oversight

U.S. Department of Justice: Overview of Civil and Criminal Debt Collection Efforts

Published by the Government Accountability Office on 1990-07-31.

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

                  Testimony




For lhlrrre       U.S. Dcpart8caz   of Justice:
on Delivery       OTervicu of Cirfi    a-d Criminal
Exorctcd    at
9:iO 8.8. EDT     Debt ColXection   Effortr
July 31, 1990




                  Statement of
                  Lowell Dodge
                  Director, Adafnistration    of      Justice   Issues
                  Ccncrol Government Division
                  Before the Subcommittee     on
                  Government Informatton,
                  Justice  and Agriculture
                  Committee on Government     Opcrationc
                  Howe of Rcprcaentat+vcs




GAO/T-GGD-90-62                                                 -.--     --- -- -
                                                ----                --                       d




                                   DEPARTMENTOF JUSTICE
          Overview   of    Civil    and Criminal Debt Collection         Efforts
                               SUMMARYOF STATEMENT BY
                                LOWELL DODGE, DIRECTOR
                          ADMINISTRATION OF JUSTlCE ISSUES
                           U.S. GENERAL ACCOUNTING OFFICE
As requested     by the Subcommittee         on Government Information,
Justice   and Agriculture,        GAO has developed basic information
about the Department       of Justice’s       efforts   to collect   debt owed to
the U.S. Government.         Specifically,       GAO looked into the amount of
the debt,    its characteristics,          and the amount which has been
co1 lected . The Subcommittee          also asked for GAO’s comments on any
problems which may impede debt collection.                 GAO’s main concern  is
whether Justice     has adequate systems           and plans to collect   this
aging and growing debt.
Delinquent debt has grown rapidly  during the 1980s.   Ron- tax
debts owed to the federal government exceeded $244 billion      at the
end of FY 1989.  Of this amount,  12% was delinquent for more than
1 year.

The job of collecting           delinquent       non-tax debt falls            upon the
Department of Justice,           the government’s            collector      of last
resort.     After     a federal      department      or agency exhausts all
reasonable     efforts      short of litigation            to persuade debtors to pay
what they owe, the matter             is referred        to Justice.         As of
September 1989, these civil              debt    referrals        totaled     a cumulative
$6.6 billion.         Justice    attorneys       also collect         criminal     debts
($968 million)        that are imposed as fines,                restitution      orders,
etc.,   by judges       in federal      criminal      cases.
The responsibilities    to litigate     and collect      civil   debt are
shared by the 94 U.S. attorneys’        offices    and the Justice       Civil
Division,    During FY 1989, these offices         collected     $562 million
o: civil   debt carried   in the Justice      system.      U.S. attorney
offices   are also responsible      for collecting      criminal   debt.
During FY 89, they collected        $82 million    in outstanding      criminal
debt.
Justice     lacks a system to         track civil    debt referrals     from
agencies.       While Justice        does have information      on the $1.1
billion     in debt that has         been entered    into its collection     system,
Justice     knows very little         about the $5.5 billion       which has been            i
referred      to various  U,S.       Attorneys    and is still   in processing     or
litigation.
Justice    has also had problems collectinrr             debt which has been
litigated.     Justice     officials      indicate    that,   beginning    in October
of this year,     they plan to implement a “long range strategy”                  to
manage the civil       debt collection        efforts    more systematically.
Aowever, they lack a written            implementation       plan.    A careful   plan
is essential    to an effort         of this magnitude.
Mr.   Chairman   and Members of       the Subcommittee:

We are    pleased   to be here to discuss   information       we have
developed     about the Department of Justice's       efforts    to collect
debt owed to the U.S. Government.         You asked us to provide
information      on the amount of the debt,    its characteristics,         and
the amount which has been collected.         You   also   asked    for our
comments on any problems which may impede debt collection.                  Our
main concern is whether Justice       has adequate systems and plans
for collecting      this aging and growing debt.

