Federal Debt Collection Basics for Accountants

1. AGA Charleston Chapter Professional Development Training December 2017 Federal Debt Collection Basics for Accountants

2. Workshop Outline • Authorities & Roles • Interest, Penalties & Admin Costs • Accountingfor Collections • DebtCollection Tools • Debt Collection Actions vs Accounting Actions

3. Authorities • Constitution • Statutes • Regulations • Treasury/OMB Guidance • Internal Agency Delegations, Policies/Guidance & Office Procedures

4. Constitution • “No money shall be drawnfrom the Treasury, but in Consequence of Appropriations made by law.” U.S.CONST. art. I, § 9, cl. 7 • Only Congress has the power “to dispose of and make allneedful Rules and Regulations respecting the Territory or other Property belongingto the United States.” U.S. Const. art. IV, § 3, cl. 2

5. Statutes • United States Code - U.S.C. http://uscode.house.gov • 31 U.S.C. Money & Finance • 5 U.S.C. Gov. Org. & Employees • Agency Specific (e.g. 22 U.S.C. Foreign Relations - State Dept.)

6. CFR • Code of Federal Regulations – C.F.R. www.ecfr.gov • Titles Correspond with U.S.C. (e.g. 31 C.F.R. Parts 900-904 Federal Claims Collection Standards – FCCS)

7. Treasury/OMB Guidance • Department of Treasury https://tfm.fiscal.treasury.gov/ - e.g. Treasury Financial Manual • Office of Management & Budget www.whitehouse.gov/omb - e.g. Circular A-129

8. Internal Agency Delegations,Policy/Guidance & Office Procedures Examples: • DOS Delegation of Authority No. 354 from Under Secretary for Management to the Comptroller covers the administrative collection, compromise, suspension, termination of collection, settlement, and waiver of claims of or against debtors of the Department • 4 Foreign Affairs Manual (FAM) 490 • Accounts Receivable Branch Procedures

9. Roles & Responsibilities • Agencies • Debt Determination & Notification • Administrative Review & Waiver Requests • Accounting for Debts and Collections • Referral of Delinquent Debts to Treasury • Treasury Department • Collecting debts through Cross Servicing and the Treasury Offset Program (TOP) • Justice Department • Debt Related Litigation • Approval of Certain Debt Collection Actions

10. Waivers of Debt Principal • A decision to forgo collection of a debt owed to the United States as provided for by a specific statute and according to the standards set out under that statute • Decision made post debt determination • If granted, there is no longer a debt • Erroneous payments that are waived are treated as valid payments • Standard usually some variation of equity and good conscience and/or best interests of USG or public

11. Waiver Authority Examples • 5 USC § 5584 - Erroneous payments of pay and allowances, and travel, transportation and relocation expenses and allowances • 5 USC § 4108 - Employee training expenses • 5 USC § 8707(d) – Under withholding of life insurances premiums • 5 USC § 5379 – Student Loan Repayment Program service agreement debts

12. Interest, Penalties & Administrative Costs • Set by terms of Agreement or Statutory Defaults (31 USC § 3717, 31 CFR § 901.9) • Interest • Accrues from Date of Delinquency • Automatically waived if debt paid within 30 days of delinquency • Default set at Treasury Current Value of Funds Rate as of Date of Delinquency • Assessed on Principal only (Does not compound)

13. Interest, Penalties & Administrative Costs(Cont.) • Penalties • Accrue from Date of Delinquency • Default set at annual rate of 6 percent • Assessed on any amount over 90 days delinquent including Principal, Interest, and Admin Costs (Does not compound) • Administrative Costs • Assessed by Agencies for costs incurred for processing/handling delinquent debt • Can be actual or estimated

14. Accounting for Collections • Order Payments Are Applied • Fees (Treasury) • Penalties • Administrative Costs • Interest • Principal (31 CFR § 901.9(f)) • Penalties, Admin Costs and Interest are deposited in Treasury Miscellaneous Receipts

15. Accounting for Collections • As a general rule, all funds received by the USG must be deposited in the general fund of the Treasury unless deposit to the credit of an appropriation or other fund account is authorized by law (31 U.S.C. § 3302 (b)).  • In the absence of specific statutory authority, an Agency can only retain a collection on a debt if it is for a repayment of an overpayment. • For such repayments, the funds may be deposited only to the account that originally made the overpayment (not to funds current at the time the payment is received).

16. Debt Collection Tools • Offset of Federal Payments • Administrative Wage Garnishment • Credit Reporting • Repayment Agreements • Waiver of Interest, Penalties & Costs • Suspension, Compromise & Termination of Collection • Agency Specific (e.g. State Dept. Passport withholding)

17. Debt Collection Actions vs Accounting Actions • Debt Collection Actions • Waiver • Compromise • Suspension of Collection • Termination of Collection • Discharge • Accounting Actions - Write Off

18. Compromise (31 CFR § 902.2 (a)) • Acceptance of less than the full amount of the outstanding debt in full satisfaction of the entire amount of the debt • Most agency approval authority limited to non-fraud debts of $100K or less • Generally requires a lump sum payment • May require reporting of amount of compromise as income to the debtor to the IRS (per 26 U.S.C. § 6050P and 26 CFR § 1.6050P-1)

19. Compromise May compromise a debt if the Government cannot collect the full amount because: 1) Debtor is unable to pay in a reasonable time, as verified by financial information; 2) Government is unable to collect within a reasonable time by enforced collection; 3) Cost of collecting does not justify enforced collection; or 4) There is significant doubt concerning the Government's ability to prove its case in court

20. Suspension • The temporary cessation of active debt collection action pending the occurrence of an anticipated event • May include the suspension of the accrual of interest and penalties (Terms should be set out in Notice of Suspension) • Most agency approval authority limited to non-fraud debts of $100K or less

21. Suspension (31 CFR § 903.2(a)) May suspend collection activity on a debt when: • The agency cannot locate the debtor; 2) The debtor's financial condition is expected to improve (interest still accrues); or 3) The debtor has requested a waiver or review of the debt (interest does not accrue)

22. Termination • The cessation of active and/or passive debt collection action for the foreseeable future • Most agency approval authority limited to non-fraud debts of $100K or less

23. Termination (31 CFR 903.3(a)) May terminate collection activity when: (1) Agency is unable to collect any substantial amount through its efforts or other’s efforts; (2) Agency is unable to locate the debtor; (3) Costs of collection are anticipated to exceed the amount recoverable; (4) Debt is legally without merit or enforcement of the debt is barred by statute of limitations; (5) Debt cannot be substantiated; or (6) Debt has been discharged in bankruptcy

24. Write-Off • An accounting action that results in reporting a debt as having no value on the agency’s financial and management reports • OMB A-129 directs agencies to write off all debts delinquent for more than two years unless an exception is granted • Debts that are written off are classified as either ‘Currently Not Collectible’ or ‘Close Out’

25. Currently Not Collectible • The accounting classification for writing-off a debt that indicates that debt collection actions will continue after write-off

26. Close-Out • The accounting classification that corresponds to the discharge of a debt after the agency determines that further debt collection actions are prohibited or that it does not plan to take any future actions to try to collect the debt. • Termination of all collection activity must occur prior to close-out

27. Discharge • A release of a debtor from personal liability for a debt or, in the context of compromise, part of a debt • Occurs once a debt is classified as close out • May require reporting of amount discharged as income to the debtor to the IRS (per 26 U.S.C. § 6050P and 26 CFR § 1.6050P-1)

28. Questions?