U.S. Department of Justice
Office of the Inspector General
Follow-up Inspection of the Management of Delivery Bonds
in the Immigration and Naturalization Service
Report Number I-98-18
TABLE OF CONTENTS
Scope and Methodology
Results of the Inspection
Delays in Processing Breach Actions
Delays in Processing Appeals
Delays in Issuing Bills
Collection of Breached Bonds
Accounting for Breached Bonds
Appendix I Methodology for Selecting Surety Bond Sample
Appendix II Follow-up on Recommendations - OIG Inspection Report I-92-25
Appendix III Immigration and Naturalization Service Response to Draft Report
Appendix IV Office of the Inspector General's Analysis of Management's Response
August 11, 1998
MEMORANDUM FOR DORIS MEISSNER
IMMIGRATION AND NATURALIZATION SERVICE
SUBJECT: Follow-up Inspection of the Management of Delivery Bonds in the Immigration and Naturalization Service, Report Number I-98-18
We have conducted an assessment of the Immigration and Naturalization Service's (INS) Management of Delivery Bonds. The objective of the review was to determine whether INS had improved the processing of surety bonds and related breach and billing actions since our last inspection.
This inspection, as in our 1993 review, disclosed weaknesses in tracking, breaching, billing, and collecting for surety bonds. As before, we found that posting bonds will not necessarily guarantee that aliens will appear as requested. In addition, not all surety companies paid INS when billed for breached bonds. Because of the continued failure to collect millions of dollars owed by surety companies and the numerous problems INS continues to have at every step in the surety bond process, we recommend that INS either re-engineer this process or discontinue accepting surety bonds and require cash bonds or Treasury bonds to guarantee the appearance of all aliens released on bond.
In the four district offices we visited, during the four years covered by our inspection, 1992 through 1995, INS lost the opportunity to breach and collect on an estimated 147 bonds with a value of over $775,000 because district office employees did not process the breach actions timely. The four offices visited controlled over 70 percent of the bond cases within our review parameters.
Due to error or neglect, personnel in the four offices visited had taken no action to breach bonds with an estimated value of over $440,000 that were still breachable at the time of our review. Supporting documents for bills issued for breached bonds during the first six months of Fiscal Year (FY) 1996 showed that processing of breached bonds by all district offices was unnecessarily delayed for an average of seven months.
Surety company appeals of breach decisions, in the sample we reviewed at district offices, were not sent promptly by the districts to the Administrative Appeals Unit (AAU) in Washington, D.C. Appeals in our sample were held in the districts an average of 133 days before they were forwarded to the AAU.
At the onset of our field work, we found that the AAU had 367 appeals on hand, with the oldest on hand for 21 months. By the end of our field work, three months later, the AAU had reduced the number of appeals on hand to 28.
Issuance of bills for breached bonds had been delayed up to three months because the old Bond Accounting System hardware unexpectedly broke down. It could not be repaired and the accounting package for the new Bond Management Information System took longer than anticipated to develop and install. We found breach notices on hand at the administrative centers, waiting to be billed, valued at almost $1.5 million.
INS was reporting surety companies that were delinquent debtors to United States Attorneys or to the Department's Civil Division for litigation in a more timely manner than we found in our 1993 review.
Losses in the collection of breached bonds were still occurring. According to INS records, during FY 1993 through 1996, INS issued bills for breached bonds amounting to $25.8 million and collected payments amounting to $15.7 million. The $15.7 million includes $4 million in installment payments that were received during the period for settlements that occurred before the beginning of FY 1993. When the $4 million is excluded from collections for a better comparison, we find that only $11.7 million was collected relative to the $25.8 million billed, or 45.5 percent of billings.
We sent copies of the draft report to your office on December 11, 1997, and requested written comments on the findings and recommendations. Your April 23, 1998, response addressed each of the recommendations. We have attached your response as Appendix III.
Our analysis of your response describes the additional actions needed for each of the recommendations and can be found in Appendix IV. Please provide the additional information requested within 45 days of the date of this memorandum.
We appreciate the cooperation that managers and staff throughout the INS afforded us as we carried out our review. If you have any suggestions how we might improve our review process, or if we can provide you with additional information, please let us know.
cc: Kathleen Stanley
Immigration and Naturalization Service
Vickie L. Sloan
Audit Liaison Office
The Inspections Division, Office of the Inspector General, Department of Justice, has completed a follow-up inspection of the Management of Delivery Bonds in the Immigration and Naturalization Service (INS). This inspection was a follow-up to our report number I-92-25, September 1993.
