oversight

Guaranteed Loan System Requirements (Exposure Draft)

Published by the Government Accountability Office on 1999-10-19.

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

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                                                                                                                                       ;FM;W;;R-99-12
                                                                                                                                                 1999
    ’ --./,_-.
; , _”
    ,. .,      ”
         The Joint Financitil Management          Improvement        Program (JFMIP) is a joint and cooperative
         uh$ertal&g    of thq U.S. Department         of the Treasuq, the General Accounting Office, the Oflice of
        Management       and Budget, and the Office of Personnel Management,              working in cooperation with
         each’other’ and other agencies to improve fmancial management practices in government.                                  The
         Program was given statutory authorization           in the Budget and Accounting Procedures Act of 1950
         (31 USC65).       L ea d ers h’p
                                        t and program guidance are provided by the four Principals of the JFMIP--
         Comptroller   General of the United States, Secretary of the Treasmy and the Directors of the Offlice
        of Management       atid Budget, and the Office of Personnel Management.              Each Principal designates a
        representative to serve on the JFMIP Steering Committee, which is responsible for the general
        direction of the P&gram.           The JFMIP Executive Director, and a program agency representative                                            “,,
         (who serves for 2,(JTears)     are also on the Steeri$$ommi+~ee.        j1.c  ;:     :..>i:t..i ;’ ,:, ,;,,, :: ,;;:; :-.          / >tc..,   .,
                              ,2,                                 ‘,             :a
                              i:;                                                           .,;;.+ .,. ci:                  ,*,,’ ” i.‘...i.
        The Program promotes strategies and guides fmancial.~n~lagel~~~~, i&&@&$t                               a<<&:~              ..i:z *::. .,      :
        government;     reviews and coordinates central agencies’ activities and policy promulgations;                            and a&s
        as catalyst and cletiringhouse for sharing and disseminafing information              about,-g$od fina+ial                                      ‘~
        management practices. This information              sharing is done through conferenc& and otl&                          ,. _.’ ‘,:,”          ,,.,
        educational event& newsletters, meetings with interagency groups and agency p@soq&‘+ld                                              “. ‘,      ..
                                                                                                             I.       ..
        through FinanceNet, an electronic clearinghouse on the Internet.
                                                                                                                                                 *.    ,,

                                                                                                       :



        The JFMIP has worked on interagency projects that de!Clop~~~a,,fia~               systemS: fi$tiewo&       alii. ,:,./
        financial systems requirements.        For the hture JFMIP,pla&     to &ss$t Fede@:igencies      it; imp~ov$g~~~’ * 1
                                                                                                  .’
        their fmanci.al systems through its Program Management          Office. The Of&e will work on re+isiiTg “.
        the Federal goverriment’s requirements definition, testing and acquisition processes, the fust target
        of opportunity    is core financial systems. The objectives of the Office are to develop systems
        requirements, communicate         ‘and explain Federal and agency needs, provide agencies and vendors
        information    to improve fitlancial systems, ensure that products meet relevant system requirements,
        and simplify the procurement        process.
 /                             _).
                               ,,,.’    :
       ’ Information   on JFMIP’&ti. be f&nd at its website at
     ::’ www.financenet.govlfinance0etiiedqfmip/j~~i~.~t~o~         $.l (202) 512-9201.
                                              .’            ., ,..,
 JOINT FINANCIAL MANAG-T
    bIl?ROVEhE+NTPROGRAM


                                                        *.              ,
                                                                              ;.

      441Gs~~Room3111                                            Did:       Odiibef 19, 1999
         Washinnton,
               - - DC 20548
                                                                 To:
P?ine+h                                                          From:
Lawrence H. Summers                               -,.        :     $-
Secretaryof the Treasury
                                                                  :

David M. Walker
Compuoller      General       of the U.S.
                                                                 Stibject: JFMIP GuaranteedLoanSystemsRequ&ments ’ -.
                                                                                                                                     i
                                                                                                          ..                 .‘..:
Jacob Lew
Director
U.S. Office of Management            and Budget                  The JFMIP GuaranteedLoan SystemsRequirements.document
                                                                 Exposure’Draftis attached.This updateeffort was‘iedby the
Janice R. Lxhance
Director, U.S. Offke          of Personnel
                                                                 SmallBusinessAdministration,Mr. James‘Ph$ips;.Office of
Management                                                       FinancialSystems,andreflectsthe efforts of his governmentwide
                                                                 team. The effort was supportedby the JFMIP; Chief Financial
                         d
                                                                 Officers CouncilFin@ial Systems.Committee(FSC); Federal’ “‘             ”
Steer&g Committee
Donald V Hammqnd. (Chair)                                        Credit Policy Working~Group’(FCPWG);Office of Management ;                           ,,
Fiscal Assistant Secretary
Department of the lleasury                                       andBudget(OMB);sU.S.’General’AccountingOffice (GA’;O);and
                                                                 others. The extensive‘vettingprocess,that ‘occurred,revealed~many
Jeffrey C. Steinhoff                                             changesthat neededto be includedin the GuaranteedLoan
Actin Assistant Comptroller General
U.S. d eneral Accounting Office                                  SystemsRequire’ments   document,to’reflect: ‘.

                                                                 1. ” Statutory;and‘regulatorychanges,includingthe-Debt                      :   ‘,




                                                                      Collection Improvement‘Act of ‘1996;,Statement
                                                                                                                   of Audit .’ ’ :
                                                                      Standards(SAS 70); TroubledDebt Servicing;andTreasury,
~h%%%%%icer                                                           Cross-Servicing;                                 ,I
U.S. Off& of Personnel Management


William B. Earl Jr.                                              2. Technologicalchanges,includingelectronicguidanceto make
Chief Financial 0 rf tcer
General Services Administration                                     collectionsusingWeb-basedtechnology;automatedsystem
                                                                    balancing;electronicapplicationcriteria; and
Karen Cleary Alderman
Executive    Director,       JFMIP
                                                                 3. JFMIP documentationchanges,includingthe updatedJFMIP
                                                                    Core FinancialSystemRequirementsdocumentandissuance
                                                                    of the Frameworkfor FederalFinancialManagementSystems
                                                                    document.

                                                                 Pleasenote that mandatoryandvalueaddedrequirementshave
                                                                 beenaddressedin the documentanddefinedin the Glossary
                                                                 Appendix. Pleaseconsidercloselythe GlossaryAppendixand,if
                                                                 needed,recommendadditionalterms that are shownin the
                                                                 documentthat you believeneedto be defined.

                                                                 The attachmenthasbeenreviewedby representatives
                                                                                                               of the
                                                                 JFMJP,FSC, GAO, OMB, FCPWG,FederalAccounting
                                                                 StandardsAdvisory Board andothers.
                                                                                          :/+   _,                  :


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The documentis beingcirculatedwidely within the Federalgovernment’sfinancialsystems      :-: .( .
community,private sectorserviceproviders,andother major sta+holders. It is alsobeing
placedon Financenetat:                                                      :? ,’       he.‘....!,,’-,
                                                                                  .’ ;~‘           \;
                                        ‘.
               www.financenet.~giov/fed/ifmin/ifmin.exp.htm
  i    ,:.   :           _’
      : .,_ h                         ..                                                              -_
Pleaseprovideyour commentsby Friday, December17,1999.“Comrnentsareencourangedon .;:                      I
any section(s)of the document.Responseswill be more helpful if the underlyingrationalis .
provided. Respondentsare.requestedl
                                  to indicatethe capacityin which they areresponding. ~ ! I
                                                                                            :, ,:        ‘,
Commentsshouldbe sentto:
                                            .!             -.                                                                                                                                _.^       ,
                ,_   ...   .,   ,:.:   II

                 ‘.JointPinancial@$agement Improvement~Program
                                                                ,c’- ,; i
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         ,i. .: +i441,C Street,l$W,Room 3111’ :“”     : ;: i,,:                                                                                               .)             ‘i”

       .,,, I:    Washington, DC  20548       .
                                              .   ,,,          i ._

Pleasebe awarethat we ‘are‘workingto relocateJFkP,by the middleof November,1999. We
are working closelywith the GAO, whereJI?MIPis currently located,to ensurea smooth
transition’ofU.S. Postalandelectronicmail services...Whenthe exactdateof the relocationis             ”
known,information will be postedon the JF$IIP komepageat:                           ..i-.            “. :’
                                              :..             .’r
               www.financenet.gov/fed/ifrnip/ifmi&tm      .,   ”                ,      i,’j,.l_
                                                  .I :,,,~.:                                ,,,, ‘. ,,=..’
,If you haveany qu@iqns,on+ny of ,these;   mctters,pleye iFcxdFtDennisMitchell via electronic i :.
mail at mitchelid.ifmioQpao.~~“, telephoneat 202-512:59:94;
                                                          or fax 202-512-9593. ,          ,_.: ‘. ‘.‘:. .‘I
                                        /
Attachment                                                                                       .,I:’ :i .L,
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                                                 Page2
Foreword
This is a tictional requirements document for guaranteed loan systems requirements.      Functional requiretients: for
direct loan systems are contained in a separate JFMII? requirements document,.. This is one of a series of fit@onal
systems requirements documents published by the Joint Financial Management      Improvement      Program (JFMIP)’ on
Federal f~lancial management systems requirements.                                                                   ..

All of the JFMII? Federal Financial Management    System Requirements      (FFMSR) series of documents sh6ul~l be
considered together when determining     how best to use ittiornyation -and supporting services to. meet the-financial,
managepent    needs of a Federal agency.
                                                                                                               ,,       I.,(,
The FEMSR series addresses the goals of the u.. S,. Government chief Financial Offlceis’ (CFO) Council, the* ;
JFMIP, the Federal Credit Policy Working Group (FCPWG), and others, to promote the efficient ~lanagement of
assets, and to improve financial management systems governmentwide   to provide iiseU fiaaficial tiormatidn   on
Federal. governm?nt operations.                                                                       _ f      ,,

Agencies may develop additional technical and functional system requirements as necessary to’ support unique
mission responsibilities. Agencies must also develop strategies for interfacing or integrating guaranteed loan.
systems with the agent+ core fmancial system.

We want to take this opportunity  to thank agency officials and others in the fitlancial, guaranteed loans, al>d other
program management conimunities      who contributed   to this document.    We value their adsistaice and suppoi-t~
With continuing support  such as theirs, we can confidently face the fntlancial management challenges in the pext ‘i
century.                                                                                              ..

        ‘.                                                                      /’

                                                                   Y7 I .
                                                                   /     J.L-


                                                                       Karen &a&    Alderman
                                                                       Executive Dkector
       Tableof Contents
       F,oreword I,.’
                            :.
       Acronyms
                                                                                                                                                                              .:
       Illustrations
       Introduction     . . . . . . . . ., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , 1
       Federal Financial Management                 Framework.                 . . . . ; . . . . . . . . . . ; . . . . . . . . . . a. . . . . . . . . . 3
       Background       . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1’. . . . . .-, . y . . . . 8 1
       SystemOverview.         . . . . . . . . . . . . . . . . . . . . . . . . . . . . . :. . . . . . . .‘. . . :a. . .I’... .- :I0 :1
                                /i                                                                             . .
       Intro#ction      to Eunchonal Requirements. . . . . . ...., :. . . . . . . . .: ,. . . ., . . . . . . . . . T . . . . . i . . 20 ,
       Lender Management             . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . : . . . .l; . . ‘. ‘. . . 21’ ,’ ‘?‘.
       Guarant~~Extensign          and Maintenance                   ........................                                       ........   ; ...........            28
       PortfolioManagement              ..............................................                                                                  .-‘. . ‘:.; .. 36
      AcquiredLoan        Servicing ...........................................                                                                                1 ..     43
      ,Delinquent Debt Cc&&ion.                   ..............................................                                                                        51
    .. Treasury Cross-Servicing            ..............................................                                                                             . ~59
/
      Othes Reporting Requirements.                      . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63                                    ’
!,,i. :, Appendix A: References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

    T AppendixB:  Glossary . . . . . . . : . . . , . . . . . . . . . . . . . . . . . . . . . . . . . . ? . . . . . . . . 68
                   “,
      Appendix C: Summary of External Reporting Requirements.      ...........................                           69
      AppendixD:        Contributors          .............                                     ? ...............................                                       70
Acronyms
AAPC     ..       Accounting      and Auditing        Policy Committee                                                                    ,’   ‘,              :,

                  Automated       Clearing House                                        ..
                                                                                      .c,_                       i
ACH                                                                                                                                                       L
CAIVRS            Credit Alert Interactive Voice Response System
CCLR              Claims Collection Litigation          Report
CFO Act           Chief Financial Officers Act of 1990
CM                Configuration     Management                                                                           ,’ I
COTS              Commercial Off-the-Shelf
                                                                                      ::
DCA               Debt Collection Act
                                                                                                                                     :“        .I,
DCIA              Debt Collection Improvement              Act
                                                                                _.           ,:         ”
DOJ               Department      of Justice
EDA               Electronic Debit Account                                ::                  I.. ,,’                :                                    :(

E-mail    ”       Electronic Mail.     I*.                ‘I,                                                                                        ::             (

FASAB             Federal Accounting         Standards Advisory Board                  /                                                                   ..,               ”

FCPWG             Federal Credit Policy,WorkingGroup                                                                                .‘.                                  ..’
FCRA              Federal Credit Reform Act
FFMIA             Federal Financial Management              Improvement        Act                                                                                      .’
FFMSR             Federal Financial Management              System Requirements
                                                                                                            ;I                  I                                            :.
FLSA              Fair Labor Standards Act
FMFIA             Federal Managers’ Financial Integrity           Act
FMS               Financial Management          Service
                                                                                                                                                                             ,’
GAO               General Accounting         Office
GMRA              Government       Management         Reform Act
GPIU          ’   Government       Performance and Results Act
IRS               Internal Revenue Service
JFMIP             Joint Financial Management            Improvement       Program
NPR               National Performance Review
OGC               Office of General Counsel
OMB               Office of Management          and Budget
OPM               Office of Personnel Management
PCMI     :        President’s Council on Management              Improvement
PMC               President’s Management          Council
SAS               Statements of Auditing         Standards
SF                Standard Form
SFFAS             Statement of Federal Financial Accounting               Standards
SGL               Standard General Ledger
TFM               Treasury Financial Manual
TIN               Taxpayer Identification        Number
TOP               Treasury Offset Program
Illustrations
  1. Financial System Improvement Projects. . . . . . . . . .. . , . I. . ‘. . . . : . . . .‘, . . .. . . . . . 4
 2. Integrated Model for Federal Information Systems . . . . . . . . . . . . . . . . :. . . . ; . . . . 6                         :
 3. Agency SystemsArchitecture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ‘.. . . . . . 7
 4. GuaranteedLoanSystemOverview . . . . . , . . . . . . . . . . . . . . . -; . . . . . . . . . .’ . 11                       :
 5. GuaranteedLoan Internal and External Information Stores . . . . . .’ ‘. . . . . , . . . . . . . . 18
 6. Explanation of Icons Used iu the Illustrations . . . . J . . . . . . . . . . . . . . . . . . ‘. . ‘; . 20                 ” ,-
 7. Overview of the Lender Management Function . . . . . . . . . . . . . . . . . . . . . . . : ., . 21
 8. Lender Management: Lender Eligibility Process . . . . . . . . ., . . . . . . . ., .. . : . . . . . 22                         ;:~‘-
 9. Lender Management: Lender/Servicer Monitoring Process . . . . . . . . . . . . . . . . ._, T ,/. . 24
 10. Overview of the GuaranteeExtension and Maintenance Function . . . -. . . . . ‘. 2 . . . . .i . 28 : ;
 11. GuaranteeExtension and Maintenance: GuaranteeRequest Evaluation Process . . . . . . . . . 29 1.
 12. GuaranteeExtension and Maintenance: GuaranteeOrigination Process . . . ; . i . . ..I. . ‘. .                       31
 13. GuaranteeExtension and Maintenance: GuaranteedLoanMaintenance Piocess‘; . . . . . . . .                            32
 14. Overview of the Pordblio Management Function ......................                   ; ..                         36        ”
 15. Portfolio Management: Portfolio PeerformanceProcess ................         .......                               37
 16. Pordolio Management: Program Financing Process.. ...............                               .” l’ ......        39’           .
 17. Overview of the Acquired Loan Servicing Function .......................                                           43            .’
 18. Acquired Loan Servicing: Claim ProcessingProcess........                   :, ..............                       44
 19. Acquired Loan Servicing: Account Status Maintenance Process ..........                            : 1 .....        46
                                                                                                                                           .
 20. Overview of the Foreclose and Liquidate Collateral Function ......................                                 47:
 21. Foreclose and Liquidate Collateral: Forecloseon Collateral Process,...........                         :.’ .....   48
 22. Foreclose and Liqtidate Collateral: Manage/Liquidate Collateral Process ............                               49    i
 23. Overview of the Delinquent Debt Collection Function. ........        ; ..............                              51
 24. Delinquent Debt Collection: Collection Actions Process. .....     :. ...     .’ ...........                        52         ,‘,
 25. Delinquent Debt Collection: Write-offs and Close-outs Process...........                         ; ......          56
 26. Treasury Cross-Servicing. ....................................                                                     59
 27. References ............................................                                                            64



                                                                                                         : ....
Introduction
                                                                                                            .,.
As the world’s large+ and most complqx enterprise, the U. S.. Federal goverm?enF fares trqmendoe      challenges in
the managepent     of guaranteed 10-m programs. These enormous responsibilities involve the management of billions
of dollars of resources, and pose tremendous challenges as we rapidly approach the twenty-first century.        _.  :

The Federal government has consistently recognized the importance of having ;Fgh quality fnl?cial management
systems to support improveme@ of government operations and provide financial and related, information    to                      :
program and fm&+l      r&iagers.   In response, the JFMIP began the prpcess of defutig-fnlancjal management
system reqeements    by publish&g the FFMSR series,ofrequireeents     documents, beginning w&h the cdre
Financial System Requirements    document in January 1988. Since then JFMIP has issued several other publications
in the FFMSR series.

In addition to the basic JFMIP systems requirements documents, several Federal organizations and agencies
recognized the need for a comprehensive document describing a variety of general systems requirements e.g.,
system integration, data stewardship, and internal controls. As a result, JFMIP published the Framework for
Federal Financial Management     Systems document in January 1995.

The Federal Financial Management    Improvement     Act (FFMIA) of 1996 mandated that agencies implement and
maintain systems that comply substantially with Federal fnlancial management systems requirements, applicable
Federal accounting standards, and the U.S. Government Standard General Ledger (SGL) at the transaction level.
The FFMIA statute codified the JFMIP financial systems requirements documents as a key benchmark that agency
systems must meet, in order to be substantially in compliance with systems requirements provisions under FFMIA.
To support the requirements outlined in the FFMIA, JFMIP is updating publications which are obsolete and is
publishing additional requirements documents.     The JFMIP Core Financial System Requirements    document was
updated in February, 1999. This document. is an update of the December 1993 JFMIP Guaranteed Loan System
Requirements    document.

This Guaranteed Loan System Requirements      document is intended for guaranteed loan program fulancial systems
analysts; system accountants; and others who design, develop, implement, operate, and maintain financial
management systems. This includes buying or building systems. This document does hot prescribe a single model
for Guaranteed Loan Systems because guarantee programs vary greatly, the requirements contained in this
document are applicable only to the extent that they support the operations of the individual systems. The primary
purposes for this update are to reflect:

    . changes in statutes, regulations, and technology that have occurred since the document was originally
      published in December 1993, e.g., passage of the CFO Act of 1990, and FFMIA of 1996;
    l   changes brought       about by the National       Performance       Review (NPR);      and
    l   increased availability    of commercial      off-the-shelf   (COTS)     software packages.

The CFO Act strengthened           the governments       efforts to improve     fmancial management       by:

    . assigning clearer fmancial management              responsibilities    to senior officials;
    l   establishing     new fmancial~organizations;        and
    l   requiring      enhanced financial   systems, audited financial statements,         and improved   planning.

The Government Performance and Results Act (GPRA) ; G overnment Management                            Re.form Act (GMRA)   ;
FFMIA; and others further enhanced these responsibilities and requirements.

The Secretary of the Treasury; Director of the Office of Management                    and Budget; and Comptroller General of the
United States established the Federal Accounting Standards Advisory                    Board (FASAB) in October 1990, to          __

Guaranateed Loan System Requirements
Introduction


recommend Federal accounting principles and standards. After the FASAB sponsors decide to adopt
recommendations, standardsare published by OMB and GAO, at which time the standardsbecome effective. The
Statementsof Federal Financial Accounting Standards(SFFAS) are published’by OMB asthe off&l standardsfor
the Executive Branch of the Federal government.

