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Criminal debt collection efforts : hearing before the Committee on Governmental Affairs, United States Senate, One Hundred Fourth Congress, first session, July 19, 1995 online

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HEARING

BEFORE THE

COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE

ONE HUNDRED FOURTH CONGRESS

FIRST SESSION



JULY 19, 1995



Printed for the use of the Committee on Grovernmental Affairs




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DEPaSITORV

APR 2 5 1936



U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1996



For sale by the U.S. Government Printing Office

Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

ISBN 0-16-052381-8



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S. Hrg. 104-373

CRIMINAL DEBT COLLECTION EFFORTS



4, G 74/9: S, HRG, 104-373



Tininal Debt Collection Effects, S...

HEARING

BEFORE THE

COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE

ONE HUNDRED FOURTH CONGRESS

FIRST SESSION



JULY 19, 1995



Printed for the use of the Committee on Gktvernmental Affairs



ifly




APR 2 5 19S8



U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1996



For sale by the U.S. Government Printing Office

Superintendent of Documents. Congressional Sales Office. Washington, DC 20402

ISBN 0-16-052381-8



COMMITTEE ON GOVERNMENTAL AFFAIRS



WILLIAM V. ROTH, Jr, Delaware, Chairman



TED STEVENS, Alaska
WILLIAM S. COHEN, Maine
FRED THOMPSON, Tennessee
THAD COCHRAN, Mississippi
CHARLES E. GRASSLEY, Iowa
JOHN McCain, Arizona
BOB SMITH, New Hampshire

Franklin G.



JOHN GLENN, Ohio
SAM NUNN, Georgia
CARL LEVIN, Michigan
DAVID PRYOR, Arkansas
JOSEPH I. LIEBERMAN, Connecticut
DANIEL K. AKAKA, Hawaii
BYRON L. DORGAN, North Dakota
Polk, Staff Director and Chief Counsel



John Raidt, Legislative Director

Leonard Weiss, Minority Staff Director

Michal Sue Prosser, Chief Clerk



(II)



CONTENTS



Opening statements: Page

Senator McCain 1

Senator Dorgan 3

WITNESSES

Wednesday, July 19, 1995

Linda D. Koontz, Associate Director, Information Resources Management/
General Government Issues, Accounting and Information Management Di-
vision, U.S. General Accounting Office; accompanied by William Jenkins,
Assistant Director, General Government Division, and Brian Spencer, Tech-
nical Assistant Director, Accounting and Information Management Division 5

Richard A. Ames, Assistant Director for Finance and Budget, Administrative
Office of the U.S. Courts, accompanied by John Benoit, Project Director,
National Fine Center 11

Gerald M. Stern, Special Counsel, Financial Institution Fraud, Department

of Justice 17

M. Kenneth Bien, Director, Americas Justice and Public Safety Team, Ander-
sen Consulting 30

Michael A. Insco, President, Margate Systems, Inc 33

Alphabetical List of Witnesses

Ames, Richard A.:

Testimony 11

Prepared statement 42

Bien, M. Kenneth:

Testimony 30

Prepared statement 49

Insco, Michael A.:

Testimony 33

Prepared statement 69

Koontz, Linda D.:

Testimony 5

Prepared statement 39

Stern, Gerald M.:

Testimony 17

Prepared statement 47

APPENDIX

Prepared statements of witnesses in order of appearance 39

Prepared statement of David Beatty 90

(III)



CRIMINAL DEBT COLLECTION EFFORTS



WEDNESDAY, JULY 19, 1995

U.S. Senate,
Committee on Governmental Affairs,

Washington, DC.
The Committee met, pursuant to notice, at 2:11 p.m., in room
342, Dirksen Senate Office Building, Hon. John McCain, presiding.
Present: Senators McCain, Smith, and Dorgan.

OPENING STATEMENT OF SENATOR McCAIN

Senator McCain. Welcome. The purpose of this hearing is to as-
sess the quality of Federal criminal debt collection efforts. Particu-
larly, we will examine efforts by the Administrative Office of the
United States Courts to establish the National Fine Center and to
ensure that the project fulfills Congressional intent expressed in
the National Fine Collection Improvement Act of 1987.

The 1987 Act called for a highly-automated, centralized data
base to improve efforts by the 94 Federal Judicial Districts to ac-
count for and collect Federal criminal debt.

