Past due receivables are growing
Oregon’s liquidated and delinquent debt rose from $1.7 billion at the end of fiscal year 2008 to nearly $3.2 billion by 2014, while statewide collection rates on that debt dropped from 13.5% to 11.2%. Nearly $800 million of the debt is tied to the state’s general fund.
Liquidated and Delinquent Receivables
The recession contributed to the increased debt. Evidence indicates many of the debtors are low-income, and more than half the debt may be uncollectible.
However, bumping up Oregon’s collection rates could still make a substantial difference over time. At 2014 debt levels, every percentage point increase in the statewide collection rate would improve collections by about $38 million. If Oregon had collected delinquent debt at a 13.5% rate in 2014 – last achieved in 2008 – the state would have brought in nearly $90 million more in collections.
Our audit found four key improvements that could help Oregon increase collections:
- Improved oversight of collections;
- Enhanced performance measurement and reporting;
- Increased expectations for private collection firms and the state’s central collection agency;
- Better use of proven collection tools.
Oregon has not focused on improving collections
Our audit found Oregon’s highly decentralized approach to collections has contributed to a lack of sustained focus on improvement. This is our sixth collections-related audit since 1997. Significant improvements identified in those audits have not been implemented, some dating back 18 years.
Oregon has not implemented productive collection tools used by other states, has not resolved lingering legal issues that hinder collections, and has allowed inadequate performance measurement to persist.
Individual agencies have made some improvements. Statewide, however, no one has been tracking collection improvement efforts or encouraging them. Our discussions with leading states on debt collection highlighted the importance of having a system “expert” responsible for identifying potential improvements, looking outside the state system for new opportunities, and reporting to decision makers.
In Oregon, the statutory authority and history of the Department of Administrative Services indicate it is the best agency to serve as a statewide strategist on debt collection.
Performance reporting, measurement are flawed
State agencies routinely collect receivables, or bills for charges and services. Statewide performance reporting focuses on receivables that become “liquidated and delinquent” – past due debt that debtors have had a chance to contest.
The Legislative Fiscal Office prepares an annual report on liquidated and delinquent debt collection, designed 16 years ago by the Legislature to help drive collection improvements. However, the report includes few large-debtor agency details – not even their collection rates – contains noteworthy inaccuracies, and does little to hold agencies accountable for collections performance. It also does not identify potential collections improvements or detail the status of agency improvement efforts, key to encouraging advances.
In addition to reporting, we also focused on “assignment” of debt, accounts sent by agencies to private collection firms or the Other Agency Accounts unit at the Department of Revenue, the state’s collectors of last resort. Private collection firms carried nearly $1 billion of the state’s debt as of 2014 – more than double the 2008 balance – with a collection rate just over 1%. Other Agency Accounts, the state’s central collection agency, had a better rate, roughly 7%, according to Legislative Fiscal Office data. Assignment to OAA has stayed relatively flat, however, hitting $259 million in 2014.
We found the Department of Administrative Services is not evaluating the performance of OAA or private collection firms. We also found some large-debtor agencies are not using performance information to strategically assign debt.
Oregon is not using some proven collection tools
Our research, discussions with other states and interviews with Oregon officials suggested eight tools Oregon could pursue to increase collections, including some the state has considered for years but not implemented.
Among the most promising:
State vendor offset: Forty states are intercepting state payments to debtors who are also state vendors, including corporations and consultants. Our work indicates vendor offset in Oregon would collect at least $750,000 a year.
Internet posting of debtors: Twenty-three states maintain public online lists of debtors, some focused only on large debtors, to increase collections. Many of the debtors pay after they receive a warning letter but before the information is posted.
2015 Legislative changes should help
The Institute for Modern Government at Willamette University drafted Senate Bill 55 in the 2015 legislative session to improve debt collection. We issued an interim report to the Legislature to suggest further legislative changes. Our recommendations were incorporated in the bill, which the Legislature passed and the governor signed in July.
At our recommendation, Senate Bill 55 charged the Department of Administrative Services with monitoring and improving debt collection. DAS’s duties, detailed in the bill, include improving performance reporting and assignment of debt for collection. DAS started a committee last year to address statewide collections, and contributed to Senate Bill 55.
Senate Bill 55, passed by the Legislature, included changes we recommended.
Even with stronger oversight, improving collection of Oregon’s rising debt will not happen overnight. During our audit, we found that improving collections requires meticulous work with agencies.
DAS officials – and policy makers – will also have to be persistent to ensure improvements are made.
Beyond the changes implemented in Senate Bill 55, we found improvements OAA could focus on. We also found other steps DAS could take, including:
- Preparing meaningful annual reports on debt collection, relevant to the public and policy makers.
- Helping agencies adopt successful collection tools.
- Developing short- and long-term plans for a sustained focus on debt collection.
Both the Department of Administrative Services and the Department of Revenue generally agreed with our recommendations, with DAS noting that it recognizes its oversight role.
DAS said it would focus efforts on current receivables as well as liquidated and delinquent debt. The response also included concerns about the difficulty of adopting a fully integrated vendor offset program.
The Department of Revenue said agency officials will continue to discuss many of the collection improvements noted in our audit with policymakers and stakeholders. A computer system upgrade now underway will help the agency make further improvements, the response said.
The full agency responses can be found at the end of the report.