Increasingly, integrated financial management systems are necessaryto support program’managers, fmancial
managers, budget oflicials, and others simultaneously. Data and irtiormation supplied by systemsto these
individuals are expectedto be accurate&mely, and consistent acrossorganizations, agencies,and the Federal
government. Systems and data are sharedmore and more by multiple organizations, agencies;etc.; withcommon
needs.                                                                    .^
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                                                                           Guaranateed Loan System Requirements
Federal
     Financial
            Management
                   Framework
                                                               .   .
                                        :                              2




This document provides high level functional requirements for guaranteedloan systems that will provide the
capability for financial managers and others to control and account’for guaranteedloan program assets,liabilities,
and resourcesasdefined in governmentwide and agencyspecific statutes,regulations, and guidelines. Appendix A
is a listing-of statutory and regulatory references.This document is one component of a broad.program to improve
Federal financial management which involves the establishment of uniform requirements for financial information,
financial systems,reporting, and financial organizations.

As shown in Illustration 1, standardsand systemsrequirements assistagenciesin developing effective and efficient
systemsand provide a common framework so that outside vendors or inhouse programmers ran provide’software
more economically. Each agencyshould integrate its unique requirements with thesegovernmentwide standard
requirements to crovide a’@Sorm basisfor the standardization of fmancial management systems asrequired by the
CFO Act of 1990, FFMI$ of 1996, and others.
                                                                                                       .
Financial management systems in the Federal government must be designed to support the -vision articulated by the
government3 financial management community. This vision requires financial management systemsto support the
partnership between program and financial managersand to assurethe integrity of information for decision-making
and measuring performance. This includes the ability to:

    l   collect accurate,timely, complete, reliable, and consistent information;
    l   provide for adequateagency management reporting;
    l   support governmentwide and agency-widepolicy decision-making;
   l    support the preparation and execution of agencybudgets;                             :,
    . facilitate the preparation of fmancial statements and other fmancial reports in accordancewith Federal
      accounting and reporting standards;                                                                    -.k
    l provide information to central agenciesfor budgeting, analysis,and governmentwide reporting, including
      consolidated financial statements; and
    l   provide a complete audit trail to facilitate audits.

In support of this vision, the Federal government must establish governmentwide financial management systems
and compatible agency systems, with standardizedinformation and electronic data exchange,to support program
delivery, safeguardassets,and manage taxpayerdollars.

It is critical that financial management systemsplans support the agency’smission and programs, including planned
changesto them, and that financial management systems plans are incorporated into the agency’splans for
information technology infrastructure and information systems as a whole. Further, systemsdesign efforts should
include an analysisof how systems improvements, new technology suppprting financial management systems, and
modifications to existing work processescan together enhanceagencyoperations and improve program and
financial management. Reassessinginformation and processingneedsand redesigning processes,procedures;and
policia are essentialstepsto meeting user needs.
                        .3.‘.    ., 1. ‘.       ;:                                ,, ii! .‘a, ‘7,,,?.5, ,. j :


Integrated Financial Management Systems
Financial management systems must be designed with effective and efficient interrelationships between software,
hardware, personnel, procedures, controls, and data contained within the systems. To be integrated, financial
management systemsmust have, as a minitnum, the following four characteristics:
                                                                                                             _._. -_..- ._.-.-

Guaranateed Loan System Requirements                                                                                 3
Federal Financial Management Framework


                                             Financial System Improvement Projects




          -7           Standards/
                      Requirements



                      . Standard Reporting
                        Requirements
                                                                      Agency Implementation




                                                           . Additional                               . Adaptation
                      . U.S. Government Standarc             Agency
                        General Ledger                                                            i
                                                             Functional
                                                             Requirements
                      ‘. Core Financial System
                         Requirements                                                                 . Procedures
                                                                                                                     i

                      . Human Resources &                  . Additional
                        Payroll Systems                      Agency
                        Requirements                                                                  . Training
                                                             Technical
                                     //                      Requirements
                      . Travel. S,ystem
                         Requrrements
                                                                                                      . Documentation
                      . Seized/Forfeited Asset             . Integration
                        System Requirements                  Strategy

                      . Direct Loan System
                        Requirements
                  r-m-“-’                                  . Software/
                  1. Guaranteed Loan System                  Hardware
                  , Requirements                             Evaluation
                  I    ---m--m
                                                                                                      . Maintenance

                      . Inventory System
                         Requirements


                      . System Requirements for
                        Managerial Cost
                        Accounting


          I           . Other Standards




    I--
    1-l
              1        Subject of
                       this report

                                                              Illustration   1


                                                                                      Guaranateed Loan System Requirements
                                                                            Federal,Financial Management Framework



    l   standard data classifications (deftitions and formats) establishedand used for recording financial events;
    l   common processesused for processingsimilar kinds of transactions;
    l   internal controls over data entry,.+nsaction processing,and reporting applied consistently; and
    . a design that eliminates unnecessaryduplication of transaction entry.

The fmancial management systemspolicy describedin OMB Circular A-127 Financial Management Systems,
requires that each agencyestablish and maintain a single integrated financial management system. Without a single,
integrated financial management system to ensure timely and accuratefinancial data, poor policy decisions are more
likely to occur, due to inaccurate or untimely information; managersare lesslikely to be able to report accurately to
the President, the Congress, and the public on government operations in a timely ,manner; scarceresourcesare
more likely to be directed toward the collection of information rather than to delivery of the intended programs;
and mod.it?cati&s to financial management systemsnecessaryto keep pace with rapidly changing user requirements
cannot be coordinated a&managed properly. The basicrequirements for a single, integrated financial
management system are outlined in OMB Circular A-127.

Having a single, integrated financial management system does not necessarilymean having only one software ’
application for eachagencycovering all financial management systemsneeds. Rather, a single, integrated*fmancial
management system is a unXed set of financial systemsand the fmancial portions of mixed systemsencompassing
the software, hardware, personnel, processes(manual and automated), procedures,controls, and data necessaryto
carry out financial management fnnctions, managefinancial operations of the agency,and report on the agencfs
financial status to central agencies,Congress,and the public.

Unified means that systems are planned and managed together, operated in an integrated fashion, and linked       ’
together electronically in an efficient and effective manner to provide agencywide financial system support necessary
to carry out the agency’smission and support the agency’sfinancial management needs.

Integration means that the user is able to have one view into systemssuch that, at whatever level the individual is
using the system, he or she can get to the information neededefficiently and effectively through electronic means.
However, it does not mean that all information is .physicallylocated in the same database.

Interfaces,means that one system feedsdata to another system following normal business/transactioncycles such as
salarypayroll chargesrecorded in generalledger control accountsat the time the payroll payments are made.
Interfaces may be acceptableas long as the supporting detail is maintained and accessibleto managers. In such
cases,interface linkages must be electronic unless the number of transactions is so small that it is not cost-beneficial
to automate the interface. Easy reconciliations between systems,where interface linkages are appropriate, must be
maintained to ensure accuracyof the data.

To develop any integrated information system, it is critical that senior systems analystsand systemsaccountants
identify:

    . the scope of the functions to be supported (processes),
        ho.w data quahty will
                          I. be1.*,assured(data
                                            ..,..stewardship),
    l
                  . 1:”             I   .         .: .r: if.,.: ., ,, ~I~                      :”I :,,; “‘.   .. .;;-:. ?;a,,
    l   the information to. be processed(management tiormauon), ’
    l   how systemsfit together to support the functions (systems~architecture),and
    l   safeguardsneededto ensure the integrity of operations and data (internal control).




Guaranateed loan System Requirements                                                                                            5
Federal Financial 4anagement Framework


All of thesepiecesmust be brought together in a                      Integrated Model for
model such as the one shown in Illutration 2.                    Federal Information Systems
These piecesmust work together to form an
efficient integrated information system. A change
to any part of the model will require
determination of the implications on other parts
of the model. For example, a new reporting
requirement may require changesthroughout the
entire model.

             .,.   ‘.
Agpky ljG.iigncialManagement !$ystequ
&chitectu.re
            :,.
Agency financial management systems are
information systemsthat track financial events
,andsummarizeinformation to support the
mission ,of an agency,provide for adequate:
management reporting, support agencylevel
policy dec,isionsnecessaryto carry out fiduciary
responsibilities,~andsupport the preparation of
auditable fmancial statements.                                                Illustration 2

Agency fmancial management systems fall into four categories:                     _

    l   core financial systems;
    l   other
          . financial and mixed systems,including guaranteedloan systems,                        I
    l   shared_ systems,and
    l   departmental executive information systems (systemsto provide management information to all levels of
        management).                                         .I
These systemsmust be linked together electronically to be effective and efficient: Summary data transfersmust be
provided from agencysystemsto central systemsto permit summaries of management information and agency 7.
financial performance information on a governmentwide basis.
                                                                            .
Subject to governmentwide policies, the physical configuration of financial management systems, including issues
of centralized or decentralized activities, processingroutines, data, and organizations, is best left to the
determination of the agency,which can determine the optimal manner in which to support the agencymission.
The physical design of the system, however, should consider the agency’sorganizational philosophy, the.technical
capabilities available,and the most appropriate manner to achievethe necessarysingle, integrated fmancial
management system for the agency.
                                                                 I;        .<.._:j ,., . . r
The agency systemsarchitecture shown in Illustration 3, provides a logical perspectiveident.@i&the relationships
of various agencysystems types Although this does not necessarilyrepresentthe physical design of the system, it
does identify the systems types neededto support program delivery/financing and financial event processingfor
effective and efficient program execution.



                                                                                                      ---._.-._-._.
6                                                                             Guaranateed Loan System Requirements
                                                                        Federal Financial ManagementFramework



Guaranteed Loan Systems                              .:                                    :, .’
As shotin in Illustration 3, barantedd loan systemsare an integr;il part of the total financial management system
for virtually all Federal agencies. Guaranteedloan systemssupport programmatic objectives and interact with core
fmancial systemsto validate funds availability; update budget execution data; record receivablesand collections, and
processdisbursements.



                                       Agency Systems kchitecttire




      //       /      BenefitPaymen;


                                                /r        Financial




                          m
                          /    lnventorv




                                                     Illustration 3




Guaranateed Loan System Requirements                                                                               7
This chapter presentsa brief history of Federal credit programs, describesthe policies that affect Federal credit
programs, and defmes the roles and respo&bil$ies of the Federal organizations involved indirec$ng, overseeing,
and implemen$ng credit programs.


History

Federal credit programs provide benefits to certa@borrowers or channel additional resourcesto certain sectorsof
the economy. Examples of Federal credit-programs include agricultural loans, small businessloans, housing
mortgage loans, and student loans. There are two types of Federal loan programs: direct loans and guaranteed
loans. In direct loan programs the Federal government makes a direct disbursement to an approved borrower, and
servicesand collects the loan. Guaranteedloan programs utilize private sector lenders to originate and serviceloans,
with all or a portion of the accrued interest and outstanding balanceof the loan guaranteedby the government in
caseof borrower default.

Federal credit programs generally are costly to the government,becausethey provide more favorable terms to
borrowers than are available from private lenders,often lending to individuals and businesseswho cannot obtain
private financing. Although the governmenthas chosento carry out theseinherently risky loan programs in order
to achieve‘socialpurposes,efficient and effective management can minimix 1osses.IFinancial systems-area key
element in achieving this goal. Financial systems are.especiallycritical to implementing the requirements of the
CFO Act of 1990 as amended, including measuresof program performance and financial statements,and the
FCRA of 1990, which setsup new proceduresto budget and accountsforcredit subsidies and loan assetsand
liqbililies.

                        :   I




Policy :                                              :,   ..’




The policies governing credit programs and financial systemsthat affect guaranteedloan systems.arelisted in
Appendix A.
                                                                 ‘..,

Roles and Responsibilities of Departments and Agencies
This section identifies -thekey organizations in the credit management community and the roles they play in
managing Federal credit programs.

Office of Management and Budget. Oh4.Bis responsiblefor reviewing legislation to establishnew credit
programs or to expand or modify existing credit programs, reviewing and clearing testimony pertaining to credit
programs and debt collection, reviewing agencybudget submissions for credit programs and debt collection
activities, formulating and reviewing credit management and debt collection policy, and approving agencycredit
management and debt collection plans.

Department of the Treasury. The Department of the Treasury, through its FMS, is responsiblefor monitoring
and facilitating implementation of credit management and debt collection policy. FMS developsand disseminates
as a supplement to the TFM operational guidelines for agencycompliance with Government-wide credit                             /
management and debt collection policy. FMS assistsagenciesin improving credit management activities and
evaluatesinnovative credit management practices.

                                                                                                               ---...   .---   I




8                                                                               Guaranteed lean Sy.stem Requirements
                                                                                                                  Background
                                                                                                                       -___


Federal Accounting  Standards Advisory Board. The FASAB was establishedin October 1990, by the
Comptroller General, the Director of OMB, and the Secretaryof the Treasury. The Board exists-through a
memorandum of understanding among thesethree principal Federal executives. The EASAB .recommends
accounting standardsto the FASAB principals after considering the financial and budgetary information needsof
congressionaloversight groups, executive agencies,and other usersof financial data including the generalpublic.

Accounting    and Auditing   Policy Committee.      The Accounting and Auditing Policy Committee (AAPC) is a
permanent FASAB committee establishedto improve Federal fmancial reporting by assistingin providing timely
guidance to preparesand auditors of Federal financial statements. The AApCreceives issuesfrom numerous
sourcesrelated to three topical areas: Statement of Federal Fi&ncialAccou.nting Standards (SFFAS), OMB’s Form
and Content, and audit issues;and recommends guidance. The AAPC has establisheda credit reform task force
composed of members of Treasury, GAO, OMB, ‘andrepresentativesfromall the credit agenciesto addressall .
accounting, auditing, budgeting and reporting issuesencounteredby <agenciessubject to the FCRA of 1990.         ‘-’
                                                   ) ’                                             I’,-Ij ‘,.,.
Federal Credit Pc&cy Workhg         Group;  The Federal Credit Policy Working Group. (FCPWG) is:an interagency
forum that provides advice and assistanceto OMB and Treasury in the formulation and.implementation of credit “f :
policy. In addition to OMB and the Department of the Treasury, membership includes the Departments of
Agriculture; Commerce; Education; Health and Human Services;Housing and Urban Development; Interior;
Justice; Labor; State; Transportation; and Veterans Affairs; the Agency for International Development; the
Export-Import Bank, the Resolution Trust Corporation; and the Small BusinessAdministration.
                       ,                                                ‘_
Agencies.   Each agencyis responsible for managing its own credit activities in accordancewith its statutory
authorities and the provisions of OMB circulars and otherpolicy guidance, OMB Circular A-129, Appendix A,
outlines the specific,functions of the agenciesin relation to’ credit management.



                                                                                  .




                                                                                                _
                            _                  I.
                                                                                                                          r        .A”

                                                         .,                           :   ,,’   ./   -,I,)   /,   1           .i




                                                                                                                      -

Guaranteed loan System Requirements                                                                                                      9
,System
      Overview
                                                                                   .,
Thischapter provides ti overview of guaranteedloan syitem reqtiirements. +he complexity;diyer&y, and s&‘if
the Federal guaranteedloan programs place unique demands on managers.ofguarqteed loan program operations.
The constantly changing requirements of guaranteedloan programs has led management to look not only at the
tictional capabilities of guaranteedloan systems, but also the managerial environments in which thesesystems are
supported and/or operated.

All guaranteedloan systems that are being designedand implemented, or are in use, must operatein accoiiance
with laws, regulations, and judicial decisions. It is tlxresponsibility ofeach agencyto beknQwledge.ableof the
legal requirements governing its human resourcesand payroll operations. :

This document id&&s        functional requirements for guaranteedloan Bystems. Although the document maybe.
used when d&eloping new guaranteedloan systems,or improving or evaluating cuyrent systems,the docment
doesnot provide a specific mod&l for such systems. Functiotial requirements not mandated by law, regulation,
directive, or judicial de&ion must kesult in cost-effectivesystemstiat are in the interest ofthe government. All
possible alternativesfor meeting the requirements should be considered.
                                                                                                       L,
Functional requirements of the Federal governmen&,guaranteed loan systemscd be segregatedinto two general
categories,mandatory and value added. Following are definitions for thesetwo categoriesof requirements: II

     mandatory     - Mandatory requirements describewhat the system must do and consists of&e minimum
     acceptablefunctionality, necessaryto establish a system, or are basedon Federal laws and regulations.
     Mandatory requireinents are those against which agencyheadsevaluatetheir systems t6-deter&e substantial
     compliance with systemsrequirements under the FFMIA. These requirements apply to existing systemsin
     operation and new systemsplanned or under development.
     value-added     - Value-added requirements describefeaturesor characteristicsand may consist of any
     combination of the following: (1) using state of the art technology, (2) employing the preferred or best
     businesspractices,or (3) meeting the specialmanagement needsof an individual agency. Value-added,
     optional, and other similar terminology may be used to describethis category of requirements. Agencies should
     consider value-addedfeatures when judging systemsoptions. The need for these value-addedfeaturesin agency
     systems is leti to the discretion of each agencyhead.

Within this document, requirements are specifically identified asmandatory or value-added. Federal agenciesmust
caremy determine which value-addedrequirements are necessaryfor eachcredit program.

Value-added or optional requirements are discussedat various points throughout the document. The burden of
demonstrating that value-addedor optional functions we cost effective and clearly in the interest of the government
restswith agencyheads. Further, eachagencymust develop an efficient, effective, and economical strategy for
interfacing or logically integrating its guaranteedloan systems (or subsystem) with other systems (or subsystems)
that provide information to, or utilize information, from standard guaranteedloan systems.

The data in these optional processesmust be consistent with standardguaranteedloan systemsthat contain the
official records for the agency. Distributed processingand small end-usercomputers greatly increasethe needfor
agency-wide strategic planning for information resources. Incompatible data in separatefiles or systemscan
prevent’,or make dif&ult., ‘the integration of data to generatethe information required by management.

The remainder of this chapter provides information basedon the following three categories:

     l   Summary of Functions - presentsa high-level description of the f%nctions that are supported by guaranteed
         loan systems.
     l   Relationships with Other Systems - describeshowguaranteed
                                                          . .-_.---.- ----loansystem   interact. with
                                                                                   -.-...-..---         other
                                                                                                 - -._ ._--_  systems.
                                                                                                            __..
                                                                                                              .,. ..__..
                                                                                                                     . _._,_
                                                                                                                          -.--.__
10                                                                                      Guaranateed Loan System Requirements
                                                                                                                                                              System Overvier



        l   Data Requirements   - discusses the types of data needed to perform                             the various functions                     of a guaranteed             loan
            system.



Summary of Functions
Illustration 4 shows the functions of guaranteed loan systems. The following is a brief dxription of the major
functions of a guaranteed loan system. The functional requirements chapters provide a detailed description of each
function, including the lower level processes within each function.                                          .-.

LenderMizna~ement

The Lender Management function
supports analysis of lenders’ program                               Guaranteed Loan System Over&v                                                                           .-.
eligibility and monitors-lender
performance to ensure that only
qualified and financially sound                                                                       ‘(cgy                                            /
lenders participate in Federal
guaranteed loan programs. The
processes within the Lender
Management      function include the
Lender Eligibility process and the
Lender/Servicer    Monitoring   process.


Guara,nteeExtensionand Mizintena.nce                   (   Information         H-                                                        -b                         Advisors 8
                                                                                                                                                                   Underwriters

The Guarantee Extension and
Maintenance function supports the
accounting and documentation
requirements for the evaluation of
the guarantee request, the extension
of the guarantee by the Federal
agency, and the monitoring    of the
guarantee. The processes within the                    / CAlVRSLoan        \,
Guarantee                                              \Screening Systenj-


&tension    and Maintenance function
are the Guarantee Request
Evaluation process, the Guarantee
                                                                    / Credit Reform        \                      I                      /        Financial          \
Origination    process, and the
Guaranteed Loan Maintenance
process.     .,.>    -. i     .               I   .                        :                     .-       I Lende$         .‘.(!.            ‘-               .i
                                                                                    1                       Servicers               i
                                                                                                      0
P*lti        Mhaag-ement
                                                                                                          Illustration 4
The Pordolio Management      function
supports the management     and
evaluation of the guaranteed loan program             and its portfolios                of outstanding          guaranteed              loans and acquired loans.


