General Counsel
Handbook, CSL P 5000.2, pertains,         in part, to claims by the
Government.    Examination thereof indicates        that this section
was written   prior to enactment of the Federal Claims Collec-
tion Act of 1966 and issuance of the Joint Standards.           Also
numerous references      are made therein to sections in title      4
of the GAO manual. As previously          mentioned, chapters,  sec-
tions,   and subsections    of this title    have been renumbered to
conform to the new numbering system applied to other titles
of the GAO manual, and other revisions          have been made.

                                   6
      The delegation of authority   to General Counsel to com-
promise, suspend, or terminate    collection  action on claims
of GSA is contained in chapter 5 of ADM P 5450.39.

      GSA Order ADM 1215.2A covers collection   and compromise
of claims.   Paragraph 5 provides that claims in amounts be-
tween $50 and $20,000 be referred   to the Office of General
Counsel for approval of, or for compromise, or for suspen-
sion or termination   of collection action when:

      1. The central  or regional office cannot collect    the
         full amount claimed because of the debtor's    inability
         or refusal to pay the full amount within a reason-
         able time.

      2. There are doubts concerning            the Government's   ability
         to prove its case in court.

      3. The cost of further       collection      action   may exceed the
         amount of recoverye

      4. The debtor     cannot be located,

        The actions taken by both the Credit and Finance Branch
and the Office of General Counsel as to whether to compro-
mise a claim or suspend or terminate              collection      action ap-
parently      is based on the criteria        prescribed     in paragraph 5
of GSA Order ADM 1215.28.            In indicating     the reasons for re-
ferring     claims to the Office of General Counsel for approval
of, or for compromise, or for suspension or termination                   of
collection       action,   paragraph 5 of GSA Order ADM 1215.2A, as
shown above9 combines "inability            and refusal      to pay" as
"1,"    and  lists    “debtor   cannot  be  located"     as  "4."

      Section 103.2 of the Joint Standards provides that a
claim may be compromised because of the debtor's         inability
to pay the full amount within a reasonable time or the re-
fusal of the debtor to pay the claim in full and the Govern-
ment's inability   to enforce collection     in full within a rea-
sonable time by enforced collection      proceedings.      In addi-
tion, section 104.3 provides that the probability          of liqui-
dating the debt by enforced collection       proceedings    is a fac-
tor to be considered before terminating       collection    action,


                                     7
        The fact that a debtor cannot be located is not a suf-
ficient    basis for termination        of collection     action.      Section
104.3(b) of the Joint Standards provides that collection                    ac-
tion may be terminated          because of inability      to locate the
debtor only when such inability             is coupled with the condi-
tions that no security          remains to be liquidated;        that the
applicable     statute of limitations         has run; and that the
prospects of collecting          by offset,    notwithstanding      the bar
of the statute       of limitations,     are too remote to justify          re-
tention    of the claim.

      The intent of section 104.3 was clarified        by a letter
addressed to the Secretary of the Army on May 27, 1968
(B-1176041, c opies of which were circulated       to the heads of
all departments and agencies for information         and guidance.
It was explained in the letter     that, whenever collection
action was terminated,   a detailed    documentation    should be
made to support the basis upon which the termination          action
was taken (see 4 CFR 102.11) and that claims which could
not be terminated   in accordance with the standards should
be forwarded to GAO.

CONCLUSIONS

       We found no specific   case evidencing      an adverse effect
 on the Government collection    effort   resulting     from (1) the
GSA Office of General Counsel Handbook's making no reference
to the Federal Claims Collection       Act of 1966 and the imple-
menting Joint Standards or (2) instructions*          being so stated
that a wrong interpretation     was possible.       Nevertheless,
this could lead to debts' not being forwarded to GAO or to
the Department of Justice for collection         assistance    and
could result   in possible loss of revenue to the Government.

