oversight

Direct Loan System Checklist: Systems Reviewed Under the Federal Financial Management Improvement Act of 1996 (Exposure Draft) (Superseded by AIMD-00-21.2.6)

Published by the Government Accountability Office on 1997-12-01.

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

                     United States General Accounting Office

GAO                  Financial      .   --pm
                                           a,,,.
                                  Management  Series




December 1997        *Direct Loan System Checklist
                     Systems Reviewed Under the Federal
                     .Financial Management Improvement
                     Act of 1996




                     Exposure      Draft




GAO/AIMD-98-21.2.6
               :,




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                                                                                                          1

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PREFACE


The Federal Financial Management Improvement Act (FFMIA) of 1996,requires, among
other things, that agencies implement and maintain management systems that comply
with federal financial management systems requirements. These requirements are
detailed in the Financial Management Systems Requirements series issued by the Joint
Financial Management Improvement Program (JFMIP) and in the Office of Management
and Budget (OMB) guidance referred to in those documents.

To help agenciesreview their financial management systems and assist auditors with their
responsibilities under FFMIA,l we have developed eight checklists, which we are issuing
concurrently for comment as exposure drafts. Seven of the checklists reflect the system
requirements defined by JFMIP. The eighth checklist, based on the JFMIP framework
document, describes a single integrated financial management system and is primarily a
reference tool rather than a standard-setting document.

As more system requirements are issued, we intend to develop additional checklists.
When these checklists are issued in final form, they will be available on the Internet on
GAO’s Home Page (wwvv.gao.gov).

Additional copies of the exposure ‘draft of this checklist can be obtained from Room 1100,
700 4th St. NW, U.S. General Accounting Office, Washington, D.C. 20548,or by calling
(202) 512-6000. Please send comments by February 28, 1998to Robert W. Gramling,
Director, Corporate Audits and Standards, Accounting and Information Management
Division, at

                       US. General Accounting Office
                       441 G Street NW, Room 5089
                       Washington, DC 20548




MU
 ene L. D daro
Assistant Comptroller General
Accounting and Information Management Division




‘The final form of this checklist will be included in GAO’s Financial Audit Manual.                   i-


Page 1                                 GAO/AIMD-98-21.2.6   - Proposed Direct Loan Checklist (E/97)   I
Page 2   GAO/AIMD-98-21.2.6   - Proposed Direct Loan Checklist (12/97)   (
CONTENTS


Preface

Overview
  Authoritative Guidance
  How to Use This Checklist
  Agency System Architecture

Requirements Checklist                                                                         9
  Loan Extension                                                                              10
  Account Servicing                                                                           19
  Portfolio Management                                                                        25
  Delinquent Debt Collection                                                                  35




  Abbreviations

  CAIVRS     credit alert interactive voice response system
  CCLR       claims collection litigation report
  DOJ        Department of Justice
  FFMIA      Federal Financial Management Improvement Act of 1996
  JFMIP      Joint Financial Management Improvement Program
  OGC        office of general counsel
  OMB        Office of Management and Budget




Page 3                              GAO/AIMD-98-21.2.6   - Proposed Direct Loan Checklist (U/97)
                                                                           _ --...__.-.




   To date, JFMIP has issued the framework and core documents and 6 of the 16,systems
   identified in the architecture.2

     GAO is ,issuing.this and seven other checklists that correspond to the JFMIP ,documents
     as part of its Financial Management Series. GAO will issue other checklists as additional
     systems requirements are ,defined:        ::                           ,,’                     ; i’
           ‘, ,,.                   ,_’ / ;:        .‘.         ‘:
     *ntho&ative       &&&nce : ,              3-1         , .,,,: , ’.’’         : 1z i :
        i,;a.’     .‘I )’ ,; :. , ,’ I).,
                                     .^ j,   ,: :,:, ,,“,, !; :.. ‘,      ,     ,)_..
                                                                                    :,):.Z :: ,: I. :I)<
     OMfJ (&-c&r ~~,12~t~d O&@‘s In-&&en~tion Gdd$Ae for .the, I$-&& &-&&A
   ~Management Imnrovement Act’ (EFMIA) of ,1996,issued’September-9;.1997,provide the
     basis -for asse&ing compliance with the FFMIA requirement for agencies to, implement
  : /and maintain financial management systems that comply substantially with federal
     requiremeuts. OMBls September :1997implementation guidance identifies various criteria
     that an agency must meet to be in substantial compliance with’ these requirements.

   The source of all the questions in this checklist ,is the Joint Financial :Management
   Imnrovement Program Federal Financial Management Svstem Reauirements Direct Loan
   Svstem Reauirements (FFMRS-5, December 1993).

   Purpose    of This Guide-and     ‘Hihi to: use’ $t    ”
                                                             ,..
    The purpose of this document is to provide a checklist to assist ‘(1) agencies in
    implementing and monitoringtheir systemsand (2) management and auditors in
    reviewing the systems to determine’if they ‘are’in substantial complianc,e with FFMIA.
    The checklist, the JFMIP source document;.“and the two previously mentioned OMB
    documents (Circular A-127,and the September 9, 1997implementation guidance) should
 , ‘be used concurrently by experienced staff.

i’ ’ OMB’s 1997implementation guidance providesindicators for chief financial officers and
  ) inspector generals to assist them in determiningwhether the agency’s financial.
     management systems substantially. Com@‘$         tith federal financial -managementsystems
     ‘requirements. Filling,,out this checklist ,will all&v agencies.to’ systematically determine
     whether specific systems requirements are being met. Agencies can ‘assessthe
     significance of any noncompliances ,in deter&&g substantial compliance by considering
     the““indicators” in OMB’s 1997implement&on~guida&e. .For example, the annual agency
     assurance statement issued I~ ,I,pursuant,to, section 4 of the Federal Managers’ Financial
                                          ,.     .,.(
                                                  .j

   2Thusfar, the series includes the (1) Framework for Federal Financial Management
   Svstems, (2) Core Financial Svstem Requirements, (3) Inventory Svstem Reauirements, (4)
   Seized/Forfeited Asset Svstem Reauirements, (5) Direct Loan Svstem Reauirements, (6)                        i-
   Guaranteed Loan Svstem Reauirements, (7) Travel Svstem Reauirements, (8) and                               ‘L
   Personnel-Pavroll &stem ‘Reauirements.                ’                    ”

   Page 6                                      GAO/AIMD-98-21.2.6   - Proposed Direct Loan Checklist (U/97)
Integrity Act is, one of those indicators. Agencies can use GAO’s checklists to help
determine annual compliance with the section 4 requirement.

The following Direct Loan System Requirements section contains a brief narrative
followed by the checklist, which ,is organized by functions contained in the source JFMIP
document.

In the checklist, two columns follow each question. Use the first column to answer each
question “Yes,” “No,” or “NA.” Use the second column to explain your answer. A “Yes”
answer should indicate that the agency’ssystem or systems provide for the capability
described in the question. For each “Yes” answer, briefly describe how the system(s)
contain the capabilky and refer to a source that explains or shows the capability.
                   ,
A “No” answer indicates that the capability does not exist. For a “No” answer, the second
column should provide an explanation and a reference to the supporting documentation.
Such explanations could include the following: (1) The agency is working on modifying
or implementing its system(s) to have the capability available in subsequent years. (2)
Management believes the capability is not cpst effective and will not enhance the systems’            t
                                                                                                      r
ability to manage operations. Refer to any cost-benefit studies that support such
explanation. If there are none, provide a full explanation.