Guaranateed Loan System Requirements                                                                                                                                                 11
System Overview


The processes within    the Portfolio,   Management    function   are the Portfolio    Management    process and the Program       I
Financing process.                                                                                                                 I

Acquired Loan Servici~

The Acquired Loan Servicing function encompasses the procedures for default claim review and payment in
accordance with guarantee agreements and regulations, as well as the invoicing and collection procedures for
acquired loans and the foreclosure and liquidation of property for collateralized loans acquired by the government.
The processes within the Acquired Loan Servicing function are the Claim Processing process, ‘the Account Status
Maintenance process, the Foreclose on Collateral process, and the Manage/Liquidate      Collateral process.


Delinquent Debt Collection

The Delinquent Debt Collection function includes the recovery of delinquent debt through the use of dunning
letters, offset programs, collection agencies, garnishment of non Federal wages, litigation, and the termination’of
collection action on uncollectible debt. It also includes the foreclosure and liquidation of property for collateraliid
loans acquired by the government.     The processes within the Delinquent Debt Collection function are: Collection
Actions and Write-offs and Close-outs.


Treamvy Cross-Servicing

Cross-servicing occurs when Treasury’s Financial Management       Service (FMS) or a Treasury-designated  debt
collection center provides debt collection services for other Federal agencies. The processes within cross-servicing
are: Identify Accounts Selected, Monitor Accounts Referred to the Debt Collection Center, and Support an
Agency’s Request to Cross-Service.


OtherReport&~ Requirements

This chapter provides    requirements    for two types of reporting:     Transaction    History   and External Reporting
Requirements.



Relationships with Other Systems
The guaranteed loan system must be capable of interfacing with other financial management systems.                  A brief
description of some of the systems which interact with the guaranteed loan system is provided below.

     l   The guaranteed loan system interacts with the core financial system to perform fund control checks, initiate
         or record payments, and record the results of other guaranteed loan-related financial transactions, and
         acknowledge receipt of financial information     exchange. The Guaranteed Loan system must be able to
         perform automatic system balancing.      This  syste.m balancing must ensure that guaranty loan partners
         involved in a financial information   exchange agree on transaction number and dollar values passed,
         processed, and rejected. The’automated      system balancing will include cumulative subsidiary account
         balancing to the general ledger. This automated system balancing ensures that guaranty loan partners reflect
         the same picture of valid transactions over a specified period of time, normally a month. The Guaranteed
         Loan system must be capable of supporting Managerial Cost Accounting and credit subsidy reestimates.
     l   Guaranteed loan programs and direct loan programs have common processes for managing receivables.
         Defaulted guaranteed. loans acquired by the government are serviced and collected in a manner similar to
         direct loans. Therefore, an agency with both direct and guaranteed loan programs mav have a direct loan                   1~

12                                                                                          Guaranateed Loan System Requirements
                                                                                                                 System Overview


            system’and .guaranteed loan system that share system capabilities related to collecting delinquent debt. If an
            agency acquires property serving as collateral on a defaulted guaranteed loan, the guaranteed loan system will
            provide the property management system with the information       needed to manage and liquidate,the
            collateral.


System Int@.ce        Fwactioninz   Ver$htion

A team independent of the development organization will perform all verifications to ensure the guaranty loan
system is capable of interfacing with other financial management systems. -Verifications should include the
following:

        l   Intersystemtesting    will take place to ensure the guaranty loan system can process incoming and outgoing
            data to other interfaces for the guaranty loan program. This testing will ensure the guaranty lo,an .system can
            accept data files, process them correctly, and transmit the necessary transactions to other systems.
        l   All intersystem   vendors involved   with the testing will create and accept a comprehensive      test plan.
        l   A team independent of the development organiza,tion will review requirements,          test +ns     and scenarios,
            monitor test execution,.and ensure testing objectives are met.
    l       The team independent of the development organization will work as partner in the development effort,
            gaining system-specific knowledge while reviewing processes, outputs, and techniques to ensure compliance
            with procedures and quality results.

When issues arise, they will be tracked through a CM tool, and the resolutions will be included in testing sign-off
documentation   when resolved. Review other than test execution will include at a minimum the following:

    l       Requirements Traceability Matrix - The system shall be able to demonstrate that all development
            requirements are incorporated  into the final system output through the use of requirements traceability
            matrices. These matrices shall be submitted with the Preliminary Design Document and should be updated
            with each subsequent step in the enhancement effort (i.e., requirements should be traced through the
            Preliminary Design, Detailed Design, specifications, test plans and test results).
    l       Functional Requirements   Document - The system shall perform work needed to accomplish the specified
            outcomes, achieve or exceed the specified performance standards, record and reconcile money, and track
            report activity.
    l       Detail Design Document - The detail design shall fully consider requirements for hardware, software,
            integration with other systems, security, telecommunications,  data management,     manual procedures,
            QA/QC, auditability,   and capacity planning and ‘management.   It should document the design in
            system/subsystem specifications, program specifications, and database specifications.
    l       System Specifications - System/Subsystem     specifications, program specifications and database specifications
            should all be included within the Detail Design Document.        Specifications should include at a minimum
            flowcharts, Input/Output    processing, and file layouts.
    l        Manual Procedures - All system modifications   or maintenance changes shall be incorporated into manual
            .procedures’and functions as necessary to keep the procedures up’ to date. System testing. shah ensure ,that all
             related manual procedures perform according to system requirements.        ’


PostImplementation Testing

After the system is implemented,   transactions should be reviewed to make sure that transactions are processing
correctly and the data being produced is reliable. This testing will be conducted with actual production data, and

Guaranateed Lean System Requirements                                                                                             13
System Overview


                                                                                                                        I
will be done with the team independent of the development organization verifying expectedresults. In addition,          /
whenever possible, daily, monthly, quarterly and fncal/calendar year-endreports should be reviewed prior to
dissemination to ensurethat the data has updated correctly.                                                             I
                                                                                                                        1
Conji@.wationManagement     (CM)   l

                                                                                                                        1

                                                                                                                        1
The guaranteedloan system must use configuration management that will establish and maintain the security and
integrity of the guaranty loan system throughout its development life cycle. A comprehensive CM,must provide all
project team members with a consistent level of understauding of the system engineering process,maintain systems        1
stability, and reduce technical risk associatedwith the development effort.                               r,            I

                                                                                                                        i:
D&a RequJremenS                                                                                                         ir

The guaranteedloan system stores, accesses,and/or updatesseventypes of data. In this document, a grouping of
related types of data is referred to as an information store. The term inConnation store (rather than databaseor
file) is used to avoid any referenceto the tetical or physical characteristicsof the data storage medium. Actual
data storage (physical databasesand files) must be determined by each agencyduring system development and
implementation basedupon the loan program’s statutory requirements; and the agencys technical environment,
processingvolumes, organizational structure, and degreeof system centralization or decentralization.

This section defmes the seveninformation stores, five internal and two external, and provides examplesof the data
that make up each informationstore.

Injihaatbn Stores in the Guaranteed Loan System

The five information stores internal to the system are:

Lender/Servicer Information. This refers to data about the lender necessaryto determine the eligibility and
creditworthiness of the lender financial information concerning the level of loans under the lender’s control; data
about the lender’s level of responsibility extending loans to borrowers both within the agencyand outside the
agency; and the status of the various reviews performed on the lender. This information. store includes the
following data:

MimdatoTy      ,
   l   Lender/Servicer Application Data
   l   Lender/Servicer Review Data
   l   Approved Lender/ServicerData
   l   Lender/ServicerStatus
                                  ,.,                                                                         I
Guarantee Informa@on; This refers to. data about guarante&equests received by the agency:,The amount of
information about eachindividual loan will vary depending on the loan’s size, the lender’s status, the statutory
requirements of an individual loan program and each individual agency’spolicies. This information store includes
the following data:




                                                                                 Guaranateed Loan System Requirements
                                                                                                                                        System Overview.
                                                                                                                                                    --


i14hhstory
        l   Guarantee Data (e.g., lender, loan amount,                      guarantee   level, loan status, subsidy information,          interest rate,
            and loan terms)
        l   Collateral Data (e.g., appraised value, status) (Mandatory                      unless specifically excluded by program
            requirements
        l   Borrower      Data (e.g., borrower’s                name, address, financial data)
        l   Guarantee      fees due and/or collected


Value-Added
        l   Rejected Guarantee            Data (e.g., lender, reason for rejection)

Claim Information      This refers to data about a lender’s claim for payment from the government                                       on a defaulted
loan under the guarantee agreement.      This information  store includes the following data:


Miandutory
        l   Claim Application            Data
    l       Claim Status

Acquired Loan Information.         This refers to data associated with a defaulted or delinquent loan guarantee that has
been acquired by the agency. This store will include all loan information      plusother data required for loan servicing
and collection activity. This information    store includes the following data:

                                                                                                                                                  ,.
Mandatory
    l       Acquired    Loan Data
    l       Acquired    Loan Status
    l       Acquired    Loan Collateral               Data                                                                      :
    l       Payment History

Program Criteria.     This refers to decision-making criteria used by system functions and based on statutes,
regulations, and policies for the guaranteed loan program.    This information  store includes the following data:


ilhmiuto~
    l       Lender Eligibility
    l       Lender Financial        Rating
    l Lender Risk Rating
    . po~o~oEv,&a&,n~’                          .I.            _:         ,“..   ,                 T                      :-“       ”      ,,.,   .        __
    l       Creditworthiness            (Mandatory           unless specifically excluded by program      requirements)
    l       Borrower      Eligibility
    l       Guarantee      Fees
    l       Fee Penalty


Guaranateed Loan System Requirements                                                                                                                       15
S,ystem Overview



         l  Claim Application Evaluation
         . -znvoicing ‘:     I

         l   Receipt Application Rules
         l   Debt Collecuon
     l       CAlVRS Referral
     l       Credit Bureau Reporting
     l       Treasury OfGet Referral
     l       Collection Agency Selection
     l       Litigation Referral
     l       Write-off               :          :. ._).   .;.”   ..:

Value-&d
     lClose-out
     l       LoanSale




Infirmzation Stores
                 ., EcternaL
                      ,.    to the Gwranteed L.wn System
      I                                                                :
The two information stores &tern& to ‘the systemare:
                                                  1’                       -
Core Financial System Information.     This refers to information for performing funds control checks,initiating or
recording payments, and recording the results of other guaranteedloan financial transactions. This information
store includes the following data:

iklhndutq
     l       Budget.Execution Data
     l       Receivables
     l       Disbursement Data
     l       Collections/Receipts
     l       Administrative Costs
     l       Principal and Interest Data
     l       Acquired Asset Data
     . Collateral

External            Organizational     This refers to information coming from outside~t$eagency&o the *.
                                         Information.
guaranteedloan system. This information store is composed of the following types of data:

ilhdmny
     l       Lender Rating Data
     l       Treasury Interest Rates

16                                                                             Guaranateed Loan System Requirements
                                                                                                             System Overview-



    l   SF-1 15 l’s (Non-Expenditure         Transfer Authorization)   and SF- 108 l’s (Voucher   an+ Schedule of Withdrawals
        and Credits)
                                                                                                                   .’
    l   Loan Status
    l   Sale Approval
    l   Collection     Activities   and Results
    l   Write-off     Approval
    l   Foreclosure     Data


Value-Added
    l   Sale Proceeds
                                                                                                       /

Relathns&p of In.rma.tba Stores                                                                                     ,,

Illustration 5 depicts the relationships between the loan system information     stores described above and the
processes within each function which access or update those information      stores.




Cuaranateed Loan System Requirements
Guaranteed Loan Internal and External Information Stores




                        Illustration   5
                      System Overview
         “:       i
                               _‘.
I


-


I
     1
              I
-    -

-    -




-    -
,%


     3
-    -

-    -

-    -
     x


-    -

-    -

I    I
     x
-    -

-    -




-    -
              :’ :’   ‘.
 lntroductlon
           to Functional
                      Requirements
 This chapter describesthe functional requirements for a guaranteedloan system. The following functions should be
 supported by the system:

         l   Lender Management
     l       GuaranteeExtension and Maintenance
     l       Portfolio Management
     l       Acquired Loan Servicing
     l       Delinquent Debt Collection
     l       Treasury Cross Servicing
     l       Other Reporting Requirements

The functional requirements identified defme the typical processingand data requirements for federal guaranteed
loan programs except some international programs, such as,lendingto sovereign nations. These requirements do
not include specific or unique requirements of individual guaranteedloan programs. Agencies may determine that it
is not practical to fully automate all functions basedon factors such as loan volume, operating environment,
statutory requirements, and costs. Agencies also may decide that one or more of the guaranteedloan functions may
be best performed by an outside agency or contractor. Accordingly, it will be necessaryfor agenciesto make
adjustments to adapt to the
requirements to meet their specific
program and system requirements.                Explanation of Icon‘s Used in the llltistrations
 The internal managementinformation
                                                  indicates either a process (in the function
 requirements identified throughout
 this document are those required to
 establishcredit management and
                                          cl      level diagrams) or an activity (in the process
                                                  level diagrams).

financial reporting systemsthat are
in compliance with the standards
provided in OMB Circulars A-34,          .O       indicates an entity external to the agency.


A-123, A-127, and A-129.


                                          0
                                                  Indicates a system external to the loan system. Many of the loan system
Agencies’ systemsshall be capable                 processes have an interface with the core financial system. On the diagrams;
of satisfying the reporting require-              the core financial system Is divided into parts which correspond to the functional
ments of OMB and Treasury,                        requirements in the Core Financial System Requirements
including those associatedwith the
Federal Credit Reform Act of 1990
and the CFO Act of 1990.

 For eachfunction, the narrative is
                                          0       Represents an applicant, borrower or purchaser as indicated in each illustration




                                              0
                                                  indicates an information store. At the function level, the
 supported by diagrams showing the                name of the information store is displayed. At the process
                                                  level, the data within the information store is displayed.
relationship between processesand
activitiesand the flow of information.
These diagrams are conceptual in
nature; they do not imply any ,_
physical structure-of systems.:-The
diagrams use conventions adopted                  indicates dataflow in oral, electronic, or paper form. The
                                          4       direction of the arrowhead indicates the direction of the flow.
to ensureconsistencyof presentation.
Explanations of icons used in the
illustrations are explained in                                              Illustration    6
Illustration 6.

                                                                                                                    -~         _---- -..- .._.._, :

20                                                                                         Guaranateed Loan System Requirements                   ;

                                                                                                                                                  1_~
 lenderManagement
Effective lender management is critical if the government is to ensurethe availability of credit to eligible borrowers
and use private sector expertisewhile protecting the government’s interest and minimizing the government’s risks.
Effective lender management ensuresthat lenders adhereto agency-specificfinancial, program, and performance
requirements aswell asgovernment-wide statutory and regulatory requirements.


General Requirements
This section provides the government-wide functional requirements for the Lender’Management function of a
guaranteedloan system. Illustration 7 provides an overview of the Lender Management function. As shown, the
Lender Management function consists of the following major processes:

    l   Lender Eligibility Process,and
    l   Lender/Servicer Monitoring Process.


                          Overview of the Lender Management Function



                                                                                        b    Monitoring Notices
                                                                                                 and Plans




                                                                         Lender/Servicer
                                                                        Monitoring Process




                                                                                                                  .’ 2’”   .(   I-...   :




                                                     llrustratlon   T
                                                                                                                                                 I!

                                                                                                                                            --

Guaranateed loan System Requirements                                                                                                    21
 Lender Management


 Guaranteedloan management starts with ensuring that only financially sound, qualified lenders participate in
 guaranteedloan programs. The Lender Eligibility processis comprised of processinglender applications,
 evaluating eligibility, approving services,and establishing a lender agreementwith acceptedlenders. Lender
 application data is recorded in the system for both approved and disapproved applications.

As shown in Illustration 8, the Lender Eligibility processconsistsof the following major activities:

            l   ProcessLender Application,
            l   Evaluate Lender Eligibility,
            l   Approve/ Disapprove Lender Application, and
            l   Establish Lender Agreement

Process
      LenderApplication

This activity capturesdata about                              Lender Eli,gibility Process
the lender and the application for
participation in a guaranteedloan
program.

An automated system should:

Mandatory

        l       Record and update lender
                application information,
                ensuring that all required
                data is present and valid
                 (e.g., nine-digit numeric
                Taxpayer Identification
                Number (TIN)).
    l           Document that any required
                lender application fee has
                been received and calculated
                correctly.
    l           Provide an automated                                ----a-

                interface with the core
                financial system to record
                the receipt of any
                application fee.

Evaluate LenderEl&ibiliFy

This activity determines the
lender’s eligibility to participate in
federal guaranteedloan programs.
This determination is made by
comparing application information, recorded in the system in the ProcessLender Application process,to


22                                                                             .~--       .-

                                                                                Guaranateed Loan System Requirements
                                                                                                     lender Management


system-storedprogram lender eligibility criteria. These criteria should include agencyeligibility requirements, as
well as OMB Circular A-129 and other government-wide regulatory requirements.

An automated system should compare lender application information against:

Mandatory

        l   Information on firms currently debarred/suspendedfrom participating in a government contract or
            delinquent on a debt to the government.
        l   Information concerning the lender’s financial credentialsfrom banking regulatory agencies,rating services,
            and other information sources.
        l   -Lender performance data.

Value-Added

        l   Qualification requirements for principal officers and staff

Approve/Disapprove
                 LenderApplication

This activity supports the final review and acceptanceor rejection of each lender application basedon the lender’s
satisfaction of program lender eligibility criteria. For approved lenders, the agencymust consummate an agreement
in accordancewith the requirements defined in OMB Circular A-129.

An automated system should:

Mandatory

        l   Update the lender information store to reflect the agency’sdecision on the lender application.
        l   Maintain data on lender disapprovals as an historical referenceto support effective monitoring of future
            lenders..

Value-Added

    l       Generateand electronically transmit a notice to inform the lender of approval or disapproval of the lender’s
            application.
    l       Record text comments related to approval or disapproval of the lender application.

EstablishLenderAgeemen t

This activity formalizes the agency’scontractual relationship with the approved lender through lender agreements.
The agreementsmust state program requirements, lender and agencyresponsibilities, due diligence standards,. I’, r
                                                                               r (”     e-
reporting standards,and loan servicer participation requirements.

An automated system should:

Mizndatmy

    l       Record relevant data concerning the lender agreement

Guaranateed Loan System Requirements                                                                                   23
 lender Management



         9 Document that the lender agreementhas been consummated by the agencyand lender.
         l Provide a tracking mechanism to identify expiring agreementsneeding renewal.

 Value-Added

         l   Generatethe lender agreement for signature by the lender.

This processmonitors lender/servicerperformance to ensurethat both performance and eligibility requirements for
continued participation in guaranteedloan programs are met, and that corrective actions are implemented for
lenders/servicersnot in compliance., Lenders transferring and/or assigningthe right to serviceguaranteedloans to a
loan servicer should use only servicersmeeting applicable standardsset by the agency. OMB Circular A-129
requires on-site reviews of lenders/servicersat least every two. yearsto review performance and determine eligibility
for continued participation in the guaranteedloan program. Annual or specialreviews should be conducted for
high volume lenders/servicersor lenders/servicerswith poor performance.

As shown in Illustration 9, the
Lender/Servicer Monitoring                             L&der/Servicer                Monitoring Process
Processconsists of the following
major activities:

     l       Monitor Lender/Servicer
             Performance,
     l       Support Lender/Servicer
             Reviews, and
     l       AssessCorrective Action

Monitor Lende~/Semicer
Perjkmance

 This activity alerts agency
 management to lenders/servicers
 requiring review by comparing
 system-stored review selection
 criteria and other program criteria
 to lender/servicerfinancial and
 performance data. Agreements
 between lenders and servicersmust                                                                             Decommitment
 specify that loan servicersmust                                   Lender/Servicer                             and
                                                                                                               Deobligation
                                              ------                                                           Data
meet applicable participation                                                                                  Penalty   Fee
requirements and performance                                       Lender/Servicer

standards. The agreement should
also specify that servicersacquiring
loans must provide any
information necessaryfor the
lender to comply with reporting
requirements to the agency.
Lenders/servicersthat are
considered high risks may be
placed on a watchlist.
                                                                   ~---

24                                                                                      Guaranateed lean System Requirements
                                                                                                      lender Management
                                                                                                                   -.-


 An automated system should:

Mandatory                                                                                                                  ,. ,.

         l   Compare lender/servicerfinancial and performance information against agencyportfolio evaluation criteria to
             identify lenders/servicersfor regular or specialreview..                <                     :
         l   Compute performance statistics for effective monitoring, including delinquency rates, defauitrates, and claim
             rates.                                                                                  ;
         l   Compute a quantified risk for eachlender/servicer; The risk is’quantified by weighting appropriate risk
             factors (e.g., loan volume, delinquency rate, default rate) basedon the correlation between the risk fa.ctors
             and lender/servicerperformance-
                                  performance.     -
         l   Compare-the quantified lender/servicerrisk to risk rating criteria to assigna risk rat&g to,each bender/servicer
             (e.g., high, medium, low).        !                    ~:
                          ‘.‘I                                                                  ;..    I.         _,. .-
Value-Added                                                                      ._   -j
     l       Enter high risk lenders/servicerson a problem watchlist and generatea notice to eachaffected‘lender/servicer.