Each year, nearly 50,000 Federal criminals are ordered to pay
over $1.5 billion in monetary penalties to victims and the Federal
Government. This money is deposited into the Crime Victim Fund
to finance vital victim assistance programs. Unfortunately, the
Government's record of collecting these debts is not good.

By some estimates, an astounding $4.5 billion in criminal debt
remains uncollected, an amount that has risen 15-fold in the past
decade, and nearly one-half billion dollars since last year. While a
portion of this money is uncollectible because of cases in which as-
sessments greatly exceed the debtors' ability to pay, the effort to
ensure that criminals meet their obligation to victims in society can
be vastly improved.

Debt collection has long been a disorganized and low-priority
function for many Federal Judicial Districts. In one district, the
court did not even have current addresses for nearly one-third of
the criminal debtors under its jurisdiction.

Congress envisioned that creating a national facility to centrally
account for and receive criminal debt would improve the effort. To
finance the project, the Administrative Office was provided with
$20 million from the National Crime Victim Fund. Revenues from
the Crime Victim account are reserved normally for vital victim
compensation and assistance programs.

Congress, in accordance with the victim advocacy groups, per-
mitted the AO to dip into the Crime Victim Fund to finance the

(1)



Fine Center, expecting that enhanced collections from an efficient
fine center would more than offset the cost of the project.

Unfortunately, efficient does not accurately describe the Fine
Center project. Originally, the Fine Center was supposed to be
operational by early 1995. On June 28, 1994, the Governmental Af-
fairs Committee, under the leadership of Senator Dorgan, held a
hearing to assess the NFC. At that hearing, we learned that be-
tween 1990 and 1994, the AO spent nearly $5 million on the
project, yet had zero to show for the effort.

Waste of taxpayers' dollars is always disturbing. However, the
waste of this $5 million was particularly egregious because it con-
stituted double jeopardy to crime victims.

First, money that should have provided vital services to victims
was diverted for a fruitless bureaucratic exercise.

Second, the delay in bringing the NFC on-line has perpetuated
the collections problem. Each month the Fine Center is delayed, an
untold amount of criminal debt is rendered uncollectible, either be-
cause the statute of expectation expires or the Government loses
track of the debtor. Every dime we fail to collect from criminals is
a dime taken away from crime victims who desperately need the
assistance.

Last year, the Administrative Office acknowledged that the
project has been problematic. Mr. Dick Ames, who is with us today,
indicated that a new management team was in place, lessons were
learned, and the AO was embarking with new resolve to establish
a workable Fine Center.

The Committee accepted these assurances and pledged to hold a
hearing this year to assess progress on the project. I look forward
to hearing the testimony today. In no way do I desire to prejudge
the situation, but I must say I am very skeptical that we are on
the right track to establish a Fine Center that fulfills Congres-
sional intent in a timely and cost-effective manner.

The GAO informs us that today, 8 years and $10.5 million after
Congress authorized the NFC, no comprehensive plan for fulfilling
the Congressional intent of a highly-automated National Fine Cen-
ter exists.

We will hear testimony from that Administrative Office that
Phase I of the project is ahead of the schedule and that all 94 dis-
tricts will be "brought into the system" by September of next year.
As I understand it, being part of the system means that court offi-
cials now fill out forms with case information and mail it in to the
NFC for central record keeping, where interest and penalties are
calculated by newly-hired accountants.

Phase II of the project, which calls for the integrated automation
of the data base, bringing to bear the efficiency envisioned by Con-
gress, is still quite a way off. Again, the GAO informs me that we
still have no comprehensive plan for Phase II. I find that astound-
ing. On what has the AO spent $10 million?

The Department of Justice, which is the primary customer of the
NFC, recently wrote to the GAO the following: "The DO J has been
informed that it will not be given on-line interactive access to the
NFC data, contrary to the provisions of the jointly agreed upon re-
quirements document. The absence of on-line access to the NFC
data may require the Department of Justice to develop a computer



system to download data from the Fine Center to perform efficient
debt collection in an automated manner without duplicating the
data entry function already performed by the NFC personnel."

Ladies and gentlemen, we are being told that after we spend $25
million in victims' money on a system to transmit information from
the courts back to Washington, D.C., we will need to spend another
untold sum to develop yet another computer system to enable the
courts to access the vital information to actually improve debt col-
lection.