The total     amount of non-tax debt owed to the government at the
end of PY 1989 was $244 billion.             A significant      portion    of the
debt is considered      delinquent    by the agencies.          Furthermore,
delinquencies     have increased     significantly       during     the 1980s. We
have not included      tax debts which are primarily            collected    by the
Internal    Revenue Service.       IRS has its own authority            and methods
for collecting     these debts.

Justice    is the goverrunent’s         collector    of last resort.       After a
federal    department      or agency exhausts all reasonable efforts
short of litigation          to persuade debtors       to pay what they owe, the
matter   is referred       to Justice.        This type of debt is referred        to
as civil     debt.    In addition       to civil   debt, Justice     attorneys    also
collect    criminal    debts that are imposed as fines and restitutions
by judges in federal           criminal     cases. My discussion      of Justice's
debt collection       efforts      will   focus on these systems.

YOU also      asked US to comment on the potential            for Justice  to            e
consolidate       the collection   activities        in its 94 U.S. Attorney
offices     to improve efficiency.           We will   address this question
later   in our testimony.
The information       that we are presenting          today is based on data
acquired    from existing        systems in the Departments       of Justice   and
Treasury    and on interviews         of officials      in those two agencies.
The time spent in this brief            review did not permit       us to assess
the accuracy       of amounts obtained        from the systems, or predict        how
much of the debt is collectible.                Our interviews   disclosed   that
determining      the collectibility        of the old debt could be very
difficult     due to gaps in information.

OVERVIEW OF DEBT OWED GOVERNMENT

We have prepared  several     charts    and graphs to illustrate    what we
are going to present     today.     This first   chart shows the total
non-tax  accounts receivable,       or debt payable    to the government,
was $244 billion  at the end of fiscal         year 1989.



GAO Agency Records of Non-Tax
    Civil Debts - September 1989
         l   Accounts Receivable                     $244 Billion
         l   Delinquent                              $40 Billion
             *Over 1 Year Old                        $29 Billion
         l   Referrals To Justice                    $6.6 Billion

As you can see, of the $244 billion           total,    just under one-sixth
of it,   $40 billion,   is classified       as delinquent    by the agencies.
Agencies   generally  classify     accounts     receivable   as delinquent    if
a payment has not been received         within     30 days of its due date.
2
Of the $40 billion,       $29 billion     has been delinquent     for at least
a year.    After    a federal   department     or agency exhausts    all
reasonable    efforts    short of litigation       to persuade debtors   to pay
what they owe, the matter          is referred   to Justice.    These
referrals   are generally      made from the $29 billion       of debt which
is over 1 year old.

The chart   also shows the receivables     that agencies reported  to
Treasury   as having been referred    to Justice.   At the end of FY
1989, this   totaled  $6.6 billion.     The amount excludes  tax debts
which IRS is collecting.

The next chart shows the rapid      growth in the receivables  that
have been delinquent    for more than 1 year.    As you can see, these
delinquent  receivables    have grown by more than $7 billion    for
each of the 3 year periods     between 1983 and 1989.


MO        Agency Delinquent Receivables
          Growing Rapidly
          --


         2s


         20


         1S


         10


           1


           a
Justice   officials     told  us that debt is often more than a year old
before the agencies     refer    it to them for collection,   This is
illustrated   by the next chart which shors that more than half of
the agencies'   $29 billion      of delinquent  receivables were more
than 3 years cld.



GAC) Most Agency Delinquent Receivables
     Are Old




This raises      the question:           How much of this delinquent    debt will
eventually      be referred      to Justice     for collection?      We do not
have a basis       to predict      this,    but the upward trend over the past
6 years in      delinquent     receivables      suggests that delinquent     debt
referred   to    Justice    for Collection       may increase over the next few
years.


4
CIVIL   DEBT AT JUSTICE

The next chart depicts   the            litigation     and collection   process
Justice  is to use to collect               civil  debts, penalties,    and damages.