Support Lender/Servicer          Reviews

This activity supports on-site reviews of lenders/servicersto evaluatetheir performance against program standards
and requirements. Agencies should document review findings and submit them to agencyreviewILboards; .’ v;

An automated system should:

Mandatory

     l       Provide historical performance information on lenders and servicers~identifiedfor review to the review team.
             The preferred method is by electronic means.
                                                                                         ‘_
Value-Added
                                                      .                                    ,
     l       Provide’ for scheduling and tracking of the review team’s activities.
     lDocument review results including dateof review, Name(s)of reviewer(s),and any deficienciesand*associated
      explanations.                                                              ‘.                  ./
                                                                                                        :..
    . Reeordtext commentsrelevantto the review process.
                                                                                                            :.’


Assess Corrective Action

This activity supports the assessmentof corrective actions by the agencyfor lenders/servicersin non-compliance
with -program requirements... For minor non-compliances,.agenciesand the Jender/servicershould agree.,  on : ..
corrective actions. ,For’seriousand,frequent offensesrthe review boardshould’assessper&i&;&hi&        may include
loss of guarantees,reprimands,-probation, suspension,and decertification. OMB .Circular A-129 requires agencies
to define the,decertification processand establishtimetables by which decertified lenders may apply for
reinstatement.




Guaranateed Loan System Requirements                                                                                          25
 lender Management                                                                                                     --


An automated system should:

Mandatory

             l   Update the status of lenders and servicersthat do not comply with agencystandardsfor continued program
                 participation, or do not correct deficienciesidentified through reviews in a reasonableperiod of time.
                 Provide data to support corrective action plans such aspenalties and/or sanctions.                             i
         l       Record penalties and/or sanctions imposed by the agencyreview board on those lenders or servicersfound to
                 be in serious and frequent non-compliance with Federal program standards.

Vahe-Added

         l       Generatea notice to inform the lender/servicerof a finding of non-compliance (electronically, where
                 appropriate), including any penalties or sanctions and the right to appeal.
         l       Document and track corrective action plans agreedto by the agencyand the lender/servicer,including
                 proposed resolution dates, and update lender/servicerdata to reflect any changesin status resulting from the
                 corrective actions.
         l       Document and,track appealsreceivedfrom the lender/servicerand agencyappealdecisions and generatea
                 decision notice to the lender/servicer.


Collateral Requirements
There are no collateral requirements applicable to the Lender Management function.


Internal Management Information                        Requirements
Listed below are internal management information requirements for the Lender Management function. The
information should be available to agencycredit program managersand designatedinternal review officials on a
periodic or on an asrequestedbasis. This list is not an all inclusive inventory of internal information requirements
for the Lender Management function. Each agencymust determine the specific management information needs
necessaryto manage its credit programs basedon the agencymission and applicable statutory requirements. In
order to support theseneeds,a system should provide a user-friendly query tool (preferably graphics-based)that
facilitates reporting rapidly on any required data elements. Agencies must maintain financial accounting
information at appropriate levels of summary for computational and reporting purposes. The main levels are:
transaction, loan history, risk category, cohort, and account. Each agencymust also determine whether the
information should be provided on hard copy reports or through system queries.

The guaranteedloan system should provide at least the following types of management information:

     l           Lendee Eligibility Activity; ~This~summaiyprovides information aboutthe number, of lender applications
                 received, aljpkoired, anddisap$-oved in a period. The”purpose of this data summary is to monitor the lender
                 application activity of the agencyand the disposition of the lender applications.
     l           Completed Reviews. This summary conveys the results of the lender reviews completed during the
                 reporting period. The summary describesany recommended actions resulting from the lender reviews.




26                                                                                       Euaranateed Loan System Requirements
     l   Lender Performance . This summary presentsthe overall performance of eachlender’s portfolio, including
         total lossesacrossfiscal years. The purpose of this data summary is to identify lenderswith corkistentlyhigh
         default rates or other poor performance for agencyreview and evaluation.
    l    Exceptions. This summary highlights deficienciesin the lender management function, The data summary
         should be generatedperiodically or on demand asneeded. An example of.exception data is a listing of
         lenders that are not in compliance with agencyand statutory requirements, and that have not been penalized
         or decertified.




                                                                                                                                               .’


                                                      i.                                       .,                 .,               ,_,/’




                                                                                                                                                                      _’
                                                                                                                             .,-
                                                                                         .,.        :..   .i;-,                            :        ..,.i’::.’
                                                                                                                                                    ._           .i
                                                                                    ‘,                                 ./_




Guaranateed Loan System Requirements                                                                                                                                       27
 GuhantbExtensioh
               andMaintenance. ,.                                                                              :
 Guaranteedloan commitments are recorded basedon the approval of the requestfor the guaranteeand.the
 availability of subsidy appropriation and lending limits. Lenders/servicersare required to originate all their
 guaranteedloans in accordancewith prudent lending.practices. Agencies are required to review and approve
 guaranteerequestsfrom lenders, invoice lenders for the collection of periodic guaranteefees,and make interest
 supplement payments to lenders, as necessary.


General Requirements
This section provides the government-wide functional requirements for the GuaranteeExtension and Maintenance
function of a guaranteedloan system.

Illustration 10 provides an overview of the GuaranteeExtension and Maintenance function. As shown, the
GuaranteeExtension and
Maintenance function consists of              Overview of the Guarantee Extension and
the following major processes:                             Maintenance Function
     l   GuaranteedRequest
         Evaluation Process,
         GuaranteedOrigination                                            Pro ram
     l
                                                                          Cnf eria
         Process,and
     l   GuaranteedLoan
         Maintenance Process

In order to approve a guarantee
request from a lender, agencies
must verify the borrower’s
program eligibility and,
creditworthiness, unless specifically
excluded by program requirements.
The extent to which an agencyis
involved in the loan origination
processlargely dependson the
responsibilities establishedfor each
lender level. Many loan programs
have preferred lenders,who
maintain data on behalf of the
agency,have responsibility for
determining borrower eligibility
and creditworthiness, and may
disburse funds without prior
approval. The agencymust
provide guidance to its lenders for
determining a borrower’s
creditworthiness and train its
personnel to evaluatethe lender’s
analysisof creditworthiness.                                          illustration   10



                                                         ------           ---              ---... .--     -..-.-.-._.. .-- __..
                                                                                                                             - .   -. _.

28                                                                                   Guaranateed        Loan System    Requirements
                                         _.._. . .   .._. -_-. __.._..._...
                                                                     --__-_-.. .-._.-----         Guarantee Extension and Maintenance-
                                                                                                 -------                  --..-- .._--. -


As shown in Illustrqtion 11, the GuaranteeRequest Evaluation Processconsists of the following major activities:

            l   ProcessRequest ti,r Loan Guarantee,
            l   Verify Borrower Program Eligibility and Creditworthinkss,
            l   Conduct Funds Control, and              *
            l   Approve/Reject Guarantee Request
                                                                                                                                  ‘; I.

Process
      Rcpst for Loan Cmmn tee.                                     Guarantee Request Evaluation Process
This activity capturesdata about a
lcndcr’s guaranteerequestfor a
loan to bc issued by the lender.                                                                                                .;::

An automated syem should:
                                                                                                                           Notllcation
                                                                   4                                                          Letter


        l       Record critical data on the
                lcndcr’s guaranteerequest to
                suppmt   the   guarmcc
                evaluation process.                                                                            1 Rates

        l       Provide accessto guarantee
                request i.nformation to cich
                individual participating in
                the gunranteedecision.

l7dllC-MM

        l       Record text comments
                rclcvant to the gwimntce
                decision.
                                                                                      Rejected
                                                                                     Guarantee




This activity verities the cligibili?
of the guamntccd loan borrower.
The determination is made b!
comparing information about the                                          Illustration 11
borro\\xx from the lcndcr‘s
guarsntcc request, recorded in the system in the prior process,to system-stoked          ig&cy -.- prograk       kligibikty   criteria.
                :..r./,.   .,        -,i                “‘i “: i LcI’ ‘-“.i,,,‘:,-nrr!‘: e-i;,)j”<.y         7      =,, 1‘3’,“.,$,
                                                                                                     ...”.7. sr$.::i7r‘tii#;$      ;
An automntcd system whet-capplicable should:



    l           Compare borrower information on the lender’s guaranteerequestto agencyprogram borrower eligibility
                critcrin.
                                                _ _ _ __,__..._,     .-_...._ .._-----__, ._..___...   - .____ -..-.- ._.-- -.- _. ..__
                                                                                               - __________
Guaranateed Loin System Requirements                                                                                                      ‘29
 Guarantee Extension and Maintenance                                                                                      -..-      _



             l   Check the appropriate system data files to determine whether a lender has recently submitted a duplicate
                 guaranteerequest for the applicant or a guaranteerequestfor the applicant has beenpreviously denied.
             l   Document whether the applicant has previously defaulted on debt to the federal government.
             l   Compare the applicant’s creditworthiness information to system-storedprogram creditworthiness criteria
                 and, assigna credit risk rating’ to the applicant, unlessspecifically excluded by program requirements.

Value-Added

         l       Document that the lender obtained a credit bureau report.
         l       Document that borrower financial data, repayment ability, and repayment history have been verified.

Conduct Funds Control.

An agencymust have sufficient subsidy funds available and be within program lending limits (where program limits
exist) in order to approve a guaranteerequest and obligate subsidy funds. This activity supports the calculation of
the subsidy cost of guaranteedloans and provides an interfacewith the core financial system to check subsidy fund
availability and lending limits.

An automated system should:

Mandatmy

         l       Provide the information neededto compute the credit subsidy amount associatedwith a loan guaranteeusing
                 projected cashflows and the applicable Treasury interest rate in accordancewith OMB Circular A-34, A-l 1,
                 and SFFAS No 2.
     l           Provide an automated interface with the core financial system to determine if sufficient funds are available in
                 the Program Account and if available lending limits in the Financing Account are sufficient to cover the
                 subsidy cost and the facevalue of the proposed guarantee.

APPrope/Rejectcllarantee Request.

This activity supports the final review and acceptanceor rejection of eachguaranteerequest basedon the borrower’s
ful.tUment of program eligibility and creditworthiness criteria and the availability of subsidy funds and lending
limits.

An automated system should:

Mhdatory

     l Reflect,the.approved guarantee..-
                                      status.
        ..- ._
     ; Accept, id&t&, track; and report supervisor overrides of system-generated‘acceptance/rejection
       recommendations.
     l           Create and maintain a system record of rejected guaranteerequests.

V&e-AdZed

     l           Notify lender of approval or disapproval (electronically where appropriate).
                                                                     ------    --.                -~      ----.   -_. .-.- .-. ._
30                                                                                          Guaranateed loan System Requirements
                                                                                                                                  Guarantee-Extensierand Maintenance‘


 After an agency or lender has approved a guarantee,the guaranteedloan obligation must be recorded in the system
 to track the agency’spotential liability. Any origination fee associatedwith the issuanceof the loan guaranteeis also
 recorded. The lender must inform th.eagencyof the amount and date of eachobligation and or disbursement so
 the agencycan perform the necessaryaccounting.

 As shown in Illustration 12, the GuaranteeOrigination Processconsistsof the following major activities:

                l   Issue Loan Guarantee,and
                l   Document Lender Loan Disbursement

Isme Loan Guarantee.
                                                                                Guarantee Origination Process
 This activity provides eligible
 lenders with federal loan guarantee
 and records the guarantee                                          Treasury   Inter&t       Rates                                                    Treasury        Interest   Rates
 obligation and related origination
 fee in accordancewith agency
 requirements, the Credit
 Supplement to the Treasury
.Financial Manual,” and OMB
 Circular A-34,..Part VI.

An automated system should::

Mandatory

            l       Record the cohort and risk
                    category, as defined in OMB                                          I           l-                                           I      I---
                    Circular A-34, associated
                    with the guaranteedloan.
                                                                                                          v                         Dy                      Sobsidy
        l           Assign a unique account
                    number to the guaranteed
                                                                                                                                                           Outlays
                    loan that remains unchanged
                    throughout the life of the
                    guarantee.
                                                                                                              Receipt      Management
        l           Generatea guarantee
                    endorsement to confirm that        Commitment        and Obligation w Data
                    the loan is guaranteedand
                    transmit it to the lender
                    (electronically where
                    possible).
                                                                                                                 lllusttzitiori      12.                                                 ,
    l               Calculateand record the                ‘:“”                                                                      -   1 I ,.                          ‘       .           , ., .      j
                    guaranteeorigination feein ”
                    accordancev&h the terms and conditions of the guaranteeagreement.
    l               Record collections of origination feesreceived.
    l               Provide’an automated interface with the core financial system to record the guaranteedloan commitment,
                    the obligation for the related subsidy, and the origination fee, receivable,and collection.
                                                                                                                                                                                              -       --.--__

Guaranateed loan System Requirements                                                                                                                                                                    31
Guarantee Extension and Maintenance


Vahe-Added

             l   Transmit the origination fee invoice to the lender.

Document LenderLoan Disbursement.

This activity supports the receipt of notification that the loan has beendisbursed and records the disbursement
where required by agencyprograms in accordancewith OMB Circular A-34, Part VI.

An automated system should:

ikhuiatoly                                                                                                                                              I;;

         l       Provide an automated interface with the core financial system to record the outlay of subsidy from the
                 Program Account.
         l       Record information on loan
                 disbursements by the lender,                  Guaranteed Loan Maintenance Proces’s .
                 including amounts and
                 applicable Treasury interest
                 rates, to support interest
                 computations and subsidy             ifirdinn                      <Lender>             _    .,   _                        I

                 re-estimates,unless
                 specifically excluded by
                 program requirements.


                                                                                                                  IFees
                                                              1 k _    Criteria                   Periodic
                                                                        ----
Value-Added                                                               -           I    I   I Fee Invoice II


       l         Provide the capability to
                 receive electronic
                 transmission of disbursement                 Document Loan
                 data by the lender.         :
     l           Provide the capability for
                 reporting of loan closing
                 information.

GuaranteedLoan Maintenance                                                        b       Guarantee Data
involves monitoring loans for                                                             -w--e-
compliance with terms, processing                                                         Collateral Data
periodic guaranteefee collections,
and processinginterest supplement                                                                                            Interest
payments to the lender. As shown                                                                                            Supplement
in Illustration 13, the Guaranteed                                                                                          Paymet
                                                                                   -m-m-----
Loan Maintenance processconsists                                                                                           ...:e2:e:\.
                                                                                      Funds Management’
of the following major activities:                                                _ _ _ _ _ _ _ _ _ _
                                                                                    Payment Management
                                                                                   ---e--m__
     l           Document Loan
                 Modifications,
   l             ProcessFees, and

                                                                                                     _____--            ..----     ..-.-_       ,._._

32                                                                                                    Guaranateed Loan System Requirements
                                                                                 Guarantee Extension and Maintenance
                                                                                                               ___-


        9 Record Interest Supplement Payments.

Docti~~entLoa; ModiJications.

Modifications to guaranteedloans are government actions that alter subsidy costs. Examples of government actions
leading to a modification are forgiveness,forbearance,prepayment without penalty, and extensionsof maturity
unless such actions are provided for in the original loan agreement. Modifications do not include routine
administrative workouts under the existing terms of the loan guarantee. Subsidy funds must be transferredfrom
the program account to the financing account to cover the cost of the modification. This is required for all loans,
although systemsrequirements for pre-1992 loans in liquidating accountswill be differerit than the system
requirements for post-1991 loans.
                                                                             :                       .   ..
An automated systeti should:

Mandatory                                                                               I:

    l     Support reevaluation of the modified loans in accordancewith OMB Circular A-34 and program pplicy.
    l     Reflect the modified status of the guaranteedloan.
    . Estab1ish.anew loti account and collateral record for eachnew debt instrument and assigna unique loan
      account number to the new account record. Maintain a link between the new loan account establishedfor the
      new debt instrument and the old loan account records.
    l     Perform a funds control check to verify the availability of subsidy through an automated interf+e with the
          core financial system.
    l     Provide an automated interface with the core financial system to record the subsidy changesassociatedwith
          the guaranteedloan modification.                                                  :               ,,

Process
      Feei
                                                                   .
This activity supports the routine billing and collection of periodic guaranteefeesfrom the lender.

An automated system should:

Mizndatoy

    l     Compare guaranteedloan data to guaranteedfee criteria to determine which lenders owe guaranteefees,
    l     Compute the amount of the guaranteefee.
    l    Identi$ those lenders with overdue fee payments and calculatepenaltieson loans for which lenders have not
         ,submitted guaranteefee payments.
    l    Generateinvoices, including penalties assessedfor late payment, for guaranteefee payments due fromlenders
         (electronically where possible).
    l    Provide an automated interface with the core financial system to record the receipt of guaranteefeesfrom
         lenders.




Guaranateed Loan System Requirements                                                                                   33
Guarantee Extension and Maintenance                                                                              --.-_-


RecordInterestSupplementPayments.

Some guaranteedloans require the agencyto pay interest supplementsto the lender. Interest supplements are a
form of interest subsidy that enable the borrower to pay lower interest to the lender. This activity identifies those
guaranteedloan agreementsthat require interest supplement payments to the lender. The actual payment will vary
basedupon the type of interest supplements offered through the guaranteeprograms.

An automated system should:

ilhwdatq

         l   Identify guaranteedloans requiring interest supplement payments.
         l   Compare current interest rates to the interest rates in the agreementto determine the appropriate levels of
             interest supplements required.
         l   Recognize the interest supplement payment asan interest subsidy expenseand a loan guaranteeinterest
             supplement liability.
         l   Provide an automated interface with the core,fmancial system to initiate and record disbursementsfor
             interest supplement payments. If the guaranteedloan system itself handlesthe payment processing,.it must
             meet the requirements in the Core Financial System Requirements related to payments and send summary
             data to the core financial system.


Collateral Requirements
Some credit programs provide loans to finance the acquisition of an assetthat then servesas collateral for the loan.
OMB Circular A-129 requires that property serving as collateral be appraisedby a state licensed or certified
appraiserwhen the loan amount exceedsa pre-determined amount. Circular A-129 also requiresthat the useful life
and value of pledged collateral must be recognized in the guaranteedloan system at the time of credit screening.
The estimated useful life of the collateral should be longer than the loan maturity and the loan-to-value ratio must
be within applicable program requirements.

An automated system should:

Value Added

     l       Capture the estimated usell economic life of the pledged collateral and compare it to the proposed term of
             the loan.
     l       Document that transactions over a pre-determined amount identified by program requirements have a
             collateral appraisalby a licensed or certified appraiser.
     l       Compute the loan-to-value ratio and flag those loans with a ratio exceedingapplicable program
             requirements.         t
                                                                                                  L                ‘,

Internal Management Information                    Requirements
Listed below are internal management information requirements for the GuaranteeExtension and Maintenance
function. This information described below should be available to agencycredit program managersand designated
internal review offkials on a periodic or on an as requestedbasis. This list is not an all inclusive inventory of
                                                                                          -~-_--__--_--__,
34                                                                                     Guaranateed Loan System Requirements
                                                                                       Guarantee Extension and Maintenance
                                                                                                                       --
                                                                                                :
                                                                                                      ‘.

internal information requirements for the GuaranteeExtension and Maintenance function. Each agencymust
determine the specific management information needsnecessaryto manage its credit programs basedon the agency
mission and applicable statutory requirements. In order to support theseneeds,a system should provide a,
user-friendly query tool (preferably graphics-based)that facilitates reporting rapidly on any required data elements.                     I
Agencies must maintain financial accounting information at appropriate levels of summary for computational and
reporting purposes. The main levels are: transaction, loan history, risk category, cohort, and account. Each agency
must also determine whether the information should be provided ‘on hard copy reports or through system queries.