Recently, I asked the GAO how we can be sure that, today, the
troubled history of the project notwithstanding, we are on the road
to achieving a Fine Center that fulfills Congressional intent in the
most timely and cost-effective manner possible.

The GAO said they cannot provide such assurance because there
is no comprehensive plan for affecting Phase II of the project for
the agency to assess. The lack of detailed plans, alternative studies,
time lines, cost estimates, and decision documents which are cus-
tomary for any such undertaking cast serious doubts on whether
an organized and deliberative decision making process is at work
and it makes it nearly impossible for Congress and the GAO to as-
sess where the project really is and where it is going.

Today, we will hear testimony that the private sector could have
brought the NFC on-line in a fraction of the time we have already
expended for a much lower price tag. I do not impugn the motives
of anyone at the Administrative Office. I am sure that only the best
of intentions are at work, but good intentions are not enough.

This hearing must convince the Committee we are embarked on
the most timely and cost-efficient path to finalizing the National
Fine Center. If not convinced, it would be my intention that the
funding be frozen and the project assessed by an independent out-
side panel once a comprehensive plan is produced.

I want to thank my friend from North Dakota, Senator Dorgan,
for his years of effort on this issue and I want to thank him for
his participation in the hearing today. Senator Dorgan?

OPENING STATEMENT OF SENATOR DORGAN

Senator Dorgan. Mr. Chairman, thank you very much.

I am pleased to join you in this hearing. I think it will advance
some questions that we began to raise last year.

The issue of criminal debt as a result of fines and restitution or-
ders is one that continues to baffle me. I became interested in this
from a report that I saw once in a newspaper about a Government
report about S&Ls and the fines and restitution orders that had
been assessed against S&L operators who were convicted of fraud
and so on.

The particular report I saw showed that 2V2 percent had been
collected out of the $1.96 billion ordered in fines and restitutions
as a result of S&L cases. Of $1.96 billion, $49 million was collected.

It occurred to me, if one was going to owe money, one might
want to owe money to the Federal Government in the form of a fine
because that appears to be the least likely money to be collected.

I then got involved in asking, why would this be the case? I
found out we are owed $4.5 billion in outstanding fines. It is up
about a half-billion from last year. We have a system that is large-



ly archaic, kind of a quill pen system in which each of the Judicial
Districts are out there assessing fines and then trying to collect
them using folks who are not specialists in these areas and who,
as an afterthought, are tracking fines they had addressed long ago.
You couldn't find out how many fines were outstanding, what the
age of the fines were, who was working them. It was chaotic.

The thing I did not understand, Mr. Chairman, is you go down-
town today and buy a shirt at a department store and you give
them a credit card. They are going to run that credit card through
one of these little magnetic image detection things and they are
going to, in 30 seconds, find out whether your credit card is good.
The private sector keeps track of a couple hundred million of those
credit cards, and they can, in 20 seconds, tell you whether John
McCain or Byron Dorgan has paid their credit card bill.

If we can keep track of a couple hundred million credit cards on
almost a real-time basis, I do not have the foggiest idea why we
cannot keep track of $4.5 billion in Federal fines and collect them,
or at least collect those that are collectable. That is why we are
here.

The Chairman made this point, and I think it is an important
one. The money that was invested in creating a National Fine Cen-
ter comes, in large part, from money that would have otherwise
have gone to victims. When money that would otherwise have gone
to victims is invested in the creation of a National Fine Center and
you find out that millions are frittered away because you go down
the wrong street, then back up and make a U-turn, people start
scratching their heads and say, "What are we investing in here?"

That is the purpose of this hearing, to find out, are we headed
in the right direction or not? If not, let us put an end to this and
bring somebody in that can move it in the right direction.

Let me make one final point before we hear the witnesses. The
Chairman referenced the report that we received from the GAO. It
does say Phase I of the plan will be completed by September 1995,
at which time the Administrative Office promises that all 94 Judi-
cial Districts will be providing new Federal criminal debt informa-
tion to the National Fine Center. That sounds encouraging, but it
does not tell quite the whole story.

Since the Administrative Office decided to include only the low-
est-volume Judicial Districts during this Phase I, it has taken only
a small step towards implementation of the Center. The districts
handle fewer than 200 convicted criminals annually. The point of
that is, you are talking about districts that account for $6.5 million
out of the $4.5 billion in Phase I, so one can get a distorted picture
of how far down the road we have really gone here.