      43 ain,   although we found no specific      case evidencing
an adverse effect on the Government collection             effort,   since
there is no reference in GSA Order ADM 1215.2A and in the
Credit, Finance and Insurance Handbook to title             4 of the
GAO manual, in our opinion,         such reference   should be in-
cluded,      One of the purposes of this title       is to prescribe
the principles      relating   to administrative   efforts     to collect
claims asserted by the Government and to prescribe               the pro-
cedures controlling        the reporting   of such claims to GAO for
adjudication     and collection,

                                      8
RECOMMENDATIONS

      We recommend that, to provide guidance    to employees
charged with making proper determinations:

     1. The handbook of the GSA Office of General Counsel
        be revised to incorporate    the provisions  of the Fed-
        eral Claims Collection    Act of 1966, the Joint Stan-
        dards, and current instructions     in title 4 of the
        GAO manual.

     2. Paragraph 1 of ADM 1215.2A and the Credit,   Finance
        and Insurance Handbook make reference to title    4 of
        the GAO manual.

     3. Clarifying language   be incorporated   in paragraph   5
        of ADM 1215.2A.
                              CHAPTER4
                                    -

               REVIEW OF DEBT
               ---...-----       CLAlMS
                           - -.---.-    OPERATIONS
                                     -__---.-
      To accomplish our evaluation        of debt claims operations,
we reviewed written procedures,        interviewed   operating   em-
ployees, and examined cases under active collection            and
cases on which collection     action had been terminated.          Our
review embraced collection     activities      in Regions 3, 9, and
10 as well as in the GSA Central Office and embraced delin-
quent non-Federal    accounts receivable       in the Federal Supply
Service at Arlington.      It did not encompass claims against
common carriers*

CENTRALOFFICE AND FEDERALSUPPLY SERVICE

       Amounts due the United States by defaulting       contractors
generally    were recovered either by billing     or deducting the
amount from sums otherwise due the contractor.          During the
period October 1967 to July 1968, we noted that the General
Counsel had approved the termination      of collection    action on
three debt claims.      Upon review we found this action to have
been consistent    with the requirements    of the Joint Stan-
dards.    Also other cases on hand in the central office ap-
peared to have been handled effectively.

      We likewise found collection    action taken by the Fed-
eral Supply Service generally     to have been satisfactory.
Debt claims were terminated properly      in accordance with the
Joint Standards.
REGION 3
        The Accounts Receivable Branch, the Credit and Finance
Branch, and the Adjudication      and Claims Section of the Ac-
counts Payable Branch are in the Finance Division.              Each of
these has the basic responsibility        for the collection      of a
designated class or designatedclassesof          debts.     When col-
lection    action by the Accounts Receivable Branch has been
exhausted, the debt is referred       to the Credit and Finance
Branch which takes further     collection    action,    including   ad-
ditional    demands, if the circumstances     so warrant.



                                   10
If collection   is not effected,        debts under $50 are written
off by the latter   branch.

       A finding,    in cases involving    debts of $50 or more, is
prepared by the Credit and Finance Branch., Such finding             is
referred    to Regional Counsel and/or General Counsel for ap-
proval,    compromise, suspension,      or termination  of collection
action.     Generally,   Counsel will issue additional      demand
letters.      If Counsel determines that      the debt should be re-
ported to GAO, the file is returned to the Credit and Fi-
nance Branch for transmittal        to GAO through the Adjudication
and Claims Section.

Accounts Receivable Branch and
Credit and Finance Branch
      Both the Accounts Receivable Branch and the Credit and
Finance Branch appear to process debts aggressively      and
without delay.   In the examination    of cases referred  to the
Regional Counsel by the Credit and Finance Branch during
the period February 27 to October 28, 1970, improvements
could be made in the following    areas.

     .Available -- sources not utilized
      in locating    debtors

        By a memorandum dated May 14, 1970, the Credit and Fi-
nance Branch recommended that collection       action be termi-
nated in accordance with GSA Order ADM 1215.2A in several
cases, because letters       to the debtors had been returned by
the Post Office marked Waved, Left No Address."          By memo-
randums dated September 22 and October 28, 1970, the in-
debtedness of two debtors in the amounts of $119.30 and
$234.51 was referred       to Regional Counsel for recommendation
regarding    the disposition    to be made of the debts, because
letters    addressed to the debtors were returned by the Post
Office marked "Unclaimed."