The guaranteedloan system should provide at least the following types of management information:                            s.

            l   Approval and,Rejection Monitoring. This Summary provides information about all credit .applications that
                were approved or rejected for a given time period. The data&e broken down into separatestatistics on
                credit approvals and rejections. The approval section indicates the number of approved applications,and the
                Percentageof total applications that they represent. The total requestedamount and total approved,amount
                are shown for eachloan origination of&e. The rejected application section contains’the number of rejected
                applicants and the percentageof total applications that they represent. The total of all loans requestedis also
                shown. This data summary also lists the averagetime spent to processa credit application, from the time of,
                application until the final decision is made.
            l   Override Expectations; This summary identifies all credit application decisions that override the action
                recommended by the automated system processes.Overrides can occur in two situations: an application is
                approved even though the borrower’s program eligibility or creditworthiness assessmentis not acceptable
                under agencyprogram management criteria, or an application is rejectedeven though the applicant’s
                program eligibility and creditworthiness are acceptableunder agencyprogram management criteria.
        l       Potential Application Fraud. This summary provides all applications that matched one or more pending or
                recently rejected applications. Comparison is basedon four criteria: applicant name, applicant address,
                applicant phone number, and applicant Taxpayer Identification Number (TIN). If a pending application
                matches any of thesecriteria, the data fields that matched and the original application and,pending
                application identification numbers will appearon this data summary with primary application identification
                information.
        l       Approval/Rejection Statistics. This summary contains statistics on guaranteeapprovals and rejections. The
                data summary is broken down into separatestatistics on guaranteeapprovals and rejections. The approval
                section indicates the number of approved applications and the percentageof total applications that they
                represent. The total requestedamount and total approved amount are shown for eachguaranteeorigination
                office. The rejected application, section contains the number of rejected applicants and the percentageof total
                applications that they represent. The total of all guaranteesrequestedis also shown.
        l       Detailed Transaction History. This summary contains detailed loan guaranteeand account data. The data
                summary is used for control and tracking and also as an audit trail. The information is presentedby
                program, for both the current and prior reporting period.
    l           Median Loan-to-Value Ratio. This summary is used to track the median loan-to-value ratios for guarantees
                written by each regional of&e. The median loan-to-value ratio is the mid-point in the range of portfolio
                loan-to-value ratios.
    l           Loan GuaranteeFee Collection;:~,Xhissummary is used to monitor guaranteeorigination fee collections.              -
    l           Loan GuaranteePeriodic Fee Collection. This summary is used to monitor the periodic loan guaranteefee
                collection activity.
    l           Exceptions. This summary highlights deficienciesin guaranteeorigination processing. The data summary
                should be generatedperiodically or on demand as needed. An example of an exception summary is a listing
                of approved requeststhat have not been processedin a specified period of time.


Guaranateed loan System Requirements                                                                                        35        :
Portfolio
        Management
             .1
Effective administration of guaranteedloan programs dependson agenciesgathering and.using reliable information
on the performance of the agency’sloan portfr>lios. Efficient mechanismsmust, be in place to provide sufficient
accounting and management information for effective stewardship of the loan portfolio.

Mizndatmy     (All requirements in this Chapter are il4imdatmy)



General Reqtierhents
This section provides the
government-wide functional                              Overview of the Portfdiio Management kmction
requirements for the Portfolio                                                               .,I .?
Management function of a
guaranteed-loansystem.

Illustration .14 provides an
overview of the Portfolio


                                                        Q                                                                   J
Management function. As shown,
the Portfolio Management                           ._    Lender
function consists of the following
major processes:

     l   Portfolio Performance
         Process,                                                                                                                         Treasure      Interest   Rates

     l   Program Financing Process,
     l   Support Subsidy estimate,
         and
     l   Portfolio SalesProcess

Agencies must maintain adequate
and up-to-date information on the
status of their loan portfolio to
evaluatemanagement and program
effectiveness. Agencies need
information about the status and
quality of the loan por$olio to
monitor its financial health. As
shown in Illustration 15, the
Por$olio Performance process
consists of the following major
                                                                                                                                                      ..*
activities;
                                        .:;?,-.,    ,   %    ;:   ,.   ,. ,f   A;’   :   .:   ,”   “.   Illp&~tion~4         j’       *     :   t$,         ‘*;>   .”

     l   ProcessGuaranteed Loan
         Status Reports from
         Lender, and
     l   Compute Portfolio Performance Measures



36                                                                                                                     Guaranateed Loan System Requirements
                                                                                                                     Portfolio Management
                                                                                                                                .-...-__-


Process Guaranteed Loan Status                          Portfolio Performance Process
Repotis@om Lender.

Lenders are required under OMB
Circular A-34, Part VI and other
OMB and Treasury documents to
submit information on guaranteed
loan commitments, lender
disbursements,lender collections,
delinquencies, and other data on
the size and health of the
guaranteedloan portfolio.                    0’
                                             Lender
                                                                                             bReports/
                                                                                             Evaluation

                                                                                                  A


An automated system should:

      Receive and document loan
      guaranteeinformation from
      lenders (electronically where
      appropriate).                                                                                       I   Administrative
                                                                                                              costs


      Maintain standard                                          Guarantee      Data
                                                                 ------
      information on the history
      and status of each                                         Borrower      Data
      guaranteedloan (e.g.,
      borrower identification,                                   Collateral     Data
      amount and nature of debt,
      loan originator, holder,
      and/or servicer).
      Maintain data from the
      lender which identifies
      delinquent accounts and,
      potential defaults.
      Provide agencyaccessto the         L

                                                                              illustration   15
      loan status information.
      Receive and record lender
      substitution and/or transfer data, i.e., secondarymarket sales(electronically where possible).
      Accept lender data by cohort and risk category.

Compute Portfolio Pevjkmance     Measures.

This activity supports portfolio reviews that allow agencymanagement to evaluateoverall agencyprogram
performance in ,relation to program goals and performance measuresincluded in the agency’sannual performance
plan, strategic plan, and fmancial statements.,,Pei-formancemeasures,inform management howrwell the !program
reachesits intended constituents, how effectively the program usesits allocated resources,and how successfullythe
program achievesits intended public policy results. Effective performance measurement should highlight program
trends to prompt reexamination of agency policies as conditions warrant.

The information necessaryto compute some of the following measuresmay not be readily availablefor all loan
programs, or may be available only at substantial expense. Therefore, the value of a given performance measure


Guaranateed Loan System Requirements                                                                                                   37   ~
Portfolio, Management


should be examined within the context of the total cost to an agencyof using that measure.The exampleslisted
below are intended as examplesand should be tailored to eachindividual agency’sneeds.

An automated system should:

         l   Compute and maintain program performance information. Some examplesof typical program performance
             information would include:
         l   Number and dollar value of loans made
         l   Average loan size
         l   Loans made by geographical region
         l   Number and amount of defaulted loans
         l   Number and amount of claims paid
         l   Amount of loan write-offs
         l   Compute and maintain financial measuresto help’assessthe credit soundnessof a loan program. Some
             examplesof typical financial measureswould include:
         l   Overall portfolio risk rate
     l       Average loan to value ratio (for collateralized programs)
     l       Write-offs as a percentageof seriously delinquent acquired loans
     l       Net proceedson real property sold compared to appraisedvalue
     l       Loan loss rates
     l       Recovery rates
     l       Loan Currency Rates
     l       Maintain portfolio data neededto help determine the effectivenessof use of agency resourcessuch as:
     l       Administrative cost per loan guaranteeapproved
     l       Administrative cost per acquired loan serviced
     l       Administrative cost per dollar collected
     l       Time required to processa loan guaranteeapplication

In accordancewith the FCRA of 1990 and OMB guidance, agencieshaveseveralcomponents to credit program
financing, including Treasury borrowing, subsidy reestimates,and working capital funding. Agencies borrow from
the Treasury when the uninvested fund balancein the Financing Account is insufficient to cover disbursementsfor
guaranteeclaims, but this situation should be rare (exception - negative subsidy) since the subsidy amounts are
expectedto be sufficient to cover any claims made. Agencies must reestimatesubsidy costsupwards or downwards
to reflect differencesin interest rates, technical assumptions, and expectedchangesin current and fIu-ureconditions
that have occurred between the time of budget formulation and loan disbursement. Finally, agenciesmay elect to
                                                                               .managing$and-selling collateral. -.:
set asidefunds as working capital to finance costs.assoaiated:;with,foreclosing,

Agencies should use the Funds Management function of the core financial system to record the appropriations,
apportionments, and limitations associatedwith the Program Account and Financing Account for each credit
program. The guaranteedloan system would accessthe core financial system to perform funds control validation.
Accounting for and controlLing administrative expensesrelated to credit programs can be accomplished in the core
financial system, so this activity would not normally be included in the guaranteedloan system.

38                                                                                  Guaranateed Loan System Requirements
                                                                                                            Portfolio Managemsnt
                                                                                                                          -_-


 As shown in Illustration 16, the                                     Program Financing -Process
 Program Financing process
 consists of the following major
 activities :

            l    Support Treasury
                 Borrowing Calculations,                                                            Y

            . Support Subsidy                                                                              Treasury Interest Rates
              Reestimates,           ’        .”
            l   Analyze Working Capital
                Needs, and
            l   Analyze Working capital              SF 1081’s
                Needs.

SupportiTi-easwyBqrrowin.
Calculaiions~

The FCRA of 1990 provides
financing accountswith permanent                                                       1 Subsidv
                                                         BOI                                      ns  Working
indeftite authority to borrow                        Princip                                      !SS Capital
from Treasury., The agencyis                                II                             lbsidy     Data
                                                          Ea                               msfer
required to track the amounts of                                                           .
borrowing, compute interest
expenserelated to these
borrowings, and compute interest
earnedon uninvested funds in
accordancewith guidance provided
by OMB and Treasury. The
transactionsto record borrowings
and interest would usually be
processedby the core financial
system with support for the                                              Illustration 16
calculations being provided by the
guaranteedloan system. Unlike a
direct loan program, a guaranteedloan program is not expectedto make routine borrowings from Treasury
(exception: negative subsidy). Subsidy amounts should be estimated so as to cover the costs of any payments of
guarantee claims for defaulted loans. The’ actual organization of system processesbetween the guaranteedloan
system and the core financial system is at the discretion of the agency.

An automated system should:

        l       Execute  SE-I I5 l’s ,;and record
                temp~r&ly*‘“:~:              ..   amounts*’ borrowed
                                                                i:.      from Treasury to cover shortfalls in the subsidy,estimates
                                                              ..    ’ ‘.
    l           Track the amount of uninvested funds in the Financing Account asneededto support interest earnings
                calculations.
    l           Compute interest expenseon borrowings and interest earningson uninvested funds.
    l           Execute and record repayment of principal using SF-11513 and interest to Treasury using SF-1081’s.
    l           Execute and record receief     interest earnings from Treasury
                                                                      .---_. --on uninvested funds using SF-1081’s.
                                                                                        -____-
Guaranateed loan System Requirements                                                                                                 39
 Portfolio Management                                                                                               -.-


 Support Subsidy Estimate
 This section outlines the types of data elements which might be included in a loan system and-builds upon the
 standardsset forth in SFFAS No. 2, Accounting for Direct Loans and Loan Guaranteesand OMB Bulletins A-l 1
‘and A-34. The key to implementing the requirements of thesedocuments is having adequatesystemsand reliable
 data to reasonablycalculatethe credit subsidy estimate.

 Given the diversity of Federal credit programs and, therefore,’the wide range in data required to support subsidy
 estimates, a loan system should be tailored to the data needsof eachloan program. The data elements in a loan
‘system should be selectedto allow for more in-depth analysisof the most significant subsidy estimate assumptions.
To accomplish this generally the loan system should maintain three types of data. First,. information regarding loan
 characteristicsshould be maintained. Second, relevant economic data should be gathered. Third, data on.the actual
timing and amount of all cashflows related to eachloan in the loan system should be collected.             (,

Loan characteristics..,.The loan system should maintain data that.is predictive of loan performance and subsidy
costs. Loan character&&s maintained in a’loan system willvary greatly from program to program. For example,
the v&e of collateral pledged may be highly predicuve of recovery ratesfor some programs. The following is a list
of some of the loan characteristicswhich agenciesshould collect. This information should be obtained from either
the loan system, the core fmancial system, or other data repository within or outside the agency.

         l   Loan number - Cashflows should be maintained at the individual loan level, even though analysismight
             often be done at the cohort level. Cash flows, such as.receiptsfrom property disposition, must be tracked
             back to the original loan via’ the loan number or other data element used to identify the original loan.
         l   Date of Obligation - Thisinformationis necessaryfor reviewing historical cohort data, since cohorts are
             defined by year of obligation,snd    for relating loan behavior to other dated variables.
                                       ./
         l   Loan terms and conditions. A system should maintain the actual loan terms, including maturity, interest
             rate, and up-front and/or annual fees. These data are critical for comparing actual payments to scheduled
             payments and for measuring the relationship between default risk and loan terms and conditions. The system
             should be able to calculate and report, as necessary,the aggregaterepayment schedulefor a cohort.
     l       Changesin loan terms and conditions. Any changein terms and conditions needsto be recordedin addition
             to the original terms and conditions, not in place of them. This data is neededboth to re-estimate the
             subsidy cost and to establish a basisfor estimating new subsidies.
     l       Borrower location. Agencies may chooseto collect severallocation elements, such as zip code, congressional
             district code, approving office code, and servicing office code for regional analysis.
     l       Borrower creditiorthiness. Since creditworthiness may be a strong predictor of defaults, the loan system
             should include measuresof the financial condition of the business!or individual receiving the loan and past
             credit experience,unless specifically excluded by program requirements.
     l       Loan use. Track the intended loan use may reveala significant variancein cost depending on the use of loan
             proceeds.
     l       Program:specific data. Other loan characteristicsmay also be important in predicting defau$. The _,
             loan~to%lue rauo is a critical data element for predicting ‘housing loan defaults; for s&lent f&&Tthe;type of
             educational institution may be important; the value of collateral is required unless specifically excluded by
             program requirements.

Economic data. Nearly all loan programs are affected by trends and fluctuations in the economy. The system
should maintain the primary economic factors which-influence loan performance. The critical indicators will vary
acrossprograms. For housing loans, among other factors, property valuesand house appreciation rates should be
monitored. For programs which determine borrower’s interest rates basedon the borrower’s income, all economic

40                                                                                    Guaranateed Loan System Requirements
                                                                                                        Portfolio.Management
                                                                                                                      -.--


data on incomes should be maintained in either the guaranteedloan system, the core financial system, or other data
repository within or outside the agency.

Historical           cash flows. All cash transactionsrelated to eachloan should be maintained in the system to allow for
trend analysis. Since transactions may be identified by a wide variety of transactional codes,agenciesshould
consider grouping transactions by the type of cashflows that are projected in loan program subsidy estimates.
These groupings will vary from program to program, depending on the way cashflows are projected for subsidy
estimates. This information should be obtained from either the guaranteedloan system, the core financial system,
or other data repository (such as microfiche or CD-ROM that pernuts easyretrieval of data) within or outside the
agency.
                                                    ‘.
Examples of information groupings, which may be modified to fit actual loan programs include:           ..

            l   Guaranteed amount.
            l   Disbursement amount and disbursement rate for eachyear.
            l   Up-front fee.
            l   Annual fees.
        l       Interest subsidies.
        l       Claims paid and guaranteesterminated.
        l       Defaulted loan data including both the timing and amount.
        l       Delinquencies.
        l       Recoveries (including both the timing and amount) on defaulted loans by recovery method such as saleof
                collateral, or offset programs.
        l       Loan to value ratios.
        l       Scheduledprincipal and interest payments (if the agencyacquiresand servicesthe loan).
        . Actual principal and interest payments (if the agencyacquiresand servicesthe loan).
                                                                      _’
        l Prepayment including timing and amount.
        l       Repaymentactivity.

Support Subsidy Re-estimates. OMB Circular A-34 and SFFAS No. 2 generally requires that the subsidy cost of a
cohort of guaranteedloans be re-estimated at the beginning of eachfiscal year following the year in which the initial
disbursement was made. A re-estimate of each cohort cashflow should include claims paid and feescollected,
defaults, delinquencies, recoveries,etc. When the agencyacquiresthe guaranteedloan, the re-estimateof each
cohort cashflow should also include prepayments and collections of,principal, interest and fees. This activity
examines the results of operations, by risk category (if applicable) and cohort, and adjusts loan subsidy costs
between risk categories(if applicable) within a cohort and for the cohort as a whole to account for changesin
cohort subsidy costs resulting from interest rate changesand differencesbeween estimated cash.floys, the.actual
performance   of the cohort, and expected“$@:<dre
                                          performance
                                                  fi&+cidchanges in future cashflow. ‘r-,System
h ei*er the..~ua;~~e~d’   l&L& systenilor                   system,  42--@&.~d&+.:        ; 1 ‘7 *:activities
                                                                                                    ‘-’:“.3-y= .:may
                                                                                                                  /“.‘;’be located

An automated system should:

    l           Support the re-estimate of the subsidy cost for eachcohort and risk category of loans at the beginning of each
                fiscal year in accordancewith OMB Circular A-34 and Statement of Federal Financial Accounting Standard
                (SFFAS) No. 2.

Guaranateed Loan System Requirements                                                                                           41
    Portfolio Management                                                                                                .--


          l   Maintain cashflow data that permits comparison of actual cash flows eachyear (and new estimatesof future
              cash flows), aswell as historical data from prior yearsto the cashflows used in computing the latest loan
              subsidy estimate.
                                                                                1
          l   Compare the current year re-estimated subsidy cost to prior years re-estimated loan subsidy costs to
              determine whether subsidy costs for a risk category increasedor decreased.
          l   Transfer loan subsidy from those risk categorieswith an excessof loan subsidy to those risk categoriesin the      /
              same cohort that are deficient in loan subsidy to provide adequatefunding for eachrisk category.                  I
          l   Group those cohorts that need indefinite appropriation loan subsidy funds separatelyfrom those cohorts that       1
              have excessfunds. Support the request for an apportionment and obligate funds to cover the subsidy
              increasefor those cohorts of loans that have insufficient subsidy. Transfer excesssubsidy of cohorts of loans     I
              to the Special Fund Receipt Account.
                                                                                                                                1
The loan system should support the re-estimate calculation and provide the necessarydata to record.’ the re-estimate            \:
in the core fmancial system.
                                                                                                                                I

    Collateral Requirements
There are no collateral requirements applicable to the Portfolio Management function.


Internal Management Information                     Requirements
Listed below are internal management information requirements for the Portfolio Management function. This
information should be availableto agencycredit program managersand designatedinternal review officials on a
periodic or on an as requestedbasis. This list is not an all inclusive inventory of internal information requirements
for the Portfolio Management function. Each agencymust determine the specific management information needs
necessaryto manage its credit programs basedon the agencymission and applicable statutory requirements.
Agencies must maintain fmancial accounting information at appropriate levels of summary for computational and                   I
reporting purposes. The main levels are: transaction, loan history, risk category, cohort, and account. Each agency             I
also must determine whether the information should be provided on hard copy reports or through system queries.

The guaranteedloan system should provide at least the following types of management information:

      l       Detailed Transaction History. This summary identifies, for eachcohort, the number and amount of loan
              guaranteesin each phaseof the guaranteed’loanlifecycle. The information provided includes the number of
              loans current and delinquent, the number of loans for which a claim has been submitted, and the total
              number and value of loans in the portfolio.
      l   Profile of GuaranteedLoan Portfolio. This summary provides a year-to-dateprofile of eachguaranteedloan
          program; with comparisons to the prior year’sloan guarantee~activity.        .i     ‘._..‘,
I     l ‘ Pro&&.fp&.-~e~c-&      St&g -~~s’slin;m~-~~o~des;he stam; ‘ofthe f;s;a..ar;s crei;t’teform       “. : /
              appropriations and subsidy levels.




                                                                                             -           ____   -..    ... .-

42                                                                                     Guaranateed lean System Requirements     ’
 Acquired
        LoanServicing
 A guaranteedloan is in default when the borrower breachesthe loan agreementwiththe private sector lender. The
 guaranteedloan becomesa default to the federal government when the agencyrepurchasesthe loan (i.e., the agency
 pays the lender the balanceof the borrower’s debt up to the guaranteeamount). The repurchaseddefault becomes
 a receivableto the agencyand is subject to the same debt collection provisions as a direct loan. Lendersof.federally
 guaranteedloans with collateral maybe required by policy to liquidate, through litigation if necessary,collateral for
 delinquent debts before ftiing a default claim with the agencyfor any deficient balance.

Mandatory (All requirementsin t&s ChapterareMandatory)


 General Requirements

This section provides the government-wide functional requirements for the Acquired Loan Servicing function of a
guaranteedloan system. It describesrequirements for non-collateralized guaranteedloan programs and ‘.
collateralized programs where the lender foreclosesand liquidates collateral as required by OMB Circular A-129.

            . For those programs that         Overview of the Acquired Loan Servicing Function
               allow lenders to transfer
               collateral to the government
               for foreclosure and/or
               liquidation, the guaranteed
               loan system requirements
               also include the Foreclose
               and Liquidate’Collateral
               function discussedin the
               Collateral Requirements
              subsection.
        l     Those programs that allow
              private lenders to transfer
              notes to the federal
              government should satisfy                                                  Account   Status
              the account servicing,
              por&olio management, and
              delinquent debt
              requirements.for guaranty
              loan systems.