Not every guide may apply to an agency. Further, while a guide may be applicable to an
agency, certain questions within the guide .may not be applicable. Answer such
nonapplicable question(s) with an “NA” and provide an appropriate explanation in the
second column.




                                                                                                      b




Page 7                                  GAOMMD-98-21.2.6   - Proposed Direct Loan Checklist (12/97)
                  2..




             ,.




         :




                                                        .:       ,,
                                                    :        1
                                 ,”




Page 8                  GAO/AIMD-98-21.2.6   - Proposed Direct Loan Checklist (12/97)   ~
DIRECT        LOAN     SYSTEM      REQUIREMENTS


The direct loan system requirements document helps agencies meet government guidance
by requiring the direct loan system to interact with the financial system to.validate funds
availability, update budget execution data, record receivables and collections,, and process
disbursements in accordance with laws and policies.

The four functions of the direct loan system are discussed below.                ,,

1.       Loan Extension supports analysis of the applicant’s eligibility in, accordance,with
         statutory and regulatory requirements. It also supports the (development of
         information to satisfy credit reform accounting and budgeting requirements. (The
         checklist questions for this area are drawn from,pp. 23-30 of the source document.)

2.       Account Servicing supports routine invoicing and, collection of debts. (The
         checklist questions for this area are drawn from pp. 31-36 of ,the source document.)

3.       Portfolio Management supports the management and evaluation of the direct loan
         program and its portfolio. It also supports portfolio performance evaluation; and
         management of portfolio sales.‘- (The checklist questions for’ thisarea
                                                                          s      are drawn
         from pp. 37-46 of the source document.),

4.       Delinauent Debt Collection addressesthe recovery of delinquent debt through the
         use of dunning letters, offset programs, collection agencies,,litigation, and the               I:
         termination of collection action on uncollectible debt. It also addresses the
         foreclosure and liquidation of property for collateralized loans. (The checklist
         questions for this area are drawn from pp. 47-60 of the source document.)

 The checklist questions follow the JFMIP source document. It should be noted that not
 all questions will apply in all situations and, as with the use of any checklist, professional
judgement should be exercised. Using the JF’MIP source document along with the two
previously mentioned OMB documents will help ensure that the user is cognizant of the
 background information and definitions that are necessary to fully understand the
 questions.




Page 9                                   GAO/AIMD-98-21.2.6   - Proposed Direct Loan Checklist (12/97)
 Direct       Loan System       Requiremedts                                     ji                      i’           “~1’t’ .: :

                                                                                                 .i,             “:
        &oh     extenhon    function

  Does the automated system:                         ’                      ” .’7, .I;                                :’ I ‘.,: ;/

                                                          .I’ ...’                          _.. :                      1.‘.    ”
   1. Record criti&xl credit
      application data needed to               /                                i ,, .‘,, ,, ,:~I                              ,,!
      sUppoStafi@j$jion ‘, .’”                                                           / ii, ;
                                                                 1
      s+ii@g~~~ :                                        ‘,’ :
                      :                                                           (.,, ” , ;!
                   ‘. ,.                  .: ~                       :      3,’            _j
   2.     Provide access to application
          information to all agency.                                                            ,: . .’
          staff particifiating in the                                                             ‘.
          screening and credit-granting
          decisions?                                .I                                     ,(
                                                   ,                             ‘,                 j,
                                                                                                I
   3.     Process and record
          collections of fees remitted         ”
          witl~ the application in both                                          ‘,_
          the direct loan system and                                      ;:,:         ”
          the core financial system?                                     I/
                                                                           .‘,
   4.     Compare loan application                                                                            ‘,‘I
          information to agency
          program eligibility criteria?




Page 10                                   GAO/AIMD-98-21.2.6         - Proposed Direct Loan Checklist (1%97)
Direct      Loan System       Requirements              : .~     !:.            ,



        Loan extension    function           Yes/no      y             Explanation
                                              NA

   5.     Check the appropriate system
          data files to determine
          whether the applicant has
          submitted a duplicate
          application or has had a
          recent loan application i
          rejected? These situations
          may indicate attempts by
          applicants to subvert agency
          credit policies.

  6.      Document that borrowers
          have certified that they have
          been unable to obtain credit
          from private financial
          sources, where such
          certification is a program
          requirement?
                                                                           ‘.
  7. Provide an automated
     interface with credit bureaus
     that allows agenciesto obtain
     applicant credit history
     information (credit bureau
     report)? For credit bureaus
     that do not have the
     capability for an automated
     interface, record credit
     history information entered
     by agency staff?




Page 11                                   GAO/AIMD-98-21.2.6   - Proposed Direct Loan Checklist (12/97)
 Direct     Loan System       Requirements                 ”                               ‘,’

                .“’                                   .,        ”




        Loan extension    function        ‘. Yes/no                              E~phnB~ion’
                                           ,’., NA                  ,
   8. Document that applicant
      financial data, repayment
      ability, and repayment history                                    ,              ,
      have been verified through                                                  ‘.
      the use of supplementary                   >
      data sources, such as
      employment and income                                                 ,,
      data, financial statements, tax’
      returns, and collateral
      appraisals, where this is a
      program requirement?

   9.     Compare the applicant’s
          creditworthiness information                     ,.
          to system-stored program ’
          creditworthiness criteria &d,
          where a program
          requirement, calculate a
          credit risk rating for the
          applicant?
                                                                                       ‘_
  10. Document whether Credit
      Alert Interactive Voice
      Response System (CAM%)
      identified the applicant as a
      borrower who is
      delinquent/defaulted on a
      previous federal debt? The
      system should not accept
      further processing if there is
      not a CAIVRS authorization
      number.




Page 12                                   GAOUIMD-98-21.2.6         - Proposed Direct Loan Checklist (12/97)
Direct    Loan System       Requireme+               _         ,8                 :                         .“.’



      Loan *ext+&n      function   i     .‘.Y&/no                                     Explanation.
                                           : NA                                                                    .’
                                                :
  11. Compute the credit subsidy                                             :                  !
      amount associated with a ;                         ,I,   .; ‘. j
      loan using projected cash                                              :’           :            I.
      flows and the applicable                                                                As,
      Treasury interest rate in
      accordance with OMB
      &c&r-A-34?
                                                                                               ‘,:.’

  12. Provide an automated                                               :
      interface with the core
      financial system to determine”            ‘,
      if sufficient funds are                                       ,’            ”
      available in the Program
                                                                :
      Account to cover the subsidy
      cost and if available lending
      limits in. the F’inancing~     ,(
      Account are sufficient to
      cover the face value of the
      proposed loan?