    W      Litigation & Collection Process For
           Civil Debts            _
                                        b+lcyRofoTsMiDtlollor
                                    I   Uiation   and&   CWaWn
                                                                 I


                                                                                         E




The responsibilities         to litigate       and collect     civil   debt are
shared by the 94 U.S. attorney              offices     and Justice's     headquarters
in Washington,       DC. Their       involvement       begins when an agency that
incurred  the debt-- such as the Department of Agriculture--
decides to refer a debt to Justice                for collection.       If the debt
amount is under $200,000,           the referring        agency sends the case
directly  to the U.S. attorney            office     in the district      where the
debtor resides.        Civil   debts involving          amounts'larger     than
5
$200,000 are to be collected       by attorneys       in Department      of
Justice  headquarters.

This next      chart summarizes the results       of Justice's   civil        debt
collection      efforts for FY 1989.




 GAO Civil Collections Summary
     September 1989
                                                                                     d




          l   U.S. Attorneys                                                         d




              aYear End Balance               $ 1 Billion
              +Y 89 Collections               $216 Million
          l   Civil Division
              aYear End Balance               $177 Million
              l FY 89 Collections             $346 Million




As this   chart shows, U.S. attorneys      collected    $216 million
(27,200 cases) and had a $1 billion        (44,809 cases) balance as of
year-end.    Justice's  Civil  Division-    the headquarters      unit that
handles large civil    debt cases --collected       $346 million    (440
cases) and reported    an uncollected    balance of $177 million         (134
cases) at the end of the year.
6
These year-end    balances,    which total      $1.1 billion,       do not
include debt that Justice       is litigating.       Of the remaining        $5.5
billion,   some portion     is actually     being pursued in litigation.
We do not know how much of this is awaiting              litigation     or is
being held for other reasons.           Justice   does not have a system for
tracking   all referrals.

CIVIL   DEBT AT U.S.    ATTORNEYS

Next, we will   review the characteristics        of civil    debt that
agencies have referred    to U.S. attorneys       for collection.       These
are debts of less than $200,000.        The first     chart shows how long
U.S. attorneys   have been attempting      to collect      $1 billion   of
                                                                                    I
civil  debt since the debts   were litigated.

                                                                                    !
G&O Most U.S. Attorney Civil Debt Is
    Over 1 Year Old




7
The age    reflects   the amount of       time between    the date that Justice
started    collection    action and     the end of FY     1989.   Of the $I
billion,    about $332 million     is     1 year old or     less; $397 million
is from    1 to 3 years old; and        the remaining     $274 million  is over
3 years    old.

The next chart     shows that most U.S. attorney       civil  collections
were for debts in the Justice        system for 1 year or less.         Of the
$216 million    in civil   debt collected     in FY 1989, about     $161
million   was for debt that was at Justice        for 1 year or less.
Another $40 million      was collected    for debt at Justice      between 1
and 3 years.      Nearly $15 million     was for debt at Justice       for
more than 3 years.



GAO Most U.S. Attorney Civil Collections
    Are For Recent Debts

           IDO

           160

           140

           120

           l#I

            80

            60

            40

            20

                 0
Where did the $1 billion   of civil    debt referred   to the attorneys
                                                                                    i
come from?   Our next chart shows that five cgencieu referred            two
thirds  of the uncollected  receivables     to Justice   for collection.



 W         Most U.S. Attorney Civil Debt Is
           Referred By Five Agencies




                                               8%
                                               Treasupy




                      I                        Ott~er(IndudesCammeroo.DOO,HUO
                                               & VA)




As the chart shows, Agriculture          sent 25 percent of the total and
the Small Business     Administration       accounted for 20 percent.         The
Departments   of Health and Human Services,          and Education    referred
another   14 percent   and Treasury      referred   8 percent.     A5 you can
see,  the uncollected     balances    for referrals     to attorneys    from all
the remaining    agencies    represented     33 percent   of the total.      .
.


.

    Another way of looking      at the    source of the   debt   is   to examine
    the type of claim that      created    the debt.