      The Joint Standards     provide that     reasonable and appro-
priate steps be taken in      all cases to     locate missing par-
ties.    Section 104.2 of    the standards     lists    the following
sources which may be of      assistance  in    locating    missing
debtors:


                                   11
                                                                               .
                                                                                   L



      "Telephone directories;        city directories;   postmasters;
      drivers'     license records; automobile title      and license
      records;     state and local governmental agencies; dis-
      trict    directors   of Internal    Revenue; other Federal
      agencies; employers, relatives,         friends;  credit agency
      skip locate reports."

We noted that none of these sources had been utilized                 in an
effort  to locate the debtors.

      Financial    information     not obtained

      We noted several cases in which the Credit and Finance
Branch had transmitted         debt cases to Regional Counsel for
possible    compromise, suspension or termination             of collec-
tion action,      or referral    of the indebtedness        to GAO without
first   obtaining    financial     information     concerning the re-
spective debtors.        Since financial       information    is a condi-
tion precedent to making an informed decision regarding                  fu-
ture action to be taken, it is incumbent on the branches to
obtain such information         prior to referral       of debt claims to
Regional Counsel.
      We discussed these matters with an official    of the
Credit and Finance Branch.    He assured us that, in the fu-
ture, locator action would be taken in accordance with the
Joint Standards and that credit information    would be fur-
nished to Regional Counsel in all appropriate     cases involv-
ing claims of $200 or more.
Adjudication and Claims Section,
Accounts Payable Branch
      We examined 74 regular claims under collection   and
five cases on which collection   action had been terminated
by the Adjudication  and Claims Section.    We believe that
improvements could be made in the following    areas.

      Demand letters      not forceful
      The initial  demand is made by use of a collection
voucher or by letter.    We found the two follow-up    letters
to be weak in that they failed   to inform the debtor of the
consequences if he failed   to pay0 We believe that, when it

                                    12
is likely  that the debtor is doing business with other
agencies of the Government and when the debt is $200 or
more, the initial    follow-up letter  should inform the debtor
that his name may be added to the Army Hold-Up List unless
settlement   is made within a prescribed    time.  Also similar
aggressive   language should be used in other types of cases.

       We found two cases involving     former employees who ap-
parently    were employed by another Government agency.      After
available    amounts were set off by GSA, letters     which re-
quested payment of the balance and which proved to be un-
successful    failed to inform the debtors that the matter was
being referred      to their employing agencies.   In our opin-
ion, informing a debtor that his debt may be referred         to
his employing agency frequently       enhances the prospects of
collection.




                                13
     Demand letter   delays
        Section 102.2 of the Joint Standards and paragraph 4e
of GSA Order ADM 1215.2A provide that three written        demands
at 30-day intervals     normally will be made upon a debtor for
payment of a claim.      We found 10 cases in which follow-up
letters    were not issued during the prescribed   periods.    An
example of lack of timeliness     may be seen in case
No. 576-68 involving     a debt of $300. The debtor initially
was billed     on May 10, 1968. Follow-up letters   were not is-
sued until August 23 and October 22, 1968.

      Another example is case No. 494-67 involving        an in-
debtedness of $1,438.        The first  demand was issued on
May 4, 1967, but it was not until January 16, 1968, that
the first   follow-up   letter   was issued.   The second follow-
up letter   was issued on October 14, 1968, some 17 months
after the first     demand. Moreover it was not until
April 22, 1969, that the Army was requested to place the
name of the debtor on the Hold-Up List.         On June 26, 1970,
more than 3 years after the date of the initial         demand, the
debt was referred     to GAO for collection.

      Demand letters  were issued rather promptly during the
period September 30, 1966, to January 26, 1967, in case
No. 357-68 pertaining    to a debt of $795. In January the
debtor requested verification    of the charges.    On March 30,
1967, the debtor questioned    the amount determined to be
due. No reply was made by the Adjudication       and Claims Sec-
tion until January 30, 1968, when the debtor was informed
that the debt would be referred    to General Counsel for le-
gal action and that its name would be placed on the Hold-Up
List.
      It was not until June 25, 1968, however, that the Army
was requested   to add the name to the list.   The Adjudica-
tion and Claims Section asked the Credit and Finance Branch
on June 18, 1970, whether the debtor's     name should be re-
moved from the Hold-Up List and whether further      action
should be taken.    As of November 1970, more than 4 years
after the debt was established,   the matter was still      unre-
solved.