The objective of the review was to determine whether INS had improved the processing of surety bonds and related breach and billing actions since our last inspection.
Generally, delivery bonds, which can be surety, cash, or Treasury bonds, are used to guarantee that aliens appear before an immigration officer for deportation action. If the aliens fail to appear as required, the terms of the delivery bonds are deemed breached and they are due and payable. The process of bonding, breaching, billing, and collecting for breached bonds starts at the district office, where aliens are first apprehended, detained, and bonded out. District offices track the bonds, request appropriate individuals and surety companies to produce aliens, and notify individuals and surety companies when bonds have been declared breached. At the time of our review, two of the four INS administrative centers, Burlington, Vermont, and Twin Cities, Minnesota, were responsible for billing and collecting for delivery bonds.
Since Fiscal Year (FY) 1993, when the Department of Justice Appropriations Act authorized the establishment of the Breached Bond/Detention Account, monies from breached bonds have been deposited into this account. Any amount in excess of annual collections of $8 million is available to INS for expenses incurred in the collection of breached bonds and expenses associated with the detention of illegal aliens. Therefore, both INS and the Government as a whole gain revenue from the proper and timely processing of the breached bonds.
This inspection, as in our 1993 review, disclosed weaknesses in tracking, breaching, billing, and collecting for surety bonds. As before, we found that posting bonds will not necessarily guarantee that aliens will appear as requested. In addition, not all surety companies paid INS when billed for breached bonds. Because of the continued failure to collect millions of dollars owed by surety companies and the numerous problems INS continues to have at every step in the surety bond process, we recommend that INS either reengineer this process or discontinue accepting surety bonds and require cash bonds or Treasury bonds to guarantee the appearance of all aliens released on bond. The following summarizes our findings:
DELAYS IN PROCESSING BREACH ACTIONS
· In the four district offices we visited, during the four years covered by our inspection, 1992 through 1995, INS lost the opportunity to breach and collect on an estimated 147 bonds with a value of over $775,000 because district office employees did not process the breach actions timely. The four offices visited controlled over 70 percent of the bond cases within our review parameters.
· Due to error or neglect, personnel in the four offices visited had taken no action
to breach bonds with an estimated value of over $440,000 that were still breachable at the
time of our review.
· Supporting documents for bills that were issued for breached bonds during the first six months of FY 1996 showed that processing of breached bonds by all district offices was unnecessarily delayed for an average of seven months.
DELAYS IN PROCESSING APPEALS
· Surety company appeals of breach decisions, in the sample we reviewed at district offices, were not sent promptly by the districts to the Administrative Appeals Unit (AAU) in Washington, D.C. Appeals in our sample were held in the districts an average of 133 days before they were forwarded to the AAU.
· At the onset of our field work, we found that the AAU had 367 appeals on hand, with the oldest on hand for 21 months. By the end of our field work, three months later, the AAU had reduced the number of appeals on hand to 28.
DELAYS IN ISSUING BILLS
· Issuance of bills for breached surety bonds had been delayed up to three months because the old Bond Accounting System hardware unexpectedly broke down. It could not be repaired and the accounting package for the new Bond Management Information System took longer to develop and install than anticipated. We found breach notices on hand at the administrative centers, waiting to be billed, valued at almost $1.5 million.
COLLECTION OF BREACHED BONDS
· INS was reporting surety companies that were delinquent debtors to United States Attorneys or to the Department's Civil Division for litigation in a more timely manner than we found in our 1993 review.
· Losses in the collection of breached bonds were still occurring. According to INS records, during FYs 1993 through 1996, INS issued bills for breached bonds amounting to $25.8 million and collected payments amounting to $15.7 million. The $15.7 million includes $4 million in installment payments that were received during the period for settlements that occurred before the beginning of FY 1993. When the $4 million is excluded from collections for a better comparison, we find that only $11.7 million was collected relative to the $25.8 million billed, or 45.5 percent of billings.
ACCOUNTING FOR BREACHED BONDS
· Previously, we found that interest, penalties, and administrative charges on delinquent surety company accounts were sometimes lost because INS' centralized accounting system did not have the capacity to charge these items to surety company accounts. Also, interest, penalties, and administrative charges on delinquent surety company accounts were not included as accounts receivable in reports to the Department of the Treasury. The accounting system has been enhanced so that these items are now charged and included in reports to Treasury.