   13. Provide an automated
       interface to the core financial
       system to commit funds for
       the loan?

  14. Update the application
      information store to reflect
      the status of the loan?
                                                                                                                        I




Page 13                                  GAO/AIMD-98-21.2.6         - Proposed Direct Loan Checklist (E/97)
 Direct   Loan System      Requirements               :’ : ‘.                  ‘., :: .: >,


      Loan extension   function           Yesho                          Explanation
                                           NA

  15. Accept, identify, track, and                    ‘T,.                ,:          ,
      report supervisor overrides of                  :I,,i,     I’._                         .,
      system-generated                                : .,.
      acceptance/rejection                                /’                    .,            ..
                                                                                              ,,
      recommendations?                                                    .I /. ..:
                                                                        ,I , ,,”

  16. Create and maintain a system
      record of accepted and       I,
      rejected loan applications?

                                                                 7
  17. Generate a letter notifying
      the applicant of rejection or
      acceptance of the loan
      application?

  18. Record loan terms and
      calculate disbursement
      schedules and repayment
      amounts and schedules?

  19. Record the cohort and risk
      category, as defined in OMB
      Circular A-34, associated with
      the loan?

  30. Assign a unique account
      number to the loan that
      remains unchanged
      throughout the life of the
      loan?




Page 14                                 GAO/AIMD-98-21.2.6     - Proposed Direct Loan Checklist (W9’7)
Direct    Loafi   System   Requirements.


     Loan extension    function        Yes/no                    :   Explanation
                                        NA

 21. Support the generation of
     loan documents for the
     borrower and the agency?’
                                                            ,,                     ‘._
 22. Record information
     concerning the loan. closing
     process, including date of                                             ,
     closing?

 23. Record the applicable
     Treasury interest rate for the
     loan at the time of obligation
     in accordance with OMB
     Circular A-34? This rate is
     used in subsidy calculations.
                                                                       r           ,.,
 24. Provide an automated
     interface with the core
     financial system to record the
     direct loan obligation,
     including the obligation for
     the subsidy, and liquidate
     commitments previously
     recorded?

 25. Include in credit bureau
     reporting all commercial
     accounts in excess of $lOO?




Page 15                               GAO/AIMD-98-21.2.6   - Proposed Direct Loan Checklist (E/97)
Direct    Loan System      Requirements


      Loan extension   function        . Yes/no                        Explanation
                                           NA

  26. Calculate and deduct the loan                         ,,I   /.                       .i
      application and origination                          ‘8     \’
      fee from disbursements if not                                    i        I’
      previously remitted by the,
                                              ‘,
      applicant?
                                                                           .’

  27. Provide the capability to
      cancel, thus deobligating,
      undisbursed loans?         :
                                                                                           .’
  28. Update debtor accounts to                                                 ,.’
      reflect management override
      of offsets?

                                                   II
  29. Record information needed
      concerning each loan
      disbursement, including
      amounts and applicable
      Treasury interest rates, to
      support the computation of                                                      !’
      accrued interest expense on                                          :
      borrowings from Treasury,
      and subsidy reestimates?




Page 16                               GAO/AIMD-98-21.2.6    - Proposed Direct Loan Checklist (E/97)
Direct    Loan System      Requirements


      Loan extension   function           Y&ho                       Explanation
                                           NA

  30. Record and track the amount
      of borrowings from the                          .,-,
      Treasury by cohort? The
      amount borrowed is equal to
      the amount of the loan
      disbursement less the amount
      of the subsidy covered by
      appropriated funds and the
      amount of any fees collected
      for the loan.

  31. Provide an automated
      interface with the core
      financial system to initiate
      and record the disbursement,
      the receivable, and the
      movement of the subsidy
      funds from the Program
      Account to the Financing
      Account? The system also
      must record any offset taken
      on behalf of another agency.
      If the direct loan system
      itself handles the payment
      processing, it must meet the
      requirements in the “Core
      Pinancial System
      Requirements” related to this
      activity and send summary
      data to the core financial
      system.




Page 17                               GAO/AIMD-98-21.2.6     - Proposed Direct Loan Checklist (E/97)
Direct         Loan System     Requirements                   .                                   ,:


      Loan extenskn        function       Yes/no                             Explanation
                                            NA                                                         .
  32. Capture the estimated useful
      economic life of the pledged                                                     . ‘, : ”
      collateral, and compare it to                                  .. ,: ;:,.         .Yi :
      the proposed term of the                         1_          :          “. :,.
      loan?                                                                                :_

  33. Document that transactions
      over $100,000have a
      collateral appraisal by a
      licensed or certified appraiser
      (or more stringent appraisal
      requirements of the agency)?                                                :/

  34. Compute the loan-to-value
      ratio and flag those loans
      with a ratio exceeding 100%
      (or more stringent standards
      set by the agency)?
                                                                                                       ‘:
 35. Does the system provide at
     least the following types of
     management information:

          -    approval and rejection
               monitoring?
          --   override exceptions?
          --   potential application
               fraud?
          --   detailed transaction
               history?
          -    exceptions?
          --   disbursement
               management summary?


Page 18                                  GAO/AIMD-98-21.2.6       - Proposed Direct Loan Checklist          (12/97)
Direct Loan System Requirements:                         -,     ;     ‘, ‘, ,,.    ),:        -.;,


            Account   servicing          : I %.:
                                              ,.Ye@no                 ,. Explanation
                                             I, NA

 Does the automated system:         :

   1. Calculate outstanding’    !
      balances.for each loan
      account invoiced, including
      principal, interest, late :
      charges, and other amounts
      due?

  2.      identify loan accounts to be
          invoiced based on agency
          program invoicing criteria
          and loan account
          information, such as amount
          outstanding, most recent
          payment, payment amount
          due, and date due?

  3.      Provide’the capability to                                                      ‘,
          analyze escrow balances to
          adjust required deposit
          amounts to prevent
          deficiencies in tax and
          insurance deposits and
          payments for housing and
          other long-term real estate
          loans?




Page 19                                    GAO/AIMD-98-21.2.6   -’ Proposed Direct Loan Checklist (12/97)
     Direct       Loan      System       Req&ements::.            .'I ::'.:.I';<:                .. .,I               : :. '-.I,',':.



                  Account    servicing                                                           .Explanation                       I.
                                                                                                                                    I.
:
                                                                                                                                    i:
       4.      Generate and transmit an                                                              ._,         .,       I
               invoice to each borrower?                                                                                            ::
               The invoice should include                                               ;. ,’      : ..
               information such as borrojver                                     j’        .,        ,I ,“.Z                        I;
               ID, amount due, date due, ithe                 i          :           .‘~ ,‘.       ~’                               ‘,
               date after which the payment’                  1                 ‘-.‘,      :: 1 ,’ .. ?“” i                         ,i
               will be considered late, and                                                       ” .,,‘L-,                         :
                                                                                                       3)                           /:
               the current balance.       ‘:
                                                                                                                                   _i
                                                                    ;.                  1                                  .-
       5. Apply collections according                                                                                      .’   ”; .’.,
          to agency program receipt                                                 i                      ‘,,                     I/
          application rules to the ‘i                                        ‘(5            :                             .
          appropriate liquidating or I                                                          ,’    I. ;                .,
                                                                                                                                    ‘,
          financing account? Collection              I                     ”                i                                       ,,
          sources could include cash,                                     ;.                 .I s            /’ ‘,
          reauthorized debit, check, .‘or                                ,
          credit card.                                        :                                                       ,             ‘.‘3

       6.      Record a partial, full, or late                                                                   ., .‘.            .:
               payment indicator?           .’                                                                                     ,:
                                                                                                                   /
                                                                                                                 , ,’ .;
       7.      Identify payments that cannot
               be applied and document ’                                 t__
                                                                                            ‘5‘_.
               why the payments cannot be
               applied?
                                                                                                                                   1:

       8.      Provide the capability to                 ,-
               compare borrower’s
               preauthorized debits received
               from financial institutions
               and other external sources to
               expected collections?