                                14
      Case No. 35-67 involves a debt for $1,395.     The file
contains a note dated March 27, 1967, which indicates      that
the case was under appeal.    In accordance  with our  sugges-
tion, on June 18, 1970, the Adjudication    and Claims Section
requested from the Procurement Operations Division     informa-
tion concerning the status of the appeal.     This information
had not been received as of November 1970. Thus a period
of more than 3-l/2 years elapsed from the date of the note
in the file.
      Case No. 527-67 for $4,260 also involved undue delay.
The initial   demand to the debtor was mailed on November 29,
1966. When its collection         efforts   were unsuccessful,     the
Adjudication   and Claims Section,        on December 18, 1967, re-
quested assistance      from the Assistant      General Counsel, LP,
in effecting   collection.      It requested also that General
Counsel furnish    information     if collection    action had been
terminated.    Almost 3 years after the case was referred             to
Counsel and in reply to an inquiry,          Counsel advised that it
had no record of the claim and at that time referred             the
matter to the Procurement Operations Division.             The indebt-
edness has not been resolved even though over 4 years have
elapsed since the date of the initial           demand.

      Internal   setoff   delays

       If collection   is not made after three demands, the Ad-
judication    and Claims Section may request Accounts Payable
to make a record of the debt for possible offset       from
amounts otherwise due a debtor.       There is no  set time pe-
riod, however, for the Adjudication      and Claims Section to
ascertain   whether setoff actually    was made.

      It appears to us that, if there is any indication        that
a setoff is possible,   good business practices    dictate  that
no more than 30 days be given the debtor to make satisfac-
tory arrangements for liquidation     of the debt.    In addi-
tion, we believe that procedures should be developed for
prompt notification   of all setoffs.

      Following are some examples.   In case No. 229-69 the
first  demand was sent on February 11, 1969. The records
were annotated for setoff on January 16, 1970. The claim
was referred   to GAO on July 23, 1970, The debtor in case

                                   1.5
No. 62-69 was sent a demand letter    on October 15, 1968.
Its name was placed on the Army Hold-Up List on July 9,
1969, but it was not until March 23, 1970, that the account
was referred   to Accounts Payable for possible  internal  set-
off.   Partial  setoff was made by another agency.

      In another case, No. 453-69, the initial   bill was is-
sued on November 28, 1969. It was not until March 23,
1970, that this case was referred  to Accounts Payable for
possible  internal setoff.  As of November 1970 setoff had
not been made and the case had not been referred     to GAO.

      Personal    contact
                     ---     with   local   debtors   not made

      Section 102.4 of the Joint Standards and paragraph 4e
of GSA Order ADM 1215.28 provide that agencies, having re-
gard for the amounts involved and the proximity    of agency
representatives   to such debtors, interview debtors when
this is feasible.

       We found two cases involving     debtors located in Wash-
ington, D.C., in which personal contact had not been made.
Employees in the Adjudication      and Claims Section informed
us that it was not their practice       to telephone debtors.
The general practice      of not personally    interviewing     debtors,
when feasible,     is contrary  to controlling     regulations.      Ad-
ditionally    we feel that the personal interview         approach is
a good business practice.
      Failure
      --         to obtain    financial     information
      Credit reports are obtained only on business concerns.
Since knowledge concerning a debtor's       present and prospec-
tive ability   to pay is the foundation     upon which future ac-
tion on his debt is predicated,      it is essential      that rea-
sonable attempts to secure such information         be made early
in the demand process.     When administrative      collection    ac-
tion on any debt amounting to $200 or more is unsuccessful
and when the debtor has not furnished       adequate financial
information,   a commercial credit report should be obtained
so that it can be determined whether the debt should be
terminated or referred    to GAO for further     collection    ac-
tion.    Whenever a debt is referred    to GAO, it should be ac-
companied by all available    credit information       in possession

                                     16
of the administrative agency.   (See section      105.3 of the
Joint Standards and 4 GAO 56.5(6),)

     Claims terminated     prematurely

       We found three claims against former guards of GSA,
each indebted in excess of $100 by reason of failure       to
turn in uniforms.     Amounts due debtors as final pay and/or
from the Civil Service Retirement Fund were applied against
the debts.     The Adjudication and Claims Section terminated
collection    action on two of the cases upon failure    of the
debtors to respond to three demand letters.       The third case
was terminated after the initial    demand letter   was returned
by the Post Office with the notation ttMoved, Left No Ad-
dress."