Where does this leave us? It leaves us, those of us who are in-
volved in the question of legislating and appropriating money for
these things, to ask the question, are we getting what we pay for,
and if not, how do we change it to make it happen? There is no
reason at all in this country that a criminal ought to feel com-
fortable. When a fine or restitution is imposed against someone
who broke the law, that criminal ought not to feel comfortable
about the agency not being able to collect. I am afraid that is the
case in this country today.



I want somebody who is assessed a restitution order or a fine to
understand that this Government is going to take effective action
to collect it. We take action to collect taxes against people who have
not committed crimes. If people commit crimes and are fined, I ex-
pect us to be 50 times more aggressive in collecting those fines, and
the fact is, the evidence tells us that we have not been aggressive
at all. We have had a chaotic, disjointed system that does not work.

I have one fmal point. It really bothers me to hear that we may
have a circumstances where, when this is finished, the Department
of Justice cannot access real-time, real information. That would not
be a system that would be useful, either.

I appreciate very much Chairman McCain working with us to
hold this hearing. He, as always, is indefatigable in tracking these
kinds of issues on behalf of good Government and on behalf of the
interest of the American taxpayer.

Mr. Chairman, thank you.

Senator McCain. Thank you very much, Senator Dorgan. Thank
you for your much longer involvement in this issue than mine.

Our first witness is Ms. Linda Koontz, who is the Associate Di-
rector of the Accounting and Information Management Division of
the General Accounting Office. Welcome, Ms. Koontz. Perhaps for
the record you would like to identify your associates.

TESTIMONY OF LINDA D. KOONTZ, ASSOCIATE DIRECTOR, IN-
FORMATION RESOURCES MANAGEMENT/GENERAL GOVERN-
MENT ISSUES, ACCOUNTING AND INFORMATION MANAGE-
MENT DIVISION, U.S. GENERAL ACCOUNTING OFFICE; AC-
COMPANIED BY WILLIAM JENKINS, ASSISTANT DIRECTOR,
GENERAL GOVERNMENT DIVISION, AND BRIAN SPENCER,
TECHNICAL ASSISTANT DIRECTOR, ACCOUNTING AND IN-
FORMATION MANAGEMENT DIVISION

Ms. Koontz. Certainly. On my right is Bill Jenkins, who is an
Assistant Director from our General Government Division, and on
my left, Brian Spencer, who is the Technical Assistant Director
who worked on this particular project.

Senator McCain. Thank you. Welcome, gentlemen, and welcome
to you, Ms. Koontz.

Ms. Koontz. Thank you. With your permission, we would like to
summarize our statement and submit the full one for the record.

Senator McCain. Without objection.

Ms. Koontz. I am pleased to be here today to discuss the Admin-
istrative Office of the U.S. Courts' efforts to centralize criminal
debt accounting and reporting within the National Fine Center.

As you know, under the Criminal Fine Improvements Act of
1987, AOUSC was required to establish a criminal debt system to
automate and centralize criminal debt processing for all 94 Judicial
Districts, replace the fragmented approach for receiving criminal
fine payments, and alleviate longstanding weaknesses in account-
ing for and reporting on criminal monetary penalties.

As discussed in our May report, the AOtJSC has made progress
in implementing the NFC by centralizing new criminal debt infor-
mation in 25 of the smaller Judicial Districts. We believe, however,
that there are significant challenges ahead that will require exten-
sive planning and coordination among AOUSC, the Department of



Justice, and other systems users if AOUSC is to successfully imple-
ment the National Fine Center in all 94 Districts.

I would like to briefly discuss AOUSC's initial efforts to central-
ize criminal debt and implement a system and then discuss addi-
tional actions that are needed by AOUSC and Justice to complete
NFC implementation.

In April 1994, AOUSC began its current two-phase implementa-
tion approach. Under Phase I, scheduled to be completed in Sep-
tember 1996, the NFC planned to use an off-the-shelf accounting
system to establish debtor accounts, bill debtors, record payments,
pay victims, and report on criminal debts on a limited scale. Once
the selected system was fully operational under Phase I, AOUSC
planned to expand the system during Phase II to improve users' ac-
cess to NFC information and increase management information re-
porting capabilities.