     W        A Large Part of U.S. Attorney Civil
              Debt Is For Three Types Of Cltims




                     1                          ciuilclaims(e.g.,hgwnrdwr)
               clrJabtBsla-Ke-s1Bilbn
               SapmMalQw

                                                                                   1
                                                                                   1
                                                                                   i
    According   to Justice's     records,     the three largest    categories
    were civil    claims (e.g.,     guaranteed    student  and veteran ioans),
                                                                                   i
    60 percent:    bankruptcies,     20 percent;     and mortgage foreclosures,    h
    12 percent.      Other type of claims,       such as civil   penalties,
                                                                                   3
    preliminary    forfeitures,     and court    costs represented     the
    remaining   8 percent.




    10



                                                                       .
.

                                                                                         E
.
    CIVIL   DEBT AT JUSTICE HEADQUARTERS

    Earlier,    I noted that Justice’s         Civil   Division     is responsible
    for civil    debt exceeding       $200,000.      Justice    records for this debt
    shows that this      is relatively      new debt , with      about  $135 of the
    $177 million     being 1 year old or less.             The Civil   Division
    focuses on relatively        large debt cases , and often collects             the
    debt soon after      the completion      of litigation.




     GAO Most DOJ Civil Division Debt
         Is Less Than 1 Year Old




    11
This next chart shows that most of   the Civil   Division   debt
balance came fromthree agencies.




 GAO Most Civil Division Debt Is Referred
     By Three Agencies




12
The next chart provides      information   about    the types      of   referrals
made to the Civil  Divisicn.




 GAO A Large Part Of Civil Division Debt Is
     For Fraud & Bankruptcy

                                           Cimoma Frad




                                           GeneralFraud




                       -9%
                                           olher (e.g.,Padlim & Fomcio8um)




13
CRIMINAL DEBT AT U.S.        ATTORNEYS

Now, I would like to move to the other           category   of     debt   that
Justice is involved  in--criminal debt.

This first     chart   depicts  the origin   of criminal    debt     and how
Justice    attorneys    get involved   in its collection,




 W          Prosecution And Collection Process
            For Criminal Fines




14
Agencies such as the Federal Bureau of Investigation                    and the
Drug Enforcement       Agency investigate       violations     of federal       law and
refer    the results     of their investigations         to their    local U.S.
attorney.       If the U.S. attorney      obtains a conviction          and the
judge approves a payment plan for a fine,                the attorney’s        office
is to establish       a criminal  debt    record.       Personnel    from either
the probation      off ice or the Bureau       of Prisons     are to assiot         in
getting     the money to the court clerk.            The clerk    is to deposit
the money in the bank and notify            the U.S. attorney's         office      of
the collection.

The next     chart   summarizes    the   criminal    debt   activities    for   FY
1989.



 GzJ+OCriminal Collections Summary
      September 1989
         l   U.S. Attorneys
             @YearEnd Balance $968 Million
             *FY 89 Collections                     $ 82 Million




15
The year-end     balance for criminal     debt according to Justice's
accounting   records    was $968 million.     During FY 1989, U.S.
attorneys   collected    $82 million.

The next chart   shows the age of the debt based on the date that
the judge imposed the fine.    It shows that a large  percentage  of
the criminal   debt is over 1 year old.



GAO Most Criminal Gebt Is
    Over 1 Year Old




According   to Justice   officials,  payment problems can arise
because  defendants    spend their  money on attorneys,      who usually
are paid up-front,     and often have some portion      or all of their
other assets   seized by the government because they were acquired


16
through criminal  activity.   By the         time fines    are imposed,     the
defendants  may have no assets left          for making    payments.

As you can see, about $250 million               is less than 1 year old.
Almost one-half        of the remaining       $718 million    is over 3 years
old.     According     to DOJ officials,       some of the debt is actually       10
to 20 years old.         Old criminal     debt is still     on Justice’s
collection      records    because   criminal      fines cannot be written    off
the financial       records    for 20 years unless the debt is forgiven           by
a court order or the debtor            is deceased.

The next chart shows that        most collections      in FY 89 were for
recent fines  and penalties.