      Locator action should have been taken regarding   the
third employee.    Also, since the debts were in excess of
 $50, approval  by Regional Counsel for termination  of collec-
 tion action was required under GSA regulations.

     Recommendations relating  to
     debt claims operations,
     Adjudication  and Claims Section,     Region 3

      We recommend that,    to improve the section's   collection
procedures:

     1. Follow-up letters    contain more aggressive   language.
        Initial  demand letters     to former employees pres-
        ently employed by another Government agency should
        inform them clearly     of the consequences of failure
        to make payment.

     2. Controls be established    to ensure timely (a) pro-
        cessing of demand letters,    (b) placing of the name
        of the debtor on the Army Hold-Up List,         and
        (c) initiating  action for internal     offset.

     3. A closer liaison  be maintained between the Adjudi-
        cation and Claims Section and other activities
        within GSA when collection    action is suspended by
        that section pending receipt     of advice from the
        other activity*

                                   17
4. Personal or telephone contact   be made with   local
   debtors whenever practicable.

5, Credit reports be obtained on individual   debtors if
   adequate financial  information is not furnished   by
   the debtor and if the amount of the debt is $200 or
   more.




                         18
OFFICE OF REGIONALCOUNSEL

       Under GSA Order ADM 1215.28 and chapter 5, paragraph 1,
of ADM P 5450.39 Regional Counsel is charged with the re-
sponsibility       for compromising,      suspending, terminating  col-
lection     action,    or referring    to the Department of Justice
or GAO, as appropriate,           any debt between $50 and $2,000
which is uncollectible          by the Finance Division.
       During November and December 1970, we attempted to as-
certain    the disposition    made by Regional Counsel of claims
referred     there by the Credit and Finance Branch and the Ad-
judication      and Claims Section.      In addition,  we discussed
with responsible      employees collection     procedures required
under the Joint Standards and title          4 of the GAO manual.
We noted the following       opportunities    to improve procedures.

      Timeliness   in making disposition     of claims

       The older the claim the more difficult     it is to effect
collection.     The Joint Standards recognize this by prescrib-
ing prompt referral     to GAO so that timely action may be in-
stituted.     Consequently since Counsel is responsible    for
making final determinations     regarding  the disposition   of
debts, it is imperative     that claims determined to be uncol-
lectible    be promptly forwarded by the Finance Division     and
that Counsel take prompt action thereon.

      On a number of occasions we noted substantial         delays
in the Office of Regional Counsel in disposing         of cases re-
ferred for action.      For instance,    the Credit and Finance
Branch was unsuccessful     in collecting    from 19 debtors amounts
ranging from $54.89 to $335.10.         These debts were referred
during the period February 27 to October 28, 1970, for rec-
ommendations concerning     their disposition.      Despite follow-
up inquiries   by the Credit and Finance Branch, we were ad-
vised informally    that, as of March 17, 1971, no written
recommendations had been received.

      Other examples of undue delays involve two claims re-
ferred to the Office of Regional Counsel by the Adjudication
and Claims Section.   Case No. 70-68 for $1,925 was referred
on August 16, 1967, and case No, 576-68 for $300 was re-
ferred on December 23, 1968. As of November 1970 neither of
these cases had been resolved.
                                   19
        It is the practice         of operating      employees in the Of-
fice of Regional         Counsel to prepare        individual  monthly   re-
ports     of pending     claims    and litigation       cases. The form in-
cludes     the target      date.     It appears that a more aggressive
follow-up      procedure      is required      to ensure the expeditious
handling      of claims.