Illustration 17 provides an
overview of the Acquired Loan
Servicing function of a guaranteed
loan system.. As shown in the
Illustration, the Acquired Loan                                                                        VI? Delinquent’debt   C&ction)
                                                                                                Vo Forec!ose and L$ui+!,     qlljatdral}
Servicing function consists of the                                                          _    I _’ :<,’ :“iP” q:
following major processes:

    l        Claim ProcessingProcess,
             and
    l        Account Status Maintenance
             Process                                                   Illustration 17

Guaranateed Loan System Requirements
Acquired Loan Servicing


Claim applications are submitted by a lender to an agencyas a result of a default by a borrower under a guaranteed
loan. The claim application outlines the best course of action for resolving a delinquent guaranteedloan. Some
agenciesrequire lenders to submit a formal or informal claim proposal which outlines various proposed coursesof
action, prior to submitting a claim application. The claim proposal processallows the agencythe opportunity to
evaluatethe alternativesprior to any definitive action being taken by the lender in the form of a claim application.
In either case,the claim application will describethe agreed-uponcourse of action.

Before an agencypays a guaranteeclaim, the agencymust ensurethat the lender has exerciseddue diligence in
accordancewith legislative and regulatory guidance for a particular program. The agencyalso must ensurethat the
lender has taken all appropriate steps to collect a debt including foreclosure and liquidation of any collateral.

As shown in Illustration 18, the Claim Processingprocessconsistsof the following major activities:

             l   Evaluate Claim Application, and
             l   ProcessAuthorized Claim
                 for Payment                             ,Claim Processing Process

Evaluate Claim Application

This activity supports the review
and approval of claim applications.
This procedure is followed for each
defaulted guaranteedloan. If the
lender has foreclosed and
liquidated on any collateral, and
still has a balancedue, the agency
pays the-claim and attempts to
collect the ‘deficient amount based
on statutory requirements and
agencypolicy.

An automated system should:

         l       Record key claim data,
                 maintain data on original
                 and if applicable, final                       +      Claim $$cation       -
                 claims.                                            L-,-d,-c
     l           Compare the claim                              +          Claim   Status         I      I     Status       I
                 application information to
                 the agencyprogram claim                                                          -
                 application evaluation
                                                                                                         I      Data       1
                 criteria.
     l           Suspendprocessingfor
                 claims~that are incomplete
                 until corrected.
     l           Identify claims not meeting
                 agencyprogram                                         illustration 18
                 requirements and notify the
                 lender of the rejection.
                                                                                                -~------.-.-            .._
                                                                                                                          -..,._
44                                                                                     Guaranateed Loan System Requirements
                                                                                         Acquired Loan--.--
                                                                                                       Servicing



        * Document and track information on acceptedand rejectedclaims and the reasonfor the rejections.
        l Reflect the status of the claim.
        l Develop edits to addressclaims issues.
        l Record or track claims errors.

      Aw%ov+zedClaim forPayment
Process

This activity supports the payment of an approved guaranteedloan claim to the lender.

        l   Support underlying details.

An automated system should:

    l Calculate the claim payment to be made; making adjustments for any disallowed amounts or authorized debt
      collection activities.                                    :.
   .. Provide an automated interface with the core financial system to initiate a disbursement of the claim payment
      to the lender. If the guaranteedloan system processespayments, it must meet the requirements in the Core
      Financial System Requirements related to payments data to the core fmancial system.
    l Record acquired loan information and,establishappropriate accounting entries such as a receivable.

This processevaluatesreceivablescreated asa result of claims payments to determine the legal and policy basisfor
pursuing repayment, and the likelihood of collection. Basedon this evaluation, the account is either written-off or
is processedfor inclusion in billing and collection activities. Agencies must ensurethat invoices are generated
promptly and that efficient mechanisms are in place to collect and record payments and to provide support for loan
servicing. Borrowers should be encouragedto use pre-authorized debit or credit cards when making loan payments.

System requirements related to collecting delinquent debt areincluded in the Delinquent Debt Collection function.

As shown in Illustration 19, the Account Status Maintenance processconsists of the following major activities:

    l       Evaluate Delinquent Debtors for Collection or Write-off,
    9 Invoice Debtor, and
    l       Apply Collections

Evaluate Delinquent Debtors for Collection or Write-off

This activity determines whether repayment of the receivablecreatedasa result of the claim payment will be
pursued by the agency. This determination is made basedon statutory authority and requirements, agencypolicy,
and the likelihood of repayment.

An-automated system should:..               _ , r1         2.   e :.   >T-i-s.. ,

    l       Identify accountsfor which collection is to be pursued.
    l       Identify accountsthat should be written-off.




Guaranateed Loan System Requirements                                                                             45
 Acquired Loan,Servicing


 Invoice Debtor                                                            Account Status Maintenance Process
 This activity supports.invoicing of
 debtors. Most loans are billed
 basedon a scheduledetermined at
 loan origination, but some may be
 basedon negotiated payment                              jT0 Write-offs/   Close-outs)                      Approval      for Pre-authorization   Debits

 schedules.

An automated system should:

                 l      Calculate outstanding              Uncollectible                                                 Loan                            Loan
                                                               Accounts
                        balancesfor eachloan                                I            I                             I Payments                      I Payments

                        account invoiced, including
                        principal, interest, late
                        charges,and other amounts
                        due.
             l         Identify loan accounts to be
                       invoiced basedon agency
                       program invoicing criteria
                       and loan account
                       information
             l        Generateand transmit an
                      invoice to eachborrower.
                      At a minimum, the invoice
                      must ‘incude borrower ID,
                      amount due, date due, the
                      date after which the payment
                      will be consideredlate, and
                      the current balance.
         l            Provide for automatic
                      accelerationof delinquent
                      installment payment notes                                              Illustration    19

                      basedon the acceleration
                      clause.
         l            Track and agereceivablesby type.
         l            Provide an automated interface with the Core financial system to record accrual of interest, administrative
                      charges,and penalties for delinquent loan accounts.

App&                 Collections




This activity records collections against non&delinquentdebt from borrowers and appliesthe~loan~paymentreceipts
to the debtor’s account in accordancewith predetermined receipt application rules.

Au automated system should:

     l               Apply collections according to agencyprogram receipt application rules to the appropriate liquidating or
                     financing account.


46                                                                                                          Guaranateed loan System Requirements
                                                                                                            Acquired Loan Seriicing-



        l   Record a partial, full, or late payment indicator.
        l   Identify payments that cannot be applied and document the reasonswhy the payments cannot be applied.
        l   Provide an automated interface with the core financial system to record the collection. If the guaranteedloan
            system processescollections, it must meet the requirements in the Core Financial System Requirements
            related to collections and send summary data to the core financial system.


 Collateral Requirements
When a borrower defaults on a collateralized guaranteedloan, the collateral could be liquidated/foreclosed by the
lender, or the collateral could be assignedto the agency. If the lender liquidates the collateral, the agencyis
responsiblefor collecting any
deficient balancethrough the use of                    Overview of the Foreclose and
various collection tools, If the                         Liquidate Collateral Function
agencyacquiresthe collateral; the
disposition of the assetsis
determined by the agency’s ’
property management policies.

This section describesthe processes
for foreclosing and liquidating
collateral. Illustration 20 provides
an overview of the Foreclose and
Liquidate Collateral function. As
shown, the Foreclose and Liquidate
Collateral function includes, as
major processes:                                                                        rT+-,                       jContfctorej   1
                                                                                                    I   I
                                                     Collateral
    l       Foreclose on Collateral
            Process,and
                                               Acquired
    l       Manage/Dispose of Collateral       Loan Servicing

            Process.

As shown in Illustration 21, the
Foreclose on Collateral process
                                                                     1      C    information    J   -        I 4
consists of the following major
ac.tivities:

    l       PrepareForeclosure
            Materials, and
    l       Foreclose.
                .,                    :         ‘.   _)




PrepareForeclosure
                 Materials.

If the Federal agency,not the
lender, is responsiblefor liquidating                                       Illustration 20
collateral associatedwith a
guaranteed loan in a default

Guaranateed Loan System Requirements
 Acquired Loan Servicing


situation, the agencyinitiates the                        Foreclose apd Liqu&late Collatergl:
processby preparing for                                    Foreclose on Collateral Process
foreclosure proceedingsto take
title to the property, unless
specifically excluded by program
requirements.

An automated system should:

         l   Provide information on
             collateral for use in the
             foreclosure process.
         l   Update the acquired loan
             information store with
             additional information
             obtained during the
             foreclosure preparation
             process,such as recent
             appraisalvalues and property
             condition.
         l   Calculate outstanding                                                                  Receivable Adjustments
             principal, interest, and
             penalties, for eachloan with
             collateral to be foreclosed,

Fweduse.

Foreclosing includes monitoring
the foreclosure processand
recording the results.

An automated system should:
                                                                             Illustration 21
     . Provide information to
       generatea foreclosure notice to the borrower.
     l       Transmit information necessaryfor the foreclosureto the Department of Justice and/or agencyOffice of
             General Counsel.
     l       Record the results of the foreclosure proceedingsand title conveyanceto the agency.
     l       Provide an ‘automated interface of data on acquired collateral to the property management system for
             management and liquidation of the property.
     l       Provide an automated interface,to the core financial system to record the value of the property acquired and
             to reduce the receivableamount.

Collateral acquired by the agencyshould be liquidated (sold) to provide funds to recover the delinquent debt. Due
to economic conditions, condition of the property, or other factors, the agencymay decide to delay liquidation
until conditions are more favorable. In that situation, the property must be managed until it is liquidated; this may
involve making repairs, renting it out, etc.
                                                                 --             --

40                                                                                      Guaranateed Loan System Requirements
                                                                                                                           Acquired loan Servicing
                                                                                                                                                -_


As shown in Illustration 22, the                             Foreclose and Liquidate Collateral:
Manage/Liquidate Collateral
consis.tsof the following major,                            Manage. Liquidate Collateral Process
activities:

    l   Manage Collateral, and
    l   Dispose of Collateral.                                                  I   Acquired
                                                                                           Data
                                                                                                Loan
                                                                                                            I‘-



Manage Collateral

This activity supports management
of acquired collateral. ,If a property
management system exists, some of
these activities may be,supported by.                                                                  uspose         or
                                                                                                        CoIlhal
that system rather than the                                                                                                 I? AI                  -
guaranteedloan system.            ’                                                                                                   Piyhient         for
                                                                                                                                      Collateral

An automated system should:

    l   Generatepayments to                 L   IrGvoice      -                      M:?F~n’
        property management                 P                 1
        contractors for services                                                                                           Asset           ’
                                                                                                                           Disposal
        rendered. ’                                        Dkbursemeht



                                            I
                                                                         Data
    l   Track, record, and classify
        operations and maintenance
        expensesrelated to the
        acquired collateral.
    . Document rental income and
      other collections related to
      the acquired collateral.
    l   Post the expensesand income
        to the core financial system                                                   Illustration    22
        through an automated
        interface.

Diqose of Collateral                                                                                              i

This activity supports the saleor other disposal of acquired collateral.

An automated system should:
                                                                                                                                    .i.
    l   Update the acquired loan information store to record receiptsresulting from the liquidation of acquired
        collateral and the disposition of the collateral.
    l   Identify any deficiency balancesremaining for the loan after collateral liquidation for further collection
        activities.
    l   Provide an automated interface to the core financial system and the property management system to record
        disposal of the property and associatedreceipts.


Guaranateed Loan System Requirements                                                                                                                         49
Ac,quiredLoan3ervicing                                                                                                        .-.


Internal Managenient Infbrmation                      Requirements                                        ,.
                           .,                                                                    ;,                 >
Listed below are internal management information requirements for the Acquired Loan .Servicing fur&on. The
information describedbelow should be availableto agencycredit program managersand designatedinternal review
officials on a periodic or on an as requestedbasis. This list is not an all inclusive inventory of internal information
requirements for the Acquired Loan. Servicing function. Each agencymust determine the specific.management
information needsnecessaryto manage its credit programs basedon the agencymission and applicablestatutory
requirements. Agencies must maintain financial accounting information at appropriate levels of summary for
computational and reporting purposes.The main levels are: transaction, loan history, risk category, cohort, and
account. Each agencyalso must determine whether the information should be provided on hard copy reports or
through system queries.        :
                                                                                      _
The guaranteedlo,ansystem should provide at least the following types of management information.

         l   ;GuaranteedLoan Ck&$ Activity. This summary is used to monitor trends in claim activity over time. The
              information is presentedat the cohort level for the current year and the prior years.
         l    Summary Data of Claim LossesPaid but. This summary is used to compare the estimated claim lossesof
              guaranteedloan programs to the actual lossesincurred by the program..                               ,
         l    Detailed Transaction,History. This summary provides detailed loan account data and payment transaction
              activity to provide a detailed history
                                                  :I of applied and unapplied payments.
         l    Standard Management Control/Activity. This summary tracks the’status of all .loan accounts‘by summarizing
              loan activity at various critical points of the loan cycle. The collection processsummarizes payment activity
              to allow agencymanagement to’monitor the effectivenessof each activity in the collection process.
              Delinquency information is summarized to highlight delinquent debt (collateralized and non~collateralized)
              and modified debt. This data summary is produced periodically and .providesinformation for preparing the
              SF-220-9 and SF-220-8. !
     l        Exceptions. This summary identifies deficienciesthat have.occurred in the routine processingand 1
              monitoring of account status. Examples of exceptionsinclude unapplied payments, and delinquent ‘accounts
              not eligible for debt collection tools. This summary is generally produced on a periodic basis.
     l        Portfolio SaleHistorical Payments. This summary provides a detailed payment history for eachloan
              included in the portfolio selectedfor sale. Historical payment data is critical in order to assessthe investment
              value of the portfolio to be offered for saleand in determining the structure and terms of the sale.
     l        Portfolio SalePerformance. This summary provides the rating agenciesand financial advisors with statistics
              to more effectively evaluateportfolio characteristicsperformance. Statistics include loan to value ratios,
              effective yields, and loss estimates.
     l        Collateral Management Activity and Expense. This summary provides detailed and summary data of
              collateral management activity and expensedata for monitoring collateral management activities that affect
              the value of the agency-ownedproperty prior to disposition. All income earnedand expensesincurred while
              the collateral is in the agency’spossessionmust be recorded and tracked to support~the agency’sability to
              recover the expenses.
             . . :_(,*;.y:* ‘: i :, I:>. .‘, -y:: y 7,):.:.-. >“<‘?’.,..(;py” *- w.:.-,. ))‘.F
                                                                                             1.. ,:,.‘r ,I ,f.: ‘-?.‘.ir-‘;‘ B




                                                                                                 --            --.-...-.--_    .__l
                                                                                                                                 _
50                                                                                       Guaranateed lean System Requirem-ents
                                                 I
                                                                                                 . .




 Delinquent
         DebtCollection
Agencies which repurchaseand service their guaranteedloans or are assignedcollections rights when loss claims are
paid must comply with the Debt Collection Improvement Act of 1996.OMB Circular A-129.requires agenciesto
have a fair but aggressiveprogram to recover delinquent debt. Each agencymust establish a collection strategy
consistent with its statutory program authority that seeksto return the debtor to a current payment status or, failing
that, maximize the collections that can be realized.

Mandatory (All requirementsin this Chapterareikfandatmy)


Gerieral Rec@irements

This section provides the governmen<wide functional requirements for the Delinquent Debt Collection function of
a guaranteedloan system.
                                                                                                                                           ._                           r




Illustration 23 provides an
overview of the Delinquent Debt         Overview of the Delinquent Debt Collectjon Function
Collection function. As shown, the
Delinquent Debt Collection
function consistsof the following
major processes:

    l   Collection Actions Process,
        and                                                                                                                                     ‘Termination of
                                                                                                                                           1     Collection Actio?
    l   Write-offs and Close-outs                                             Dunning
                                                                                                                        Notification   .         Request and Approval
                                                                                                                        of 1099-C
        Process.                                                               Letters
                                                                                                                         Reporting
                                                                                                                                                                ,.

                                                                                                                                                          DOJIAgendi;
 An agencyhas considerable               {From Acquirqd
                                         Loan Servicing)                                 Uncollectable       Accounts
                                                                                                                                                          -cpUnSQb          _
                                                                                                                                                      c
 flexibility in determining how to
                                                       Delinquent
 collect its delinquent debt. The             I        Debt Information                                                                                         .-I
 size, age, and type of debt are
 essentialfactors in determining the              From
 resourcesto be expendedin                        f
                                         ForecosaicT
                                            Li uidate
 recovering debt. OMB Circular             Col7ateral)
A-129 and the Credit Supplement                           +
to the Treasury Financial Manual




                                           i ‘,
                                                     Credit
provide guidelines to determine the              information
                                                    Sources
appropriate tools to use to collect           ---_-
delinquent debt. If collateral is                     Collection
attached to the guaranteedloan,                       Agencies     _ ,    ,    ,          c       Criteria        ,               ,
                                              -----
foreclosure and liquidation of the
collateral should occur after
providing fhe debtor reasonable
opportunity to cure the loan. Any
deficiency balancemay be Pursued
using collection tools such as
litigation or cross servicing.

                                                                                              mstration 23



Guaranteed Loan System Requirements                                                                                                                                             51
 Delinquknt Debt Collection/Troubled Debt Servicing                                                                                      ----


As shown in Illustration 24, the                                      Collection Actions Process
Collection Actions Process,
Troubled Debt Servicing under
agencyprogram requirements
includes:

             l   Report Delinquent Debt
             l   Contact with the Debtor
             l   Refer for Treasury Offset            .       .                     .       .                          , _ _.._I ___._     -1
                                                                                                                                          3J


             l   Refer to Collection Agencies
             l   Refer for Litigation
                 Activities
             l   Garnishment of non-Federal
                 wages                                                                                       -----
                             ,
ReportDelinquent Debt

This activity reports selected
delinquent account information to
credit bureausand to CAIVRS to                                        Referral Criteria
                                                                      -w--e-
indicate the delinquency status of a
debt. Guaranteedlenders,or when
legally authorized the agency,must
report all non-tax commercial and
delinquent consumer accounts in                                       Referral   Criteria
excessof a pre-determined amount                                      -v--e-

to credit bureaus.

An automated system should:
                                                  -
         l       Identify delinquent                                            Illustration 24
                 commercial and consumer
                 accounts for reporting to
                 credit bureaus (preferably by electronic interface) and CAIVRS by comparing reporting criteria to delinquent
                 loan data.
     l           Calculate outstanding balances,including interest, penalties,and administrative chargesand include this
                 information in credit bureau records.
     l           Generate (or include in demand letters) a notice to inform the borrower of the referral of a delinquent debt
                 to a credit bureau or CAIVRS in accordancewith regulations.
     l           Maintain a record of each
                                      _. account reported to credit bureausto allow tracking of referred accounts.
                                                                                                            i ;:y -1
     l           Preparedata on appropriate medium, on a monthly basis,of delinquent debtors ~obe~includedin-the. ‘. “’ .
                 CAIVRS database.




                                         --                  ------                             ..-..._---   ----    - ----.._ -..__-..         _

52                                                                                                  Guaranteed loan System Requirements
                                                                                                                                       1
                                                                     Delinquent Debt Collection/Troubled-------.._--
                                                                                                           Debt Servicing.._           I-
Contact with Debtor

It is critical for an agency to addressa delinquency immediately to prevent it from becoming more serious, .If the
delinquency is not resolved after the initial contact, the agencyshould pursue additional contacts as it determines
necessary. If the volume and amount of loans is large enough, agenciesmay establish workout groups to decide on
appropriate actions to maximize debt recovery.                                                                                         E’
                                                                                                                                       :



An automated system should:

        l   “-Generateand transmit dunning letters to debtors with past-dueloan accounts.
        l . ‘Identify   debtors who do not respond to dunning le.&erswithina specified time period.
        l    Track demandletters and borrower-responsesto documemborrower due processnotification (and borrower
             &llingness and ability to repay-debt).                             :
        l    Track and document debtor appealsreceivedin responseto demands for payment. 1
        l    Provide automated support to the collection process. Support could be provided for activities such as
             contacting a delinquent borrower,by phone; documenting contactswith a debtor and the results;
             documenting installment payments, rescheduling agreements,and debt compromise; generating management
             reports; and tracking the performance of individual agencycollectors.