    Page ‘20                                       GAO/AIMD-98-21.2.6               - Proposed Direct Loan Checklist (12/97)
                             Direct        Loan Systhn              Requiremehts                      ).     .. :         ,,+;        ; : ‘.! : ‘..     ‘. C,..I I,,

        :_   .           .
 ,,’


                                      : j I ,&-count   'servicing        1       .'       y&&o                                  ~Explanqkion
                                                                                      :
   :
  ,::                                                                                        NA
 : 2             ‘,.,’




                               9.     Provide an automated               :                                       .,       ..;          ,.,,,
                                      interface with the core            j                                                      v/_.
                                                                                                                                 ,   : ,-: (i. ‘,
 i.
                                      financial systkm to record:&                                1              i.0: :,‘I,     .,I           ,:: ,: I, ,,        :i
                                      collection? If the direct 1oA.n                                         .:.I,’ ,f I,,’ 4;. , :: I,., :
                                      system itself handles the i                                                                  .’:, J,.,:
                                                                                                             ,j; ,, 8’,, ‘, , / 7.‘.
 :i
                                      collection processing, it mpst                                                     I : 1 j,’ ” ( ‘.                         -!‘
                                      meet the requirements in the                                                                                           . ,, :’;
                                      ll(+ore&$f~[~‘-~ys&i           / .’                                         ,,:1                   .“, ,.I
 ‘,
                                    . Requirements”
                                       .“.,            related to this                                 .,   ‘,                                                    “’
ii
                                      activity and send summary                                                                                                   i.
                                      data to the core financial                                                                              ’
                                                                                                                                              _. :
                                      system.
                                            .                     .:
_(

,,                            10. Support evaluation of    :
                                  accounts proposed for
                                  modification by the agency or
                                  borrpwer by comparing loan
                                  data to agency program loan
                                  modification criteria?

                              11. Calculate rescheduled loan
                                  terms, including repayment
                                  amounts and schedules,
                                  where appropri&? Cal&late
                                  any change in the subsidy’
                                  amount ‘as a result, of the i
                                  loan modifications?




                             Psge21                                          ’        ‘GAO/AIMD-98-21.2.6
                                                                                                       - ProposedDirect Loan Checklist (12/97)
Direct    Loan System       Requirements                      :”                    I ‘,’   :    :, J :..’ : ;


          Account   servicing    ,,    ;    Y&/no                        ..‘.    Explanation
                                           : NA                                                              jj
  12. Perform a funds control
      check to verify the
      availability of subsidy
      through an automated
      interface with the core
      financial system?          :

                                                                     I,         ,, . .
  13. Produce selected loan      :
      account information listings
      for review by internal                                   ,’   ,,                           ,.
      modification groups?

                                                                                            .,
  14. Estabiish a new ioan account                  ‘-
                                                                         ,’
      and collateral record for each
      new debt instrument and                                 >:         I,     :
      assign a unique loan account                       ,’                                                       e
      number to the new account
      record? Maintain a link
      between the new loan
      account established for the
      new debt instrument and the
      old loan account records?

  15. Update the loan information
      store to reflect the modified
      status of the loan, including
      changes in the value or status
      of any collateral?




Page 22                                    GAO/AIMD798-21.2.6 - Proposed Direct Loan Checklist (12/97)




                                                                                                                  :
     Direct      LOan    System         Req&-em&ks                   '3 ':;,               ,.     ':: i   8


..
                .’ Account   servicing       1         ,Yesho              ”              Explanation
                                                     ‘1 NA1

       16. Provide an automated         ;
            interface with the core
          ., financial system to record: ,,.
            pre-1992 and post-1991 direct
             loan modifications?

       17. Generate a new loan       :
           document which displays :
           information” concerning the
           original and modified direct
           loan?

       18. Identify past-due loan            ’                                 8
                                                                               .    : .,
           accounts for collection           :
           action?                                                  I                     ,,.                 1,
                                                                                    ,.’
                                                                                            ,,,
       19. Ilpdate the system to reflect
           delinquent loan status?

       20. Initiate penalty interest,
           administrative charges, and,
           after 90 days, penalties for
           delinquent loan accounts?

       21. Provide for automatic
            acceleration of delinquent
          ’ loans based on agency
            program criteria and the
            provisions of the note?




     ,Page 23                       ,                 GAO/AIMD-98-21.2.6       - Proposed Direct Loan Checklist (12/97)
 Direct    Loan System          Requirements       I   :,;;f; .,:,,! .’ .I, : .:,$:: ‘, i’ : ;’ ..,,: ..:: : .,‘I:


                                                   ;
          ‘. Accotit,   servicing    :        Yes/ho             ::I    :;’ :: “Explanation                   :,
                                          I’.j NA

   22. Track and age receivables by
       type?

  23. Does the system document
      significant changes to the
      condition and .valtie‘of an?
      collateral?

  24. Does the system provide tit
       least the following types qf
       management information:
              ‘1
       - detailed transaction
          history?
       - standard management.
   .’ ., control/activity?
       - exceptions?


                                                                                                              :




                                                                                                                     i-


Page 24                                  : GAO/AIMD-98-21.2.6     - Proposed Direct Loan Checklist (12/97)
     Direct       Loan      System   Requireme~n~s~~,.::~,.:,..~:,: ,: .,i ,,,:.,:,,: .: :, ,::! .,.!; !,,..,‘;, :., .,


                Portfolio   management       :    .,\ : : -Y&ho                 :I : ;’ ,’ .Explanation
                                                      ., .:‘:: N&
i,
       Does the automated system:             :

        1. Compare loan data to agency
           program portfolio evaluation
           criteria in order to identify
           loans that require review or
           evaluation?

        2.’     Compare loan data to agency,
                program portfolio evaluati,on
                criteria to identify loans with
                potential for graduation to
                private sector financing?

        3.      Compute and maintain :
                program performance trends
                such as:

                -- ‘number md doll#&vdCe                ...    ”     ::    ,,        .               ,‘(‘.   :‘
                    of loans made?
                - average loan size?
                - loans made by
                    geographical region?
                - number and amount of
                    delinquent and defaulted
                    loans?
                - number and amount of
                    rescheduled loans?
                -- amount of loan write-offs?