The Inspections Division, Office of the Inspector General, Department of Justice, has completed an inspection of the Management of Delivery Bonds in the Immigration and Naturalization Service (INS). This inspection was a follow-up to our report number I-92-25, dated September 1993, for which the field work was conducted in 1992.
The objective of the review was to determine whether INS had improved the processing of surety bonds and related breach and billing actions since our last inspection.
SCOPE AND METHODOLOGY
The scope of the inspection included all INS organizations with responsibility for breached delivery bonds, from the initial breach to collection of amounts due. These organizations included district offices; the headquarters Administrative Appeals Office (AAO); the two administrative centers responsible for bond accounting, billing, and collection; and debt collection offices in the headquarters offices of finance and legal counsel.
The inspection team conducted field work at the INS Headquarters' Detention and Deportation (D&D) Division; the Office of the General Counsel; the Office of Finance; the Administrative Appeals Unit of the AAO, Washington, D.C.; the two administrative centers in Burlington, Vermont, and Minneapolis, Minnesota; and the District Offices in Los Angeles, California; New York, New York; Miami, Florida; and San Francisco, California.
The team reviewed applicable laws, regulations, policy, and written procedures; examined operational, financial, and legal records and reports; and interviewed appropriate personnel at all locations visited. The inspection covered surety bonds breached during the period January 1, 1992, through December 31, 1995; however, breached bond billings, collections, and appeals from subsequent periods were reviewed as necessary.
The Immigration and Nationality Act (INA), 8 U.S.C. 1101 et seq., gives INS statutory authority to arrest aliens and take them into custody, pending a determination whether they should be deported. Pending a determination, INS may detain aliens in custody; release them under bonds of not less than $500 ($1,500 as of April 1, 1997); or release them as otherwise provided.
Before April 1, 1997, INS had statutory authority to detain aliens for a period limited to 6 months after an order of deportation became final, except in the case of an alien convicted of an aggravated felony, an alien in exclusion proceedings, an alien for whom deportation was imminent, or in other cases, where the delay was not the fault of the United States or was excusable. If INS had not removed an alien who had been ordered deported by the expiration of the 6-month period, except in the cases cited above, INS lost the authority to detain the alien and was required to release him. When INS loses authority to detain an individual, INS also loses the authority to maintain a bond, and therefore must cancel that bond.1
Three different offices are involved in deportation proceedings: the Executive Office of Immigration Review (EOIR), which includes the immigration judges; the INS Office of General Counsel, which includes the district counsel who is located at district offices but reports to Headquarters; and the INS district offices, which include the detention and deportation officers. The INA provides for an immigration judge to conduct administrative proceedings, receive evidence, examine the alien and any witnesses, and make a determination, including issuing a final order of deportation. The EOIR, which is also responsible for the proceedings through an administrative appeals level, is a component separate from INS although it is also within the Department of Justice.
Once the immigration judge has issued a final order of deportation, EOIR serves the appropriate INS district counsel with a written copy of the final order. The district counsel incorporates the final order into the alien's file (A-file) and, if an appeal is not filed, transfers the file to the district's detention and deportation branch for further action. If an alien fails to appear at an EOIR hearing, the judge may issue a final order in his or her absence.
After issuance of the final order, if the alien was bonded, INS must request the obligor who posted the bond (surety company or individual) to secure the appearance of the alien, or have the alien appear before an immigration officer. If INS makes a timely request, and the obligor does not ensure the appearance of the alien or the alien fails to appear as requested, the terms of the delivery bond have been breached and the bond becomes due and payable to the United States.
The district that has custody of the file containing the immigration bond determines when a bond has been breached. District detention and deportation personnel are responsible for notifying the obligor that the bond has been breached, and of the right to appeal the decision to the AAO in Washington, D.C.
Appeals of breach actions must be filed by the obligor within 30 days of service of the breach notice. If the obligor does not make a timely appeal, or if the AAO upholds the decision that the bond has been breached, the breach action becomes final, and the obligor is liable for the amount of the bond.
The Burlington and Twin Cities Administrative Centers bill surety companies for amounts due from breached surety bonds and maintain accounts receivable. The administrative centers use the Bond Management Information System (BMIS) to track the status of all bonds received (cash, Treasury, and surety bonds). The centers use the Financial Management and Control System to record bills, payments, and receivables.