W         Most Criminal Debt Collections
          Reflect Recent Offenses

           70




17
About $57 million,      or 69 percent       of the $82.3 million   in
criminal   debt Justice    collected      during FY 1989, was for debt 1
year old or less.       Another     $20  million,  or 25 percent,    collected
was for debt between 1 and 3 years old, and less than $5 million,
or 6 percent,     was for debt over 3 years old.         Some of the
criminal   debt is collected        under payment p1ar.s established       by
the courts    which imposed the fines.

What created     this   $968 million of criminal  debt? According          to
Justice's    records,    most of the debt came from two types of
criminal   offenses     as the next chart shows.




 GA0 Most Criminal Debt Reflects
     Two Types of Offenses
                                             white cdl8r crime




                                             Drugs




18
As yoti can see, drugs and white collar  crime made up 62 percent
of the $968 million   of debt that was on the books at the end of
FY 1989.

Our final   chart   in the criminal   debt    area depicts     the categories
of offenses   for   which the $82.3   million     in collections    were made.




GAO Most Collections Were For
    White Collar Crime




As you would expect,   most collections came from        two categories
of crime that generated   most of the debt --white       collar  crime and
drugs.



19
PAST DEBT COLLECTION PROBLEMS

Over the past decade, we have looked at Justice                 debt collection
efforts    several     times.     Each time that       we have reviewed
Justice’s    debt collection         activities,     including  our work in
preparing     for this testimony,           we have found that Justice     was
experiencing      similar     problems.        For example:

      a-     tracking     system problems;   information    needed to
             determine     the status  of referred     debt often was not
             available.


      --
             lack of debt collection     staff;  U.S. attorneys              say they
             have an insufficient     number of trained   staff         to
             aggressively    follow  up and enforce collections.

      --
             law impediments;      state  laws present obstacles   to
             enforcing  collections      and federal  bankruptcy laws can
             delay the recovery       of money owed to the government.




ACTIONS TO IMPROVE COLLECTIONS

There are some proposed actions     which reduce collection    problems,
backlogs  and costs.  These actions     are shown on the following
chart.




20
GAO Actions To Improve Collections

         l   Improve tracking systems
         l   Greater use of private attorneys to
             collect some civil debts
         l   Enact uniform federal debt collection
             standards
         l   Consolidate debt collection units




The first        area where improvement             is already underway,         is in
management tracking               systems which identify         and follow      the
progress       of debt cases through            litigation     and collection.
Justice       officials       told us that they plan to improve their
tracking       system      for civil     debts which government agencies refer
to Justice         as well as the debts which U.S. attorneys                   are
collecting.            Within     the judicial      branch,   the Administrative
Office      of the U.S. Courts,            which assists      Justice    in collecting
fines,      is developing          a tracking     system for the criminal           debts
which the courts             collect.      Administrative      Office   officials
advised us they are working with the courts to implement the
21
system, and that the information                from the system will          also be
available  to the U.S. attorneys               who maintain  records         on the
criminal  debt and collections.

A second initiative           is the use of private       attorneys     to help U.S.
attorneys      collect    civil   debt.    The goal of this program,
&,ttthorized     by the Debt Collection        Amendments Act of 1986, was to
reduce backlogs        of debt     cases and cost effectively        collect
delinquent       debt.    The legislation       required Justice      to establish     a
pilot    project     to test the concept.         The implementation       of the
pilot    project     was delayed      for various    reasons but is now
underway.        The potential      which Congress perceived        for using
private     attorneys     to accomplish     debt litigation       and collection     is
still    not known.

A third     initiative,         proposed by Justice          for several         years, is
enacting      legislation         to remove impediments created               by different
states    laws, e.g.,         the provisions        for wage garnishment              and
homesteads.          Uniform Federal         debt collection        criteria        would
establish       uniform     judicial       enforcement     remedies and uniform
property      exemptions        to ensure that federal debtors                are treated
the same in federal             court actions.         This would enable Justice           to
simplify      the varied        collection      processes its staff           must deal with
because of differences               among state laws.          It would also open the
door for standardized               procedures     and forms that could make for
more efficient          processing       of debt cases.         Justice      officials,
including       the U.S. attorneys,            and GAO have strongly             supported the
enactment of such legislation,                  an example of which (5.84) is now
before the House.