     -Page 25                                          GAO/AIMD-98-21.2.6       - Proposed Direct Loan Checklist (12/97)
 Direct       Loan System     Requirements.           3 ‘,                                               ?        c:


          Portfolio   management             Yes/no                               Explanhtion
                                              NA

   4.     Compute and maintain                                                          /,‘.        _’
                                                                                                                        :
          financial measures to help
          assessthe credit soundness                    ..’            ?            ,_              “‘I.               .,
          of a loan program, such a&                           : ‘,.        ,:                  !,.        ;
                                                              ,’                 ,$.I          ,,. \;                  ,i.
          -   average loan to value                              :,                              (’      I
             ratio (for collateralized                                                                                 ,’:
             programs)?                                                             .-                                       .
          - current 1Oansas a
             percentage of total ~loa&?                         ,.                  :                                            I
          -- delinquent loans as a                                ’                   ,I                                         r-
                                                                                                         .’
             percentage of total                                                                                       ‘.
             current loans?
                                                                                                              5
          - write-offs as a percentage
             of seriously delinquent                                                                                   -.
             loans?
          - overall portfolio risk rate?                                                                                         b

          - loan loss rates?         ’




Page 26                                    GAOIAIMD-98-21.2.6          - Proposed Direct Loan Checklist (12/97)
Direct        Loan System    Requirements.:            ‘, ‘:’ _   ‘.             t:                             ‘, . ...I


          Portfolio~m+nagement            .’ Yes/no                             Explanatidn
                                           .! NA

   5. Compute and maintain                                                  ;         ;                     ,
      efficiency measures to help                                                             ,,
      determine the effectiveness                      ,’ , /              ,.., “”                                        , i
      of use of agency resources                                           ,’ 0 ..                                     ::
                                                                                                                       ,:
      such as:                                                                                 ._                      ,:
                                                                                                                       ‘I
                                                                                                                       .)‘i;.
          -  administrative cost per
             loan approved?          ‘,           ‘,
          - time required to process a
                                                                       :              ’                                ‘I
             loan application?
          -- administrative cost per                                   i
             loan serviced?
          - administrative cost per
             delinquent dollar
             collected?                                                                   /                         . ;
          -- net proceeds on real
             property sold compared                                    .                           .
             to appraised value?                                                                       ).
                                                                                                                       .;

 Does the direct loan system/core
 financial system:                                       ‘.

  6. Execute SF-1151’sand record                                                                            1
     amounts borrowed from
     Treasury to finance loans?
     Adjust borrowings during the                                                                      I,
     year to reflect shortfalls in
     original estimates?




Pbge 27                                    GAO/AIMD-98-21.2.6     - Proposed Direct Loan Checklist (12/97)
Direct      Loan System       Requirements        ,.: ‘,; :                       : : i .’ : ...‘,,., ,,I                                                                                                            .::                  ,‘,.,


          Portfolio   management   :       .. ybs/no                     i!           :.                                     : Explbtation                                                                                                          ”
                                           i ’ NA
                                                                                                                                                                                                                                      .
   7. Execute and record Treasury                                                                             ,                   ,         ;y.:                               !          ,i,                              _‘.   .,
                                                                                                                                                                                                                                                    i-
                                                                                                                                                                                                                                                         i



      borrowings to finance     ,                                                                   ,...,.’                                                                                                      1



      interest payments to Treasury                    ‘,.t:.,                    1
                                                                                                                                                            ,’             : : )          : .: ‘.
                                                                                                                                                                                                                                                :.,


      if insufficient funds are 1                                             !
                                                                                                                           1 i,
                                                                                                                            ,,;                 ,:‘,                           .)!’             ,.’                  ‘.’



      available to make the                                                                                                                            .
                                                                                                                                                                                          i                .,                                   :
                                                                                                                                                                                                                                                !‘
                                                                                                                                                                                                                                                .I’
      payment?                                    :                                                                                                                                                                                             .:

                                                                                                                  .’                       .,                         /,                                         i
                                                                                           :

                                                                                                                                      :)
                                                                                                                                                                 :,        ’

   8. Track the amount of       ’                                                                                      i      ;
                                                                                                                                                                                      :                    ,:,
                                                                                  :                                                                                                                                                             I
      uninvested funds in the
      Financing Account as needed
      to support interest earnings
      calculations?

   9. Compute interest expense;on                      .I                                                                                       ,:,,,                                                                                           ,’
      borrowings and interest 1                                  I
      earnings on uninvested
      funds?

  10. Execute and record
      repayment of principal using
      SF-1151’sand interest to
      Treasury using SF-1081’s?

  11. Execute and record receipt                                                                              ,*-                                      ‘,                                             .:


      of interest earnings from                                                                                                                                                                                                            .’


      Treasury on uninvested funds                                   ’                         .’


      using SF-1081’s?

  12. Provide an automated
      interface with the core
      financial system to record all
      calculations?                    I                         I




Page 28                                ’ GAO/AIMD-98-21.2.6                       - Proposed Direct Loan Checklist (12/g:
         Direct Loan System Requirements,.f                      ‘.. .L;.:.,.: : !.: !,:r       : (.   : :.;


                   Portfoliq.   management    ’     ‘,,’Yes/&o                   : : ,Explanation          :,
                                                      ,’ NA
”   .:




                                                                                                           .’
          Does the automated system:     i                          ,,,. i ;     1 (       ‘_    ?
                                         1
                                         \                                                      _j,
           13. Support the reestimate of Ithe
               subsidy cost for each cohort
               and risk category of loans:at
               the beginning of each fiscal
               year in accordance with qMB
               Circular A-34?The reestimate
               should be calculated in Go
               p;arts:

                   -   The difference in the
                       estimate resulting from
                       changes in the applicable
                       interest rates between the
                       time of obligation and 1
                       disbursement.          :
                   -   The difference in the j
                       estimate resulting from
                       changes in the projected                        ,’      .S‘
                       cash flows.                                                   ..L
                                                                                                           1

           14. Maintain cash flow data that
               permits comparison of actual
               cash flows each year (and                                :
               new estimates of future cash
               flows) to the cash flows used
               in computing the latest loan
               subsidy estimate?




         Page 29                                    GAO/AIMD-98-21.2.6      - Proposed Direct Loan Checklist (12/97)
          Portfolio   management      I’    Y&s/~o                           Exphdtion
                                              N4                 _                                  .’
   15. Document the reasons for                                                  :         .:
       observed or expected      :                                                                  !
       changesin cash flows that                           I                 c .‘,         .,.      ,:
                                                            a.                  ,,I.’       ,.
       result in a subsidy cost :
       increase or decrease, and ’                    _;                      “3 ‘,
       whether the changes in c@h                   : ’              I : :                  :!      ,,
       flows are expected to ,be
       temporary or permanent?

   16. Compare the current year
       reestimated subsidy cost to
       the latest year reestimated
       loan subsidy cost to
       determine whether subsidy
       costs for a risk category
       increased or decreased?
                                                                             ,, ,
  17. Transfer loan subsidy from                                                      ./
      those risk categories with an
      excess of loan subsidy to
      those rjsk categories in the
      same cohort that are
      deficient in loan subsidy to
      provide adequate funding ‘for             *
      each risk category? .