Since April 1994, AOUSC officials have established a process for
centralizing criminal debt accounts, developed a program to train
Judicial District staff on NFC requirements, selected the off-the-
shelf accounting system, and begun processing new criminal debt
information for 25 of the smaller Judicial Districts, using the se-
lected system. AOUSC's schedule calls for 15 additional Judicial
Districts to be added to NFC by August 1995.

There are a number of actions, however, that AOUSC and Jus-
tice need to take to complete NFC implementation. First, AOUSC
needs to complete a number of enhancements to the off-the-shelf
accounting system. Currently, only a small fraction of criminal debt
accounts are on the NFC system. Before the larger courts and ex-
isting criminal debt can be added, the AOUSC will need to auto-
mate certain billing, payment receipt, and disbursement functions
which are, for the most part, being done manually by NFC staff.

One of the more important enhancements is to establish an auto-
mated interface between the NFC and a Justice system to allow
Justice staff increased access to account information.

We understand, Mr. Chairman, that AOUSC officials are work-
ing to develop these enhancements. However, none are complete at
this time.

Second, AOUSC and Justice will need to work together to rec-
oncile the estimated $4.5 billion in existing debt accounts and enter
these amounts into the NFC system. In the past, debt accounts had
been separately maintained by Judicial District staffs within the
Clerk of the Courts Offices, Probation Offices, and U.S. Attorneys
Offices. AOUSC has drafted a strategy to guide the upcoming rec-
onciliation process. However, this strategy has not yet been agreed
to by Justice and Judicial District officials.

Third, AOUSC and Justice need to develop a strategy for deter-
mining the collectibility of both new and existing criminal debt.
Currently, AOUSC records all new criminal debt in the NFC sys-
tem as accounts receivable without a determination by AOUSC or
Justice as to whether such debt is collectible. Without such a deter-
mination, decision makers may be led to believe that substantially
greater amounts are collectible, the NFC will be unable to accu-
rately report on the composition of the outstanding debt, and users
who are responsible for collecting debt will be unable to effectively



target their resources on debts with the highest probabihty of col-
lection.

According to AOUSC and Justice officials, Justice has recently
instituted a new policy intended to improve its ability to record the
collectibility of criminal debt. However, we have not analyzed the
policy or the extent to which it has been implemented.

Finally, AOUSC will need to define specifically how and when
the objectives described under Phase II of the NFC project will be
accomplished. AOUSC officials told us that they had begun work-
ing with Justice and other system users to define the necessary in-
formation and recording requirements but have not yet defined the
specific system enhancements that are needed. AOUSC officials
generally agreed with our findings and recommendations, and in
each case, they are taking action to develop the necessary plans
and strategies to address these issues.

That concludes our prepared statement. We would be happy to
answer any questions that you may have.

Senator McCain. Thank you very much, Mr. Koontz.

To your knowledge, does the Administrative Office have a suffi-
ciently comprehensive written plan for automating and integrating
the Federal Districts into the National Fine Center?

Ms. Koontz. At the time of our review, the AOUSC did not have
a comprehensive plan for implementing the NFC system, and as
stated in our report, we were particularly concerned about the lack
of specificity about Phase II and also that the strategies for dealing
with reconciliation and with collectibility had not been finalized.

Recently, we were informed that AOUSC has prepared a plan
that discusses the implementation of Phase I and they included it
in their IRM plan. However, this plan does not go as far as to ad-
dress Phase II and we have not reviewed the submission.

Senator McCain. Automated integration is an essential ingredi-
ent, would you agree, if we are going to efficiently collect and
record these fines?

Ms. Koontz. Yes. Automation and integration are the key to effi-
cient collection. At the time of our review, the small volume of ac-
counts that were on the system would make it such that the lack
of automation and integration wouldn't have been a big problem.
However, as the AOUSC continues to add more districts and larger
districts, it will become critical that they take advantage of auto-
mation and integration to successfully complete the system.

The AO recently indicated that it plans to electronically integrate
its operations, but it cannot do so until LANs are installed in the
Judicial Districts and external interfaces with DOJ and other users
are installed.

Senator McCain. Are you dismayed that it has been 8 years and
we spent $10 million to get where we are?

Ms. Koontz. We think clearly that to progress any further with-
out the required plans and documentation presents more of a risk


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Online LibraryUnited States. Congress. Senate. Committee on GoveCriminal debt collection efforts : hearing before the Committee on Governmental Affairs, United States Senate, One Hundred Fourth Congress, first session, July 19, 1995 → online text (page 1 of 9)