A final   area may have potential         for improving      the effectiveness
of Justice's    debt collection      activities    is the consolidation        of
debt collection     functions    into regional     offices      or a national
office.     Mr. Chairman,     in your letter    requesting       US to testify
today, you pointed      out that 94 U.S. attorney          off ices are involved
22
in debt collection.              You said that the opportunity           must exist for
Justice      to perform the debt collection              task more efficiently
through consolidation             and automation.        The consolidation       of debt
collection        activities      in the 94 U.S. attorney        offices     into a
national       office      or several   regional    offices    may provide      an
opportunity         to improve operations        through specialization          of work
and elimination            of redundant    tasks. Consolidation        may open up
greater      opportunities        for using automation        to process and control
collections.

The Office       of Management and Budget (OMB) recognized                  the need to
consider      consolidation      of debt collection       activities.          OMB's
report,      Fiscal   Year 1990 Manaqement of the United States
Government,       stated    that Justice     would "Evaluate         the feasibility
of consolidating         U.S. Attorney      debt collection        functions     on a
multi-office        or regional    basis...     ” and would report         on it by the
end & fiscal         year 1989.     OMB and Justice       officials       recently    told
us that the consolidation           study was not made.

Instead,   Justice    officials         said they plan to implement a "long
range strategy"     to manage and track debt collection               efforts
better.    The strategy         is to funnel all debts the agencies send to
Justice   through a "central            door" where they can be screened,
counted,   and distributed           for litigation   and collection.         In June
1990, OMB reported        that Justice        never has accurate    and current
data on the number and value of debts sent to them.                    Justice
officials    advised us they plan to start            implementing     this
"central   door" concept          in October 1990.

Justice's    strategy   would provide centralized    control    over debt
collection     cases, and could be a first     step toward consolidation.
The "central     door” idea could provide    for better    control    over the
tracking    of debt cases.    The concept, however, still       results      in
the referral     of debt cases to as many government attorney           offices
as now.
23
Justice      has already       partially        implemented the idcz of a gce,ltral
door" facility         to receive        all agency referrals.                 They did t!?is
as part of their          private       attorneys      pilot      project.        For example,
the automated system             for the &ilot         project       records      debts
received      from agencies          and tracks      cases referred             to government
and private       attorneys        in the pilot        districts.          It    also provides
some automated support,               such as the preparation                 of various
letters      and forms to assist             attorneys       in their      collection
activities.         To that extent,           the pilot        project      is actually
providing       a limited      test of the benefits               of automating         the debt
collection       and tracking         process.       Justice        has thus far
implemented the pilot              system     in 6 of the 10 districts                 selected
for the pilot        project.         We believe       it is too soon to
realistically        assess how well these measures are working.

Finally,      it is important           that we point out that the "central
door" approach that Justice                  is planning     to implement nationwide
will    involve     changes to both manual and automated systems.                   We
talked     to Justice      officials         about their     plans for these changes.
They also told us that they are now in the process of identifying
the requirements         for systems changes.               They did not have a
written      plan for making the required                changes.     It is not clear
whether they plan to include                   all referrals     in the system changes
they intend to implement.                   They told us, however,        that they plan
to establish        a capability          to receive     and refer    all agency debt
cases to U.S. attorney               off ices by October,        and to implement other
changes over the next 3 years.

We are concerned     about   whether Justice's     informal    planning
approach will     be successful.     We believe    that a formal plan is
neeaed to ensure that overall        objectives    are identified,
requirements    of various    users  are analyzed,     an,? that   the
objec'lives   and needs are met.      Sound plans are essential          to
ensure that system development        goals are met without        costly
24
.


.
    mistakes,   which    isespecially   important   when developing
    automated   sys terns.  Such planning    is essential   also for ensuring
    that good management tracking       systems are implemented to
    effectively    manage the debt collection      process.




    This concludes      my prepared   statement.    We would   be pleased   to
    respond to any      questions   you may have.




    25