Page 30                                    GAO/AIMD-98-21.2.6        - Proposed Direct Loan Checklist (12/97)
Direct      Loan System        Requirem.euts.‘.,,            :   .‘,

                                                    ”


          P.ortfolio   management          .. Yes/no             I           Explanation
                                               NA

  18. Group those cohorts that
      need indefinite appropriation                                              ,,‘, ,,’              :(
      loan subsidy funds separately                                             .
      from those cohorts that have                                                                 :
      excess funds? Request an .i
      apportionment and obligate
      funds to cover the subsidy                        1’
                                                                                            - ,’
      increase for those cohorts of
      loans that have insufficient
      subsidy? Transfer excess
      subsidy of cohorts of loans to
      the Special Fund Receipt
      Account?

  19. ‘Provide an automated
       interface with the core                                                                         ,: ,
       financial system to record the
       transactions associated with
       subsidy reestimates?

 20. Set aside funds to create and
     maintain the working capital
     cash balance in accordance
     with OMB guidance?

 21. Record costs incurred which
     are funded by working
     capital?




Page 31                                     GAO/AIMD-98-21.2.6       - Proposed Direct Loan Checklist (12/97)
Direct    LOan   System    Req&em&ts                    ~~~I;
                                                          ,;'.:, : :.I ',.;        j   6        ;;, _.!, '! ,          1 ;.


                                                    .




         Pol’tfolio management          c.y&/&)                         :,:.           Expkhtion
                       _                 : ‘.. !&
  22. Compute the amount of ‘.                                     i, ;: 1’._’ .:. ,., ,,, ., ‘.; ;s.-,
      Treasury interest earned by                       I            ‘, :; : ,,.      : j,:,,:.
                                                        :           ,I.: .;,,.‘ 1 ! ,,‘, _, !. ,’     :.
      working capital funds and’                        i                                             I’
                                                               :- ,,..‘.   :);,I,  ; !’      r
                                                                                        3, : ,!.\
      provide this amount to the
      core financial system?    :                                  ,:          ,,.    ,‘,.,     .
                                                                                               ‘.
                                I                       ,:         , ‘,‘i I. ,I ‘i                    :
                                                                 .’ .,). ‘,,, ./            _,a:
  23. Compare’loan information to
                                                        ,
      agency program criteria to                                               /                   _:
      select loans for inclusion in a                                                      :          ,’ j I
      potential sales pool or to                                                               .i 8 *,..‘<:,             ,a
      identify debtors or         1                                                                                       ‘_
      purchasers eligible for a ;                                                                    ,>‘.,                ‘_
      prepayment program?
                                                                                                                ..,.

  24. Provide information on I
      selected loans to the financial
      advisor?

  25. Record OMB/Treasrqy                                                              ‘.
      approval or disapproval of                                  ,.’
      the sale/prepayment? ’

  26. Generate a prepayment offer
      to be sent to eligible
      borrowers for participation in                                ..                                                  .,;
      the prepayment program?

  27. Record receipt of
      commitment letters from
      borrowers?.




Page32                                    GAO/AIMD-98-21.2.6
                                                          - ProposedDirect Loan Checklist (12/97)
         Direct, Loan System Reqtireme*nts.                         : ;. ‘.. ..- : ‘- A               .. L .: :


                   P@folio   management                 ‘Yes/q0            I,          :,Explanation                      ,_
                                                    ,,‘.‘,/ NA,
. ..‘.



           28. Record collection of       :                                           :,     ,: ,; . (                    ‘,
               prepayments?,                                                        ‘ .:; I.     .i 2”>.
                                                                  “j,     ./:         : :,     .., ,::                    I:
                                                                               /. I.    ., :        s ‘.
           29. Provide an automated                                        :.::.’                        :;
               interface with the core
               financial system to record the
               receipt of a prepayment and                1 I.‘. ;                                             .,
                                                                 ‘,‘ I,                                                   /I’
               the changesin subsidy costs?                                                                         ;,
                                                                  :‘) ‘:                     ‘,
                                                                     ,,<                          : I.:, .i.-
           30. Identify loans with        ’
               incomplete documentation. in                                     .,                    ,.
               the loan information store
               and generate a request for                                  ;
               information to ensure loan             ,
               files are complete?, Update                              : 5;                ,‘.
               the loan information store
               with any provided                                                            ,.
               information?
                                                                                                  .
                                                                                           ,.,
           31. Generate documents and
               other information necessary                                                                 ;         ‘.
               to finalize the sales
               agreement with the       :
               purchaser?

           32. Update the loan information
               store to identify loans sold
               using information received
               from the underwriter?




         Page 33                              .!’    GAO/AIMD-98-21.2.6         - Proposed Direct Loan Che,cklist (12/97)
 Direct         Loan System        Requirements;                    :,’


              Portfolio   management         .. .: Yes/no                           Explanatiofi                  ,:
                                                    NA
                                                                                     ‘.
  33. Provide an automated                                                     ,,
      interface with the core                                                        .,> .,     ,’ .:‘:
      financial system to record ‘the
                                                                                                          ,,...
      sale of the receivables, the                  .
      proceeds, and changes in                                            I, :                 ),
      subsidy costs?                                                        .j ;A :.               :
                                                                                /                ; ,I ;

  34. Does the system provide at                                                              .,‘<.,
      least the following types of             I,
      maiiagement information:

          -      detailed transaction
                 history?
          -      standard management
                 control/activity?
          -      portfolio sale historical
                 payments?
          -      portfolio sale
                 performance?
          -      program credit reform
                 status?




Page 34                                        GAO/AIMD-98-21.2.6   - Proposed Direct Loan Checklist (12/97)
Direct      Loan System        Requirements:             rt


       Delinquent    debt collection         Yes/no                       Explanation
                                              NA

 Does the automated system:                                      I. ,..

  1. Identify delinquent                                           ‘_
     commercial and consumer
     accounts for reporting to
     credit bureaus (preferably ‘by
     electronic interface) and
     CAIVRS by comparing
     reporting criteria to
     delinquent loan data?

  2.      Calculate outstanding
          balances, including interest,
          penalties, and administrative
          charges, and include this.. .,
          information in credit bureau
          reports?

  3.      Generate (or include in
          demand letters) a notice to
          inform consumer borrowers
          of the referral of a delinquent
          debt to a credit bureau in
          accordance with regulations?

  4.      Maintain a,record of each
          account reported to credit
          bureaus to allow tracking of
          referred accounts?




Page 35                                     GAO/AIMD-98-21.2.6   - Proposed Direct Loan Checklist (E/97)
                                                               ‘.
T’ Direct     Loan     System   Requirements


          Delinquent   debt collection         Yes/no          Explanation
                                                NA

     5.     Prepare tapes, monthly, of                                       !!
            delinquent debtors to be
            included in the CMYRS
            database?                                                             .’
                                                        .,_,                      .!
     6.     Generate and transmit
            dunning letters to debtors
            with past-due loan accounts?

     7. Identify debtors who do not
        respond to dunning letters                              .’
        within a specified time
        period?

     8.     Track demand letters and
            borrower responses to
            document borrower due
            process notification (and
            borrower willingness and
            ability to repay debt)?