Refer for Treasury Offset. The DCIA of 1996 mandates the referral of all Federal debts over 180 days delinquent
to Treasury FMS for the purposes of administrative-offset. A delinquent guaranteeddebt for administrative offset
is a guaranteeddebt the agency has the legal right to pursue and is not being paid voluntarily by the debtor. If the
delinquent debtor is in a voluntary repayment plan acceptableto the creditor agencyand is making the payments as
required under the plan, the debt should not be referred for administra-tiveoffset. In addition,’ debts that are in
foreclosure, moratorium, or bankruptcy, or over 10 years old (exception: where acceptedby Treasury) cannot be
referred to Treasury for administrative offset. The administrative,offset program administered by ‘the Department
of the Treasury is named the Treasury Offset Program (TOP); The DCIA requires FMS, the U.S. Postal Service?
or any other government corporation, or any other disbursing officials of the U.S. designatedby the-Secretaryof
the Treasury, to offset Federal Payments to pay the delinquent debts. When fully implemented, TOP will of&et
Federal salaries,IRS refunds, and Federal administrative payments such as payments to vendors. DCIA authorizes
Treasury to chargea fee sufficient to cover the full cost of implementing administrative offset; the agencycan either
passthis fee on to the debtor or absorb it.

An automated system should:

    l        identify accountseligible for referral to the TOP.
    l        generatewritten notification to the borrower that includes the following: the nature and’the amount of the
             debt; the intention of the agencyto collect the debt through administrative offset; an explanation of the
             rights of the debtor; an offer to provide the debtor an opportunity to inspect and copy the records of the
             agencywith respect to the debt; and an offer to enter into a written repayment agreementwith the agency.
    : identify, at the end of the notification period,the debtors that remain delinquent and are eligiblefor referral.
    . offset delinquent debts .interndly’before referral to Top,, +&.g ;~-~;.&f;* :’ ’ “<’1”.: b?’ ~-’ 2,” 1“.a’- :!;I-

    l        transmit to TOP eligible new debts, and increase,decrease,or delete previously reported debts.
    l        apply collections received through the TOP processto debtor accountsin accordancewith applicable
                                                                                                                                   I
    l
             payment application rules.
             record offset fees in accordancewith agencyprogram requirements.                                             /        I
                                                                                                                                   I
                                                              -_                                        .-_.__     __-.,-..-_-.-   :
Guaranteed Loan System Requirements                                                                                     53         :
Delinquent Debt Collection/Troubled. Debt Servicing


                                                                                                                                ’
             l   update the loan ‘information store to reflect TOP status.
             l   update the core financial system torecord collections from TOP.
             ; processagencyrefunds given to borrowers erroneously offset and transmit this information to Treasury in a
               timely manner. ’
             l   record refunds given by Treasury and adjust the loan information store accordingly.
                                                                                                       :
Garnishment of Non-Federal Wages. The DCIA of 1996 authorizes Federal agenciesadministratively to garnish
up to 15 percent of the disposablepay of a debtor to satisfy delinquent non-tax debt. Prior to the enactment of the
DCIA, agencieswere requ&ed to obtain a court judgment before garnishing the wagesof non-Federal employees.
Wage garnishment is a processwhereby an employer withholds amounts from an em$oyee’s wages and pays those
amounts to the employee’s creditor in satisfaction of a withholding.order; At least 30 days before an agency
initiates garnishment proceedings, the agencymust give the debtor written notice of its intent. :      :   :

An automated system
              -..   should:

         l       generatewritten notice informing the borrower of the agency’sintention to initiate?proceedingsto collect the
                 debt through:deductions from pay, the nature and amount of the debt to be collected, and the debtor’s
                 rights.
         l       document that the wage garnishment order was sent to the employer.,
         l       provide ad hoc reporting capability neededto monitorthe amounts recoveredthrough non-Federal wage
                 garnishment.                                                                       :’
         l       document   that the agencyprovided debtors a hearing, when requested.
                   .,
         l       interface with the core financial system to record.receiptsremitted to the agency.
       apply collections received through wage garnishment according to agencyapplication rules.
         l
                                                                    ,.              ,.
Refer to Collection Agencies. This activity determines and refers delinquent loan accountsto collection agencies
for ,collection. Agencies can refer debts to a private cotection contractor for collection for a period of time
determined by Treasury.

An automated system should:

     l           Compare delinquent account data to agencyprogram collection agencyreferral criteria to selectdelinquent
                 loan accountsfor referral to collection agencies.
     l           Sort and group delinquent loan accounts basedon type of debt (consumer or commercial), ageof debt, and
                 location of debtor.
                                                                                                       >
     l           Calculate outstanding interest, penalties, and administrative chargesfor each delinquent loan account to be
                 referred.
 ‘. 0,:Assign selecteddelinquent loxn account groupbgs, to appropriate.collection agencies:basedon col.&tion
       agencyselection criteria for agency programs.
     l           Document that the delinquent account has been referred to a collection agency.
     l           Generate and receiveelectronic transmissions of account balancedata and status updatesto and from
                 collection agencies.
     l           Record receipts remitted to the collection agencyand forwarded to the agency.

                                                    ____-.__-..     .-.. _. - ..- -.-.-.--.--.---. . .-.__--- -_-._ ._-.-_.--       -- . -   . .- . .   _   _..__.

54                                                                                                     Guaranteed’loan System Requirements                      1
                                                                           Delinquent Debt Collection/Troubled Debt---
                                                                                                                    Servicing



            l   Update the loan information store to reflect receipts, adjustments, and other status changes,including
                rescheduling, compromise, and other resolution decisions.
            l   Accept and match collection agencyinvoices with agencyrecords. .’
        l       Generatepayment to the collection agencyfor servicesrenderedthrough the core financial system.
        l       Request, reconcile, and record returned accounts from collection agencies.
        l       Interface with the core financial system to record collections processedthrough collection agencies

Refer For Litigation Activities. OMB Circular A-129 requires agenciesto refer delinquent accounts to the
Department of Justice (DOT), or use other litigation authority that may be available, as soon as there is sufficient
reasonto conclude that full or partial recovery of the debt can best be achievedthrough litigation., This activity
determines and refers selectedaccountsfor litigation. Referrals to DOJ should be made in accordancewith the
Federal Claims Collections Standards.

An automated system should:

        l       Compare delinquent loan account information against the agency’slitigation referral criteria to identify
                delinquent loan accountseligible for referral. Support identification of accounts to be referred to counsel for
                filing of proof of claim basedon documentation. that a debtor has declared bankruptcy.
        l       Provide an electronic interface with credit bureausto obtain credit bureau reports that will enableassessment
                of the debtor’s ability to repay before a claim is referred to legal counsel.
        l       Calculate the outstanding balance,including principal, interest penalties, and administrative charges,,for each
                delinquent loan account to be referred to legal-counsel.
        l       Generatethe Claims Collection Litigation Report (CCLR). The CCLR is used to capture collection actions
                and currentr debtor information and transmit this information
                                                                            :,, to DOJ.
        l       Receive electronic transmissions of account data and status updatesto and from DOJ’s Central Intake Facility
                or the agency’sOffice of General Counsel’s (OGC) automated system for referrals.
    l           Update the loan status to reflect referral for litigation so that the loan can be excluded from other collection
                actions; and to alert the agencyto obtain approval from counsel before accepting voluntary debtor payment.
    l           Track filing of pleadings and other motions, including proofs of claims in bankruptcy, to ensureswift legal
                action and to monitor litigation activity.
    l           Match agencylitigation referralswith DO J listing of agencylitigation referrals.
    l           Record and track recovery of judgment decisions.
    l           Update the loan information store to reflect receipts and adjustments.
    l           Interface with the core financial system to record any collections resulting from litigation.


Delincpen~ D&t                  Collection:     Write-Offs      and Close-Outs Process             “’     -! ,’ :        *
OMB Circular A-129 and the Credit Supplement to the TFM describeeffective write-off and close-out procedures
for delinquent loan accounts. As shown in Illustration 25, the Write-offs and Close-outs processconsistsof the
following major activities:

    l           Identify and Document Accounts Selectedfor Write-off,
   . MonitorWritten:offAccounts,                and                                                                 ---.-.   -.----_._-__
Guaranteed Loan System Requirements                                                                                             55
 Delinquent Debt Collection/Troubled Debt Servieing



                     l    Document Close-out of Uncollectible Accounts.

 Ident@ and Document Accounts Selected for Write-Off. This acrjvity identifies and processesaccounts for
 write-off basedon past collection history and a system-prepareddebtor financial profile. Write-offs of loan
 accountsthat exceeda pre-determined amount in accordancewith program requirements require approval of the
 DOJ.

 An automated-systemshould:

                 l        Compare delinquent loan account information to agencyprogram write-off criteria to selectdelinquent loan
                          accountsfor possible write-off.     .
                 l        Classify debtors basedon fmanciaj profile and abilii to repay. Indicators,of the financial well-being of a
                          debtorinclude debtor financial statements,credit bureau reports, and$ayment receipt history.’          ,’
             l           Produce a CCLR for each
                         loan account to be referred                  Write-offs and Close-outs Process
                         to agencycounsel or the
                         (DOJ) for approval of
                         termination of collection
                         action. Update the loan
                         status to reflect the referral.
             l           Update the loan information
                         store to reflect approval or
                         disapproval by agency
                         counsel or the DOJ for
                         termination of collection
                         action.
         l               Update the loan information
                         store and provide an
                         automated interface with the
                         core financial system to
                         record the write-off of the
                         receivable.

Monitor Written-Off Accounts,
This activity monitors and
periodically reevaluatesinactive
accounts for possible
reclassification.

An automated system should:

     l                   Maintain a suspensefile of...
                         inactive (written-ofI) loan
                         accounts.
     l                   Reactivate written-off loan
                         accountsat a system user’s
                                                                                        Illustration   25
                         requestif the debtor’s
                         financial status or the
                         account status changes.                                                                               --.----   ..-_.
                                                                                                                                            -_-..
56       _                                                                                             Guaranteed loan System Requirements          j
                          .-



  .._...               - . --...--._------...-...-.
                                               - ._...
                                                    -_---_ --                         Delinquent
                                                                                  --..--    --.-- Debt CoHection/Troubled
                                                                                         __._._              -.--~---     Debt
                                                                                                                           ----.--Servicing
                                                                                                                                     . . -_...


Document Close-Out Of Uncollectible Accounts. This activity completes agencyaction on accountsdetermined
t6 be u!lcollectible. Closed .out accountso&r a pre-determine amount must be reported to: the IRS on Form
1099-C. Whena debt is reported, the.IRS wilLmatch: the agent@ Form 1099-C report againstindividual tax
returns to determine if the dischargeof the debt has been reported by the debtor asincome.

An a!ltomated system should:                                    ,;,.    :                                                   ,    ..

                l   Compare loan account data to agencyclose-out criteria to identifjr debtor’ accountseligible fdr close&t and
                    1099-C reporting.      .     1                                              .I          ,.         .-
                    Pycparea+ send a Form iO99-C tti
                                                  / the IRS if the debtor has not&potid$
            l                                                                                             ?;vi&in thk rc,qii;eh time
                                                                                   :.. ~’
                    period. s
                                                                                                                 :_
            l       Update the loan information store to reflect receipts, adjustments, and other status changes,including
                    rescheduling, compromise, and other resolution decisions.
            l       Retain electronic summary records of close-out account activity for a period of five yearsfor use in agency
                    screening of new loan applications.


Collateral Requirements
There are no collateral requirements applicable to the Delinquent Debt Collection function for guaranteedloans. If
applicable, collateral would have been acquired, foreclosed and liquidated in the prior fwnction upon the default of
the borrower.


Internal Management Information                                        Requirements
Listed below are internal management information requirements for the Delinquent Debt Collection function. The
infcxmation described below should be available to agencycredit program managersand designatedinternal review
ofiicials on a periodic or on an as requestedbasis. This list is not an all inclusive inventory of internal information
requirements for the Delinquent Debt Collection function. Each agencymust determine the specific management
information needsnecessaryto manage its credit programs basedon the agencymission and applicable statutory
requirements. Agencies must main& financial accounting information at appropriate levels of summary for
computational and repdrting purposes. The main levels are: transaction, loan history, risk category, cohort, and
account. Each agencyalso must determine whether the information should be provided on hard copy reports or
through system queries.

The guaranteedloan system should provide at least the following types of management information:

            . Detailed Transaction History. This summary provides detailed account information by cohort for internal
              control and tracking, and, in the absenceof an electronic interface to external entities, may be used to transfer
              data from the agencyto the esternal entity to facilitate delinquent debt collection actions. Separatedata
              summaries are produced for offset referrals,collection agencyreferrals,litigation referrals,and write-offs and
              close-outs.
        l           Standard Management Control/Activity. This summary tracks the status of all referral activity including
                    initial referrals,status updates, and account balanceupdates. Separateand summary listings are produced for
                    individual and total reporting and referral activity.
    l               Esceptions. This summary highlights deficiencies that have occurred in the referral process.Examples of
                    subjects for periodic esception information include: delinquent accountseligible for reporting that have not
                       .          - .-. -.._. -.... . ..-. .---_..-- ----...-...-...._.- ._... ...--_---- .--. .----.----.-_ _.._...
                                                                                                                                 -_-.. .__
Guaranteed Loan System Requirements                                                                                                     .*57
Delinquent Debt Collection/Trotibled Debt Servicing                                                     --_-        _._- .._...
                                                                                                                             __..._


_.:       been reported; defaulted rescheduledloans,:account referrals that cannot be processed,collection agency j
          resolution percentage,accountswithout foreclosure or-collateral management activity for a specified period
          of time, accountsreferred for litigation for which no litigation decision has been recorded, and delinquent
          accountswithout activity for long periods of time that have not beenwritten-off.
      l   Trend Analysis/Performance. This summary highlights the effectivenessof different delinquent debt
          collection techniques over time. The summary indicates the effectivenessof using different types of collection
          actions. for different credit programs.                   :.    .A>i’
      l   Collection Contractor Compensation. This summary provides monthly account analysesto calculate, track,
          and verify compensation for eachcontractor providing collection se.rvicesto an agency. This ,information
          aids in the verification of invoices ‘receivedfrom the contractor, and highlights the differencesin fee schedules
                                                                                                               ;.
          among contracrors.
                                                                                                     ‘_
                                                                        I
                                                                                                               .’
                                                                                      :
                                                                                      .,                  ,




                                                                         ..




58                                                                                   Guaranteed Loan System Requirements
    Treasury
          Cross-Servicing
   Mandatory (All, reqakemen~s in this Chapter are Mandatory)

   Cross-servicingoccurs when Treasury’s FMS or a Treasury-designateddebt collection center provides debt
   collection servicesfor other Federal agenciesas shown in Illustration 26. The DCIA of 1996 mandatesagenciesto
   refer their delinquent non-tax debt over 180 days delinquent to,Treasury or a Debt Collection Center for purposes
   of collection. Debt is considereddelinquent ifit is 180 dayspast due and is legally enforceable,i.e., there has been
   a final agencydetermination that the debt, in the amount stated, is due and there are no legal bars to collection
   action. For example, debts in an appeals,processrequired by statute or regulation should not be transferred to a
   Debt Collection Center if collection action during the appealsprocessis prohibited. There are five specific instances
   where debts are excludedfrom transfer. They are:

                   l   debts that are in litigation or foreclosure,
               l       debts that will be disposed of
                       under
                           _ an assetsalesprogram
                       within one year after                                                 Treasury Cross-SeWicing
                       becoming eligible for sale, or
                       later than one year if
                                                                                                                                                   Routine program management -
                       consistent with an assetsales                                                                                     b    servicing, demand l&t&s, due process
                                                                                                                                               notices, debt collection up to referral
                       program and a schedule                                                                                                                       A
                       establishedby the agency
                       and approved by the
                       Director of OMB,
           l           debts that have.been referred,
                       to a private collection
                       contractor for collection for a
                       period of time determined by
                       Treasury,
       l               debts that have been referred
                       to a Debt Collection Center
                       with the consent of Treasury
                       and for a period of time                                                                            +
                                                                                                                                                                Debt
                       determined by Treasury, and                                                                 Dema’nd Letter
                                                                                                                                                    b    repaid/resolved

       . debts that will be collected
         under internal offset if such                                         Offsets                              Credit bureau
         offset is sufficient to collect                                        -Federal
                                                                                -General
                                                                                            salary
                                                                                                                 reporting (ongoing)                     “Death”   Match

         the debt within three years
                                                                                        I
         after the debt is first
                                                                                                             Determine collection action
         delinquent.                                                                                       through application of criteria


  In addition, a specific classof debt
  may be excluded by the Secretary
  of the Treasury at the request of an
  executive, legislative or judicial
  agency. Agencies are not required
  to transfer to FMS debts which are                        l   Mortgage   servicing,   unclaimed    assets recovery,   consolidated     credit reporting,   1099 reporting   for vendors

  over 180 days delinquent until such
  time as a final agency                                                                                          wsv-auon         zts
  determination regarding the debt is
- made or the legal
                - bar to further
                               --_-_                                                                                                                                       -_--...__-..-____
 ‘Guaranateed Lean System Requirements                                                                                                                                                   59
 Treasury Cross-Servicing


 collection action is removed. An agencymay refer non-tax debt less than 180 days delinquent to FMS, or with the
 consent of FMS, to a Treasury-designateddebt collection center for appropriate debt collection action.

  Before referring debt to a Debt,Collection Center, the agencyentersinto a letter of agreementwith Treasury FMS
  authorizing FMS to provide debt collection services. This agreementdetails the limitations and parameters
  required for the compromise, settlement or termination’of collection action.    ’
                        .,,
  FMS and other debt collection centersmay charge and retain fees (basedon actual costs)‘.fordebt collection
  services.2Feesmay be addedon’ to the debt asan administrative cost if authorized by lavii,:-’     <’
                            : _’          :   .,,          .,      _. .*.       ‘)’    ‘i ,-.,           .
 Treasury can authorize an agencyto “cross-service”,that is, collect debt&n behalf of another agency,as a debt
 collection center. The agencymust submit a proposal to Treasury which contains the documentation supporting its
 request to be designated’asa debt collection center. The proposal must indicate what types of debts the agency
 wishes to cross-serviceand its successat collecting its own delinquent accounts. Some agenciesmay be debt
 collection centerssatisfactorily ‘Cvorking” their own debts. However, theseagenciesmay not want to cross-service
 for other agencies. Treasury-will grant a one$~,.~aiver to the transfer provision of the DGIA’for debts which are
 being collected in an agency’sown’debt collection center, provided the agencysubmits documentation which
 indicates,the volume and-type of debts being worked in the debt collection center, what percentageor: proportion it
 representsof the total agencyvolume, a description of the center’suse of the various debt collection tools, and
 historical portfolio performance.

After debts are.referred to a designatedcollection center, the agencyretains responsibility for reporting the debts on
the Report of ReceivablesDue from’,thePublic. The agencyis also responsiblefor removing accounts from its
receivableswhen the designatedcollection center directs it to &rite-off the debt. However, at the time the debt is
referred to Treasury for cross-servicing,the agencymust discontinue all servicing’activities. At’that time, the
designatedcollection center has authority to act in the Government’s best interest to service,collect, compromise,
suspendor terminate collection action in accordancewith existing laws under which the debts arise,and in
accordancewith the letter of agreement with the Agency.                           _.
                                                 ,”
The cross-servicingprocessconsists‘of the following:

          l   identify accountsselectedfor’cross;servicing,
          l   monitor acc,ountsat the debt collection center, and
      l       use an agencyauthorized to “cross-service.”
                                _.      ._,    1
Identitjr Accounts Selected. This activity identifies and refersaccountsfor cross-servicingbasedon past collection
history and agency servicing requirements. An automated system should:

      l       compare delinquent loan account information to statutory criteria to selectdelinquent loan accountsfor
              possible referral.
      l       generatenotification to the debtor of the agency’sintent to refer the debt to a debt collection center.
      l       update the loan tiorrnation store. _^__.?. __I..:‘- .‘-*’ ..,; ._             .: _2./3. :: . ‘. ; ..“.- ,. .:


Monitor Accounts Referred to the Debt Collection Center. This activity monitors and ‘$eriodically reevaluates
accounts referred for cross-servicing.

      l       identify accountswith monetary adjustments that must be reported to the debt collection center.
                                                                     --                             -__----.-__-   ..-.- .    .

:60                                                                                        Guaranateed Loan System Re.qui:ements
                                                                                                     TJeasury Cross-Servicing
                                                                                                                       .. ..-_.--_



            l   provide ad hoc reporting capability neededto monitor the accountsreferred to a debt collection center and
                the amounts recovered.
            . interface with the core fmancial system to record receipts remitted to the agency.
            l   apply collections received from the debt collection center according to agencyapplication rules.
            l   record collection feesin accordancewith agencyprogram requirements.
            l   processagencyor debt collection center refunds, notify debt collection center as appropriate, and update the
                loan information store.
            l   notify debt collection center of adjustments, recallsof debt, or collections received by the agencyon the
                referred debt.
            l   remove from the accounting and financial records accountsthat the debt collection center recommends
                should be written off.