         Failure    to explore      feasibility       of compromise

        We were informed         that it was not the policy                of the Of-
fice     of Regional     Counsel to solicit            compromises.          Section
102.9 of the Joint          Standards       requires       agencies     to attempt
to effect       compromises      in all cases in which it can be ascer-
tained     that the debtor's          financial      ability     will     not permit
collection       of the claim in full            or when litigative           probabili-
ties     and/or   the costs of litigation              dictate     such action.
The policy       not to explore         the feasibility         of a compromise
after     demands for full         recovery      have failed       conflicts       with
the controlling        statutory        regulations.

        Employees   in the Office    of Regional   Counsel appeared
to lack familiarity       with the Joint   Standards     and title      4 of
the GAO manual.       The consensus    seemed to be that only doubt-
fuldebtclaims       should be referred    to GAO; otherwise        claims
were to be forwarded       to the Department     of Justice.

        Following    is an example.        An individual      was indebted
in the amount of $1,739 arising              from his purchase      of office
machines under contract            GS-03-DP-(S)-o-1950.        In the course
of collection       action,    the debtor      was informed    that the matter
would be referred         to the U.S. attorney          if payment was not
made.     When we were told that the claim would be so referred,
we explained      that,     in accordance      with 4 GAO 56, it should be
referred      to GAO rather      than to the U.S. attorney.          The claim
was referred      to the Claims Division,           GAO, in January     1971.

         Recommendations      relating     to
         debt claims   operations,
         Office   of Regional      Counsel

         We recommend     that,  to improve debt collection                 opera-
  .
trons,     procedures     be established   to ensure:




                                            20
1. More expeditious handling of claims,     particularly
   those of amounts of $200 or more,

2. Expeditious    referral  to the Claims Division,  GAO,
   of administratively     uncollectible debt claims
   amounting to $200 or more.

3, Exploration   of the feasibility   of compromises       in
   appropriate   cases.




                             21
REGIONS 9 AND 10

        On the basis of our review of claims         on which collec-
tion action     had been taken,     we concluded   that the adminis-
tration    of claims   operations    generally   was satisfactory.
We offer,     however,  the following     comments on several      matters
encountered     during  our review.

       Failure     to place  name of
       debtor     on Hold-Up List

       We learned    that Region 9 had not been furnishing                the
names of indebted       contractors,       in accordance    with 4 GAO 61.2,
to the Army for inclusion            on the Army Hold-Up List when
debts were reported        to GAO as uncollectible.          GSA assured us
that,    in the future,      this procedure     would be followed.           We
previously     commented on the failure          of various    activities
of GSA to utilize       the Hold-Up List       for possible     setoff      of
amounts due other agencies.

       Failure      to set off reinspection,
       retest,      and lost time charges

         We examined some 300 GSA quality                   control     files    and
noted that,        in 12 of the 300, contractors                  should have been
assessed     reinspection,          retest,       or lost-time       charges.      We
verified     that,       in six of the 12 files,             charges amounting         to
$319 had not been set up for offset                     by Accounts         Payable em-
ployees,     apparently        through      clerical      oversight.          The operat-
ing official         informed     us that he would stress               the need for
a more careful          review    to ensure offset           of the required
charges.

       Failure    to set up excess           costs
       on defaulted     contracts

       We verified    that,  from January     1, 1967, through       Febru-
ary 28, 1969, 28 contract        cases were terminated        in which
excess costs were involved        because of replacement        contracts.
Excess costs had been collected          or claims had been estab-
lished   in only 13 of these cases.         In 15 having      a value of
$17,367,   however,     no amounts had been collected         and no
claims   had been established      against    the contractors      involved.
It was apparent     that Accounts     Payable employees had not


                                            22
recognized or followed up on potential    claims for excess
costs,    Claims for the 15 cases have now been set up for
possible offset,    and new procedures have been issued to en-
sure the recognition    and establishment of claims when there
are excess costs.




                              23
Copies   of this report are available       from the
U. S. General    Accounting   Office,    Room 6417,
441 G Street, N W., Washington,       D.C., 20548.

Copies     are provided    without        charge      to Mem-
bers of Congress,         congressional           committee
staff members,     Government        officia Is, members
of the press,     college    libraries,       faculty    mem-
bers and students.        The price to the general
public    is $1 JO a copy.       Orders should be ac-
companied     by cash or check.