     9.     Track and document debtor
            appeals received in response
            to demands for payment?




  Page 36
Direct    Loan System        Requirements            x                                    I “I



      Delinquent   debt collection          Yes/no                    Explanation
                                             NA

  10. Provide automated support to
       the collection process?
       Support could be provided
      for activities such as                                    .,’
       contacting a delinquent                                               >I ‘:
      borrower by phone;
       documenting contacts with a
      debtor and the results;
      documenting installment
      payments, rescheduling
      agreements, and debt
      compromise; generating                         ::
      management reports; and
      tracking the performance of                                             *
                                                                                     /.
      individual agency collectors.

  11. Compare delinquent account
      data to agency program
      offset referral criteria to
      identify accounts eligible for
      federal tax refund offset,
      federal employee sahxry
      offset, or administrative
      offset?

  12. Calculate outstanding
      interest, penalties, and
      administrative charges for
      each loan account eligible for
      offset?




Page’37                                GAOMMD-98-21.2.6   - Proposed Direct Loan Checklist (E/97)
Direct    Loan System       Requirements                  ,,        2                 .-


     Delinquent   debt collection          Yes/no                       Explanation
                                            NA

  13. Generate debtor due process                     ’                      ..       .,.
      notices of intent to                                      ;   _,. :
      implement an administrative
      offset, tax refund offset, or                                         ,. -1 ”         ‘/   _.
      salary offset?

  14. Generate fiIes of delinquent                                      .,’ i,,,;.
      loan account data on loans
      meeting referral criteria for
      each offset type and
      electronicahy transmit to the
      IRS for federal tax refund
      offset matching, to DOD for
      salary offset matching, and to
      other agencies which make
      disbursements for                                                     .
      administrative offset                                                       :
      matching?

  15. Generate salary offset
      requests to employing
      agencies for delinquent
      borrowers identified as
      federal employees?

  16. Update the loan information
      store to reflect offset referral
      status?




Page 38                                  GAO/AIMD-98-21.2.6    - Proposed Direct Loan Checklist (E/97)
Direct    Loan System       Requirements’              i                       .(:, ,    .c.       ‘.


     Delinquent   debt collection       Y&/no                                 Explanation               ’
                                         NA
                                                                                               ”        !
  17. Accept matched/unmatched
      account data and update the                 :                                                     8;
      loan information store to ’
      incorporate data received,                  ‘_        :.       I    “,
                                                                          <’                        j:
      from IRS, DOD, employing                                             .;                       .!
      agencies, or other agencies?                                                                  ,I,
                                                                                                     7
  18. Match offsetting agency
      delinquency collection
      listings and totals with
      agency records and deposit
      data?
                                                                         _’

  19. Update the loan information                                                       . ‘.
      store to reflect receipts,
      adjustments, and status
      changes?

  20. Interface with the core
      financial system to record
      collections by offset?

  21. Compare delinquent account
      data to agency program
      collection agency referral                                                                    il
      criteria to select delinquent
      loan accounts for referral to
      collection agencies?




Page 39                                GAO/AIMD-98-21.2.6        - Proposed Direct Loan Checklist (E/97)
Direct    Loan System         Requirements                :   :            ,,            .

                               ,,



     Delinque&      .d&t   chection          Yes/no               ‘.?,,         Explanation            !
                                              NA                                                       3:
             ,_ :
  22. Sort and group delinquent
                                                              ‘,I.                    ;,               :
      loan accounts based on type
      of debt (consumer or                                                             :
      commercial), age of debt, ,and                                                   i’.,2,,,_
      location of debtor?      ;                                          ,’             ,,,,,i;!
                                                      ,                                         !I
  23. Calculate outstanding
      interest, penalties, and                                                                _’       ,!
      administrative charges for                                                                             t-
      each delinquent loan account
      to be referred?

  24; Assign,selected delinquent
      loan account groupings to
      appropriate collection
      agencies based on collection
      agency selection criteria for              ,                                            i              i---
      agency programs?

  25. Document that the delinquent                                                                ‘.
      account has been referred to
      a collection agency?

  26. Generate and receive
      electronic transmissions of
      account balance data and’
      status updates to and from
      collection agencies?

  27. Record receipts remitted to
      the collection agency and
      forwarded to the agency?


Page 40                                 GAO/AM)-98-21.2.6         - Proposed Direct Loan Checklist (12/97)
                                                                       /:,         ” :             ‘.
     Direct    Loan System        Requirements             “’ ’   ‘%

‘.                                   ‘,                                       ‘.               .




          Delinquent,   debt collection       Yes/i0                         Explanation                y.
                                             : NA

       28. Update the loan information
           store to reflect receipts,                  1
           adjustments, and other status
           changes, including                              ,/      .
           rescheduling, compromise,                                   ,/.          ‘.
           and other resolution
           decisions?                                                               ,’


       29. Accept and match collection
           agency invoices with agency
           records? Generate payment
           to the collection agency for
           services rendered through the
           core financial system?

       30. Request, reconcile, and
           record returned accounts
           from collection agencies?

       31. Interface with the core
           financial system to record
           collections processed through
           collection agencies?




     Page 41                                GAO/AIMD-98-21.2.6    - Proposed Direct Loan Checklist (12/97)
 Direct   Loan System       Requirements.              ,


      Delinquent   debt collection        Yes/no                     Explanation
                                           NA

  32. Compare delinquent loan
      account information with the
      agency’s litigation referral.
      criteria to identify delinquent
      loan accounts eligible for
      referral? Support
      identification of accounts to
      be referred to counsel for
      filing of proof of claim based
      on documentation that a
      debtor has declared
      bankruptcy?

  33. Provide an electronic
      interface with credit bureaus
      to obtain credit bureau
      reports that will enable
      assessment of the debtor’s
      ability to repay before a
      claim is referred to legal
      counsel?

  34. Calculate the outstanding’
      balance, including principal,
      interest penalties, and
      administrative charges, for
      each delinquent loan account
      to be referred to legal
      counsel?




Page 42                                 GAOKIMD-98-21.2.6   - Proposed Direct Loan Checklist (12/97)
Direct    Loan System       Requirements            :


     Delinquent   debt collection        Yes/no                      Explanation
                                          N4
  35. Generate the Claims
      Collection Litigation Report
      (CCLR)? The CCLR is used to
      capture collection actions
      and current debtor
      information and transmit this
      information to Department of
      Justice (DOJ).

  36. Receive electronic
      transmissions of account data
      and status updates to and
      from DOJ’s Central Intake
      Facility or the agency’s Office
      of General Counsel (OGC)
      automated system for
      referrals?

  37. Update the loan status to
      reflect referral for litigation
      so that the loan can be
      excluded from other
      collection actions, and to
      alert the agency to obtain
      approval from counsel before
      accepting voluntary debtor
      payment?