Use au Agency Authorized to Cross-Service. This activity determines the agency’sperformance in collecting
debts.

An automated system should:

        l       identify the volume and type of debts serviced.
        l       identify the tools used by the agencyto collect its own debt.
        l       provide one or more yearsof information on the averageage of debt over 180 days.
        l       calculate the amount of debt collected using various collection tools.
        l       accruelate charges,as required by referring agency.
        l       provide information to referring agencysufficient for the referring agencyto satisfactorily complete the
                Report on ReceivablesDue From the Public;
        l       track, by portfolio, age of debt referred, dollar and number of referrals,collections on referred debts and
                report to Treasury on a monthly basis.
        l       provide information to referring agencyas neededi.e., collections received.
        l       provide ad hoc reporting capability neededto satisfy referring agenciesunique information requestssuch as,
                length of workout agreements,percent of debt that can be compromised, etc.


Internal Management Information                        Requirements
Listed below areinternal management information requirements for the Treasury CrossServicing function. This
information should be available to agency credit program managersand designated internal review officials on a
periodic or on an as requestedbasis. This list is not an all inclusive inventory of internal information requirements
for-the Treasury Cross-Servicing function. Each agencymust determine the specific management iriformation
needsnecessaryto manage its credit programs basedon the agencymission and applicable statutory requirements.
Agencies must maintain financial accounting information at appropriate levels of summary for computational and
reporting purposes. The main levels are:

    l           transaction,
    l           loan history,
                                                                                                             -.-_.-___         ----
Guaranateed loan System Requirements                                                                                          .61
Treasury CrowServicing                                                                                                    .--.-..-..-


     ..* risk category,                                                                                        .
     . cohort, and
     l account.

Each agencyalso must determine whether the information should be provided on hard copy repoqs or through
system queries.
                                           .,
                                                                                                          ‘_




                                    , .,




                                                  .,   ‘.’                         :                               .,




                                                                           --.-.       - ..--..---. - .-..... ..- ._._.      -, ,.

62                                                                       Guaranateed lean System Requirements
OtherReporting
            Requirements
This chapter provides requirements for two types of reporting:

Mandatory (All reqz&ementsin this ChapterareMandatovy)

    l   Transaction History, and
    l   External Reporting Requirements.
                                                                                      ,-
                                                                                                  (.
Tra.usa&on,History
                                                                                           ! ,.
The guaranteedloan system must be capableof producing a complete transaction history of eachloan.-


External Repbting         Requirements
                             ‘.
Agencies’ guaranteedloan systems must be capableof supporting the external reporting requirements.of OMB and
Treasury, including those associatedwith the FCRA of 1990 and the CFO Act of 1990. The&external reports rely
on supplemental financial data resident in the guaranteedloan system, although they are generatedfrom the general
ledger. Appendix C contains a listing of some of the major summary level reports.that must be accommodated.
Others are identified in the JFMIP Core Financial System Requirements document; in, a variety of governmentwide
and agencyspecific regulations; and the reporting areais in a continuous state of change,which means.&at other
reports may be identified, virtually at any point in time by an authoritative body.

Other system outputs are described in the functional requirements chaptersof this document. Examples are:
letters and invoices to lenders and borrowers, SF-1151’s and SF-1080’s used in Treasury borrowing, and delinquent
debt information sent to credit bureaus,collection agencies,and the DOJ.




Guaranteed Loan System Requirements                                                                           63
Appendix
      A: References
This appendix displaysstatutory and regulatory requirements applicable to guai-anteedloan programs as shown in.
Illustration 27.


                     Acts                                                                 OMB

          *Federal                                                                *Circular A-II,
           Mana e&Financial                                                        Preparation and
           lntegn %I act of 1982                                                   Submission of
          *Chief Financial                                                         Budget Estimates
           Officers Act of 1990                                                    Circular A-34.
          *Government                                                              Instructions ori
           Management                                                              Budgdt Exe&ion’
           Reform Act of 1994                                                    *Circular A-l 23,
          *Federal Financial                                                       Managemet?
           Management                                                              ~o~ut$abrllty and
           l,tnbrvement Act of                                                                      GM.i
                                                                                 *Circular A-127,
          *Federal Credit .                                                        Firiancial
            Reform Act of 1990                                                     Managemtint       ’
                                                                                   Systems
          l G.overnment
            Performance and                                                      ;C%&lar A-‘129,
            Results Adt of 1’993                                                   Policjes for Federal.
                                                                                   O&d+arograms and
          ;D’ebt Collection Act
           .of1982     :,                                                          Receivables ..f :;
          *Debt Collection                                                       .Circul& A-l 30,
            l,rnrment      Act of                                                  Management of
                                                                                   Federal lnfdrmation
          l Inf&mation                                                             Re$otir’&s
           Technology ;-        ’                                                l Circular A-i34,
           Management                                                              Financial Accounting.
           Reform Act of 1998                                                      Princi les and
          BFederal Financial                                                       Stan cfards
           yzlgement     Act of                                                  l Bulletin 97-01 (Ott
                                                                                   96) Form and
          WPrompt Payment Act                                                     Content of A ency
                                                                                   Financial Sta9ements
                                                                                 BBulletin 98-08 (Aug
                                                                                  98) Audits of Federal
                                                                                 @ancial Statem-




         T        ProposedF
         LLegisla        tion A
         *Federal Financial                                                     aFramework for
           Assistance                                                            .Federal Financial
           Management                                                             Management
           l,tnBrment      Act of                                                 Systems
         *Government Waste,                                                     NZore Financial
          Fraud, and Error Act                                                    System
          of 1998                                                                 Requirements
         *Other                                                                 *Other

                                                  Illustration 27
                                                                           -- ------. ~ --_.- ..__.._
64                                                                           Guaranteed Loan System Requirements
                                                                                                    Appendix A: R,eferences


 Debt Collection Act of 1982 (as amended); The Debt Collection Act prescribesthe policies and proceduresfor
 executive agenciesin Federal debt collection activities. :                 .’             I_ .’

 Debt Collection Improvement IAct of 1996. The Debt Collection Act .of 1996 provided severalnew tools, to: ,
 help Federal agenciescollect delinquent non-tax debt. It centralized many debt collection operations within the,
 Treasury’s Financial Management Service (FMS) and created,a Treasury Offset Program enabling FMS to offset
 Federal debts by “withholding” payments to delinquent debtors., In addition the.Act:
                                                                                     _:
       required agenciesto obtain taxpayer identifying numbers.
        l                                                                       ‘!   ;       ,./-   ‘: ..’
        l   barred agenciesfrom giving financial assistanceto those already‘delinquent on Government debt. ”
        l   allotiedlagencies to establish.proceduresfor garnishing non-Federal wages,torecover delinquent debts not in
            repayment status.               :.                                                ,,      ”   /        ‘.
        l   required agenciesto transfer debts over 180 days delinquent to the Treasury for collections unless the debts
            are in a specified exempt status.
                                                                                                              ., ~ -.
    l       required Treasury to take action to collect referred debts including referral to another collection-center, to :
            private collection agenciesor DOJ.                                                                         .
    l       allowed agenciesto retain feeschargedfor servicesfrom collection and to retain a portion of collections for.
                                                                                                    i
            improving debt collection activities.                                                                 .-.
                                                  ..                                                              i
    l       required agenciesto provide debtors all due processrights, including the abi,lity to verify, challenge,,and
            compromise claims encouragedagencies,when appropriate, to sell delinquent debt.
                                                                                                   j
    l       required agenciesto submit     debts for offset.                                              ‘.   /
                           .          ‘. .                                                                ,, .          .,
    l       simplified salary offset processes,by formally establishing an interagency consortium and allowing agenciesto
            make routine adjustments to pay, without using salary offset procedures.
    l       mandated electronic funds transfer.
                                                                                     , ;      ’     ‘.      : ”
Chief Financial Officers Act of 1990 (CPC Act). The CFO Act provides new tools to improve the management
of the Federal Government. It establishesChief Financial Officers in 23 major executive agenciesas’%ell‘asa neiv
Deputy Director for Management and a Controller in the Office of Management and Budget. The CFO Act
reinforces the need for and development of Federal accounting standards;’supports integration and modernization
of the Government’s financial systems; and requires the preparation of annual audited,financial statements.

 Government Management Reform Act: (GMRA) of 1994/Pederal Pinticial Management Act (FFMA) af
 1994 The GMlL4 expands the CFO Act +nd the FMFI+, Title ni of the GMlU, known asThe Federal
 Financial Management Act, contains the financial management provisions. The FFMA requires the Treasury
 Department to prepare eachyear a Government-wide, consolidated financial statement that the Comptroller ’ :
 General then audits. Pursuant to the GMRA, severalagenciesparticipated in a pilot program in which they issue
 accountability’ reports, consolidating their reporting under severalstatutes,including the CFO, Federal Managers’
 Financial Integrity (FMFIA), GPR, Prompt Payment, ,a.ndDebt Collection Acts. The accountability--reports
 include program and financial information, such as the audited financial statementsand performance measures
 reflecting l$rforniance in meeting key agencygoals, astiellas the Governmenr Performance and Results Act of j
,x993 (‘,Pm)-: The G-,m requires’agk-es f’o;“devel+ :~~rat~gic.,ijlans,“s~~    +--&~-e~~ g~~s;-~~~‘L~~~~ a’f&udly
on actual performance compared to goals.

Federal Credit Reform Act of 1990.’ The Federal Credit Reform Act prescribespolicies and requirements to
achievefour objectives: to measuremore accuratelythe costs of Federal credit programs; to’ place the cost of credit
programs on a budgetary basis equivalent to other Federal spending; to encouragethe delivery of benefitsin the
                                         -~              --     .____
                                                                    --.----__   --                          ----_--            -....-..-.   ,~

Guaranteed loan System Requirements                                                                                       65                ~
Appendix A: References


form most ,appropriateto the needsof beneficiaries;and to improve the allocation of resourcesamong credit
programs and between credit and other spending programs.

Federal Managers’ Financial Intejgrity Act (1982). The FMFIA requires that all executive:agenciesimplement,.
maintain, and report on internal accounting and administrative controls, These controls must provide reasonable
assurancesthat (i) obligations and costscomply with applicable law; (ii) funds, property,-and other assetsare
safeguardedagainst waste, loss, unauthorized use, or misappropriation; and (iii) revenuesand expenditures are
properly recorded and accounted for. Agency headsmust annually evaluateand report on the control and financial
systemsthat protect the integrity of Federal programs. The FMFIA encompassesprogram, operational, and
administrative
            .: areas
               . . as well as accounting and financial management.
                                                       /’ :                                               .I.:
OMB Circular A-11, Preparation and Submission of BudgetEstimates (updated annually). Circular A-l 1
setsforth the policies and procedures for preparation and submission of agencybudget estimatesto the O&e of
Management and Budget.. .        : ,:,           :                ..      :..‘,..;
OMB Circuiar A-34 - Instructions on Budget Execution. Credit Apportionment and Budget &ecution
 (October 1991). Circular A-34, sets forth the requirements for’ apportionment and budget execution for all
guaranteeloan programs covered by the Federal Credit.Reform Act. of 1990.                   I
                           .;
Olh C&u.& k-i23, Internal Control Syst&h (June 1995). Circular A-423 prescribespolicies and
proceduresto be followed by executive departments and agenciesin establishing, maintaining, and reporting on the
                                                                          ’                                .:
internalcontrols in their program and administrative    activities:
                                  ,,j     .!a:_I’ > ,..             I,               : :’
OMB Cirtiar A-127, Financial Management Systems (Juiy 1993). Circular A-127 setsforth policies for
financial management systemsdevelopment;operations, and evaluation. The circular establishesspecific objectives
related to financial managementand accounting.                         ‘.
                                       .,     ’
O&II8 Circular A-129, Policies for Federal Credit Programs and Non-Tax Receivables (January 1993).
Circular A-129 prescribespolicies and proceduresfor justifying, designing, and managing Federal credit programs
and for collecting non-tax receivables.The circular discussesprinciples for designing credit programs, including the
preparation and review of legislation and,regulations; budgeting for the costs of credit ,programs and minimizing
unintended coststo the Government;, and improving the efficiency and effectivenessof Federal credit programs. It
als,osetsstandardsforextending credit, servicing credit and non-tax receivables,and collecting delinquent debt..
                .,’
OMB Circul&‘A-130, Transmit&l Memorandum 3 Management of Federal Information Resources
.(Febq.wy 1996). Circular A-130 establishes,policies and proceduresto be followed by executive departments and
agenciesin.managing information, information systems,and information technology. The February 1996 revision
of the Circular contains updated guidance in the “Security of Federal Automated Information Resources,“.
Appendix III, and makes minor technical revisions to reflect the Paperwork Reduction Act of 1995.

OMB Ciqular A-134, Fin+nciai Accounting Principles and Standards (May 1993). This Circular establishes
the policies and proceduresfor approving and publishing financial accounting principles and standards. It also
establishesthe proceduresfor OMR review of FASAB statementsof,accounting principles,”standards,,orc.o,ncepts.
Ifs~~.,a.~~S.~~ecommee~dat
                        ., -!.:-l>’ .” isa~eed to by the Director of~O&i&the Secretary,;of-the,T~easury,
                                                                                                      and the .. :..
,Comptroller .General,the,Director.of ,OMB issuesa Statement of+FedetalFinancial Accounting Standar&@FFAS) .

OMB Bulletin 97-01 (October 1996), and successor bulletins, Form and Content of Agency Financial
StatF%e,nts. This Bulletin defies the form and content of the financial statementsof the executiveagencies. It
incorporates the concepts and standardscontained in the Statementsof Federal Financial Accounting Concepts :
(SFFACs) and Statements of Federal Financial Accountmg Standards (SFFASs.)recommended by the Federal


66                                                                               Guaranteed Loan System Requirements
                                                                                                        Appendix,,A: References
                                                                                                                       ------.--_-
                                                                                            ,:._          ,                , ,.*
                                                                                                   ‘.. .             :,_ : ,.,.:I\ ‘.

Accounting StandardsAdvisory Board (FASAB) and approved asof October 1996. This Bulletin explains the
financial accounting of “Direct Loans and Loan Guarantees,Non-Federal Borrowers.”                     .:i :

OMB Bulletin 98-08 (Augist 1998), Audits of Federal Financial Statements. This Bulletin establishes
minimum requirements for audits of Federal financial statements. The Bulletin’s requirements implement,. .theaudit
provisions of the CFO Act, the GMRA, and the FFMIA.
         .’     ./’                               ,.                                                     :
ktement of Federal Financial: Accounting Standards Nuxkbei2, Ac~ountinf for Direct Loans and’Loan
Guarantees. The Statement provides accounting standardsfor Federal direct loans and loan guarantees. The
standardsrequire that direct.loans obligated and loan~guaranteescomm$-ted after September 303 1991, be
accounted for on .a-present value.basis. The use of the present value..’accounting .method is consistent with the intent
of the Federal Credit Reform Act of 1990.                                 .,-3., ‘., :.,:, ,‘    j:,. ::
           :/    .:            ,                                     I *          ‘,’
                                                                  ,. ‘. :i’                ‘...”     ‘.



                                                                                                          :


                                                                I.                  .   1   ,


                                                I’




                      .--._ -._-..-..- .   ._ -.... _...___..        ._.....-....                                        -_----         .-

Guaranteed Loan.System Requirements
  ,,
             .
                                      ’




Appendix
      B:~‘b~ssary
                      Ii   ,    _,.       :!.   : :   ,,.       - 1.
                                                                                       .I
                                                                                            .::       _.         :   ..,             .*,:                 :,>.:;.
Lender           ’                                    ., i             ..‘~I   ,   ,        I,             :::                                      :               j;

Lender Fin+xial Rating                                                  i                         ;                   -,;    ._



Requirements                JFMIP systems requirements are either mandatory or value added. The definitions of these two categories
           ,.               are:                                  : :, _ f                      .‘,      ,‘.
            ,’                ,.    :        ,‘: .~      : ‘,,, : 2       .,:;,                   -;::;      !,’       ..    ..,r 1:_
                                                                                                                                    .. ;
                           il&waistu?y .Mandatory requirements descrik:what ihe.system tiust.do ar$corisists of the minimum
       .:’       .,         acceptable, fufictionality nec-essaryto.establis+ a.system, orare, based on Federaklaws and regulatio.ns.
                            Mandatory requirements are those against which agency heads evduatethcir sys~~ms,to,dete~mine                ,, ,
                            substgantial compliance with systems requirements under the FFMIA. These requirements apply to
                            existing systems in operation and new systems planned or under development.

                           voke-added Value added requirements describe features or characteristics and may consist of any
                           combination of the following: (1) using state 6f the art technology, (2) employing the preferred or bests
                           business practices, or (3) meeting the special management needs of ti individual agency. Value-added,
                           optional and other similar terminology may be used to describe this category of requirements. Agencies
                           should consider value added features when judging systems options: The need for these value-added
                           features in agency systems is left to the discretion of each agency head.

Servicer                   A financial institution, private service provider, corporation, government cross-servicing organization or
                           other organization that provides services in support of grants management programs or systems.

Systems Balancing and Reconciliation




                                                                                       --         ..-..---.-                __--_-          -..-...--- .-..

68                                                                                                         Guaranteed Loan System ReqArements
Appendix
      C: Summary
              of ExternalReporting
                                 Req.uireme,nts::-,.
                                   : I ~::..,x,..<!;, ,.;‘i:.;[+$,
                                                                 ,..iL.c:j.
                                                                ..__  :::
                                                                  :...,;;t:-:
                                                 ‘j                     ‘,
                                 I       .            :        .,i’.               .\



                                                          :.           -“’   l:.
Title                Title                   I Purnose                                  Level                  Frequency :
                                                                                                                    ‘I i ; :
Apportionment                                 ,,Requestfqr ,and
and                                            status qf j ,, , !-.      ‘:: Appropriation/Fund                Initial/As : I 1
                     SF-132
Reapportionment                                apportionments and Account                                      required
                                               reap oh&&el;& .i
Schedule                                                                                                         j, ,! :j: .E,‘””
                                                         ,.:>:‘::i: .:‘ i;j
                                               Report    “n,.,& :, ” r;!
                                               utilization
Report on Budget                                                             Appropriation/Fund
                 SF-133                        status & Ijudgif!:’
Execution                                                                    Account
                                             I resources
                     Elec&&          ’

                  Report-ing
                  replacement Report data for ‘, ?;
Federal Agencies, of              consolidation from
Centralized                       FACTS
                                  :        into.\ .the
                                                    .,, : Appropriation/Fund                                   Quarterly/,
                  SF-220’  ,:; ; .u*.s*’‘&&44en~                                                               &&,&     j
Trial-Balance                                                  Group
                                  Consolitlat&~,     .‘” : ‘5.
System (FACTS) SF-220-1
                     SF-222                   Financial Statement
                     SF-223                  1
                                                                                                :.             “<!    .‘*                                        -:




                  Elect-ronic                                                                                                                                    !,   ‘7.

Federal Agencies;                                                                                                                     .   .    ,,,             \..
                                                                                                                                                                        L



                  Report-ing                  Trial-Balance ’ ’                                                                               ,s. i’             :


Centralized
                  replacement                 System (FACTS II) Appropriation/Fund                             Quarterly/
Trial-Balance
                  of SF-133                   into the U.S.       Group                                        Annually   ’
System (FACTS
                  and .<:i;q                  Government, r,
11)               TFS-2108                    Cons&&$
                                                                                                     ,.”

                                                                                                     __
                                                                                                           I
                                                                                                                            : : ...                  :

                                                                                                                     ::i...                              :.’                ,.

                                              Financial Statement
                                              Provides
Report on                                     information for      Supporting form for
                 SF-2204
Guaranteed Loans                              monitoring status of SF-220
                                                                                                                                                                                 (        :
                                              guaranteedloans
                                                                                                                                                                                 r,..           .
                                                                                                                                                                                        .)I.




                                                                                                                                                                                               __-__-_-.--_-
Guaranteed-Loan System Requirements                                                                                                                                                                 69
                                                                               --1
           U.S. General Accounting Office
Joint Financial Management Improvement Program            Bulk Rate
                    Room 3111                        Postage & Fees Paid
                 441 G Street NW                            GAO
           Washington, DC 205480001
                                                      Permit No. G-100
                                                 I                         I

    OFFICIAL               BUSINESS

           Penalty for Private Use $300