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 :, ,’ ., ., 1 c .? 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) ., I c United States General Accounting Office Washington, D.C. 20548-0001 Offkial Business Penalty for Private Use, $300 /. Address Correction Requested 1 i J/. 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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)