Page 43                                 GAO/AIMD-98-21.2.6   - Proposed Direct Loan Checklist (12/97)
Direct    Loan System       Requirements                ”                                    ,   ,’



     Delinquent   ‘debt collection     -: , Yes/no                     Explanation                    I’
                                             ,NA
                                                                                                      ;:
  38. Track filing of pleadings and                                                 ..
      other motions, including ’                 /                                       :
      proofs of claims in                                             ,_ 1’
                                                                      *                  ,’           t
      bankruptcy, to ensure swift
      legal action and to monitor
      litigation activity?
                                                                           .4   /
                                                                         ,!
  39. Match agency litigation
      referrals with DOJ listing of
      agency litigation referrals?                                                                    ‘,

  40. Record and track recovery of
      judgment decisions?

  41. Update the loan information
      store to reflect receipts and
      adjustments?

  42. Interface with the core
      financial system to record
      any collections resulting from
      litigation?

  43. Compare delinquent loan
      account information to
      agency program write-off
      criteria to select delinquent
      loan accounts for possible
      write-off?




Page 44                                   GAO/AIMD-98-21.2.6   - Proposed Direct Loan Checklist (12/97)
Direct    Loan System        Requirements


      Delinqueht   debt collection    :    .~&/no              .I          Explanation
                                           : NA                                                ,I
                                                t
   44. Classify debtors based on,
       financial profile and ability to                             !q.,
       repay? Indicators of the                                                               ,’
       financial well-being of a                                                              .,
       debtor include debtor ”
       financial statements, credit
                                                                    .:                      ( ‘.
                                                      ,. ‘.,   ,
       bureau reports, and payment
       receipt history.
                                                                   I i.

  45. Produce a CCLR for each
      loan account to be referred          ”
      to agency counsel or the
      Department of Justice for
      approval of termination of                                             ’
      collection action? Update the
      loan status to reflect the
      referral?
                                                 ,

  46. Update the loan information
      store to reflect approval or
      disapproval by agency ’
      counsel or the Department of
      Justice for termination of
      collection action?

  47. Update the loan information
      store and provide an
      automated interface with the
      core financial system to
      record the write-off of the
      receivable?




Page 45                                   GAO/AIMD-98-21.2.6    - Proposed Direct Loan Checklist (U/97)
Direct    Loan System       Requirements-                 ‘,                       ,,!,                   ;‘_        .Z’.


     Delinquent   debt collection           Yes/no’            ”       ..         .Explanation                  -’    1
                                           .. NA
                                     :’                                I     ‘.                                      ,’
  48. Maintain a suspensefile of                 :                 ”
      inactive (written-off) loan                                                                                     1
      accounts?
                                                                        ,,        ‘.I      1.. I,,
                                                                                          9;’ ;                      ‘,
  49. Reactivate written-off loan
      accounts at a system user’s
      request if the debtor’s
      financial status or the
      account status changes?
                                                                                          3.                          ‘,
  50. Compare loan account data
      to agency close-out criteria to
      identify debtor accounts
      eligible for close-out and :                    1                      ” ‘.,_                  ‘.
       1099-Greporting?

  51. Generate a letter to ,the
      debtor to inform the ,debtor
      of the intended submission of
      the 1099-Gto IRS?

  52. Prepare and send a Form
      1099-Gto IRS if the debtor
      has not responded within the
      required period?




Page 46                                   GAO/AIMD-98-21.2.6           - Proposed Direct Loan Checklist (U/97)
 Direct    Loan System        Requirements                 ’   :      .’                     ’ ’


      Delinquent,   debt collection:        ‘. ‘. Y&/no                “‘,        Explanation
                                       ‘.,,” :TV ( : NA:
                                                     ,I,
  53. Update the loan information                                            ‘i                  ..’
      store to reflect receipts,                                                                 :
      adjustments, and other status
      changes, including
      rescheduling, compromise,                                                     ”      ,,’
                                                                       ,.          ;t,.
      and other resolution
                                                                 8’                  ‘,!
      decisions?

  54. Retain electronic summary
      records of closed out account,
      activity for 5 years for use in
      agency screening of new loan
      applications?

  55. Compare delinquent account
      data to collateral foreclosure
      selection criteria?

  56. Sort and group selected
      delinquent accounts by type
      of collateral (single family: or
      multifamily, commercial,
      farm, etc.), location, and
      amount of debt?

  57. Calculate outstanding
      principal, interest, penalties,
      and administrative charges
      for each loan account
      selected for review for
      foreclosure?




Page 47                                      GAO/AND-98-21.2.6        - Proposed Direct Loan Checklist (12/97)
Direct    Loan    System    Requirements-           ‘)                       ’        ‘I


     Delinquent   debt collection        ,Yes/do                                 ,Explanatioti
                                           NA’

  58. Transmit a foreclosure notice                                              :         j
      to the borrower?                          /        ,,           ;
                                                                          Y                                  :,
                                                                           .‘,                  .:
  59. Transmit information                                   ,,,                               ;.r (’ ”
      necessary for the foreclosure                                              _,            J’
      to the Department of Justice
      and/or agency Office of ;
      General Counsel, as        ”                  ..
      applicable?                                                    .,
                                                                                                    ,
  60. Record the results of the
      foreclosure proceedings &d
      title conveyance to the
      agency?                                                                                  ,,
                                                                                                        ‘,
  61. Provide an automated
      interface of data on
      acquired collateral to the
      property management system
      for management and         :>
      liquidation of the property?

  62. Provide an automated
      interface to the core financial
      system to record the value of
      the property acquired and to
      reduce the receivable
      amount?




Page 48                                 GAO/AIMD-98-21.2.6         - Proposed Direct Loan Checklist (12/97)
 Direct   Loan System Requirement?                             ,, ,,        ,,                ,’       ,,


                                     ‘.’       .’                            ‘,
      Delinquent   debt collection                    Yes/no                             -Explanation
                                                      ,NA                         .’

  63. Generate payments to
      property management
      contractors for services             Y
      rendered?
                                                                                       ,‘//

  64. Track, record, and classify
      operations and maintenance
      expenses related to the
      acquired collateral?

  65. Document rental income and
      other collections related to                                                       ,,
      the acquired collateral?

  66. Post the expenses and
      income to the core financial
      system through an automated
      interface?                                                                                   ,

  67. Update the loan information
      store to record receipts
      resulting from the liquidation
      of -acquired collateral and the                      ’           ~~    ~            -~. ~~
      disposition of the collateral?

  68. Identify any deficiency
      balances remaining for the
      loan after collateral
      liquidation for further
      collection activities?




Page 49                                             GAO/AIMD-98-21.2.6      - Proposed Direct Loan Checklist (12/97)
Direct         Loan System     Requirements


     Delinquent       debt collection         Yes/no                   Explanation
                                               NA

  69. Provide an automated
      interface to the core financial
      system and the property
      management system to
      record disposal of the
      property and associated         ”
      receipts?

  70. Does the system provide at
      least the following types of
      management information:

          -    detailed transaction
               history?
          --   standard management
               control/activity?
          --   exceptions?
          -    offsetting agency
               description?
          --   trend analysis/
               performance?
          --   collection contractor
               compensation?
          --   collateral management                                                                     i
               activity and expense?




(922245)


Page 50                                   GAO/AIMD-98-21.2.6   - Proposed Direct Loan Checklist (E/97)
.,




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United States
General Accounting Office
Washington, D.C. 20548-0001
Offkial Business
Penalty for Private Use, $300
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Address Correction Requested                                                                   1
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