For cash bonds, aliens, or obligors on their behalf, deposit the entire amount of the bond in cash (or cash equivalent) with INS. INS subsequently deposits the cash in a United States Treasury trust account. If the bond is canceled, the cash plus interest is returned to the obligor. If it is breached, the administrative center transfers the cash from the trust account to a permanent Treasury account.
When Treasury bonds are used to obtain an alien's release from custody, the bond is maintained at an administrative center. If it is canceled, the bond amount and any interest received by INS are returned to the obligor. If it is breached, it is cashed and deposited into a Treasury account.
When surety bonds are used, aliens pay surety companies anywhere from 10 to 80 percent of the face value of the bond and the companies promise INS that they will secure the appearance of the alien on demand or pay INS the face value. When the bonds are breached, INS must bill the surety company and sometimes take stringent collection action to obtain payment. Even then, INS is not always successful in collecting the amount owed.
The ratio of the types of bonds held by INS, according to the Bond Management Information System, as of September 30, 1996, was approximately 65 percent ($124.4 million) cash bonds to 35 percent ($67.1 million) surety bonds. Treasury bonds accounted for less than one half of one percent ($146,000).
Since fiscal year (FY) 1993, when the Department of Justice Appropriations Act authorized the establishment of the Breached Bond/Detention Account, monies from breached bonds have been deposited into this account. Any amount in excess of annual collections of $8 million is available to INS for expenses incurred in the collection of breached bonds and expenses associated with the detention of illegal aliens. Therefore, both INS and the Government as a whole gain revenue from the proper and timely processing of the breached bonds.
There is a long history of problems associated with the management of delivery bonds and collection of funds owed by surety companies. This history is documented by past audit and inspection reports. Although the same weaknesses have been enumerated repeatedly by both internal and external reviews, INS has not yet achieved effective management over delivery bonds. Listed below are findings from several reports, the first, issued in 1984.
· A 1984 General Accounting Office (GAO) report cited losses to INS caused by the failure of surety companies to pay their debts, and the need for debt ceilings and a nationwide system to track bond coverage and debt levels by surety companies.
· A 1986 INS internal audit noted losses to the Government ranging from interest on breached bonds lost due to delayed billing, to millions of dollars owed by surety companies that failed to pay their debts to INS.
· A 1988 GAO report cited INS statements that insolvency of five surety companies prevented INS from collecting $9.5 million in three years on breached bonds, and that surety companies were delinquent in paying $11.4 million. The report said INS took an average of 130 days to bill obligors after determining bonds had been breached, and carried surety bills as receivables improperly.
· A 1989 Justice Management Division (JMD) audit noted that INS could not determine the potential liability of surety companies or the actual amount owed. At times, INS had to rely on amounts stated by the surety company due to the lack of records. The report stated that INS was in litigation with four additional surety companies at the time. It further noted that during 1987, INS considered and rejected a proposal to eliminate use of surety bonds and accept only cash bonds.
· A 1991 GAO report noted INS did not have systems or procedures to ensure hundreds of millions of dollars in revenue and debts were collected, accounted for, and deposited. It said millions of dollars in debts were uncollected because of inaccurate data and the lack of adequate records. It cited as an example an insurance company that owed INS about $6 million for breached surety bonds. The insurance company proposed a settlement of $1 million because INS' financial data had proven wrong in the past, INS' financial system was antiquated and unreliable, and aliens' files were incomplete.
The report pointed out that INS gave low priority to, and district directors were not held accountable for, debt collection. The report portrayed INS as slow and ineffective in directing design and implementation of an INS-wide collection system.
Our 1993 inspection found many of the same problems cited above. INS did not have effective controls and procedures to track bonds, process breach actions, and bill for and collect amounts due from surety companies. In addition, we found that in settlement actions between FYs 1987 and 1993, INS agreed to forgo collection actions on debts and bonds already written but not yet breached that totaled an estimated $33 million.
In our 1993 inspection report, we offered 21 recommendations for improvement of INS management of delivery bonds.2 Only 12 of these recommendations have been fully implemented. Six recommendations have either not been completed or new instructions or policies were issued but not followed. The remaining three recommendations have not been implemented.
RESULTS OF THE INSPECTION
DELAYS IN PROCESSING BREACH ACTIONS
Our 1993 inspection found that in the five district offices we visited INS had lost the
opportunity to breach bonds with an estimated value of $750,000 because removal actions
had not been taken within the required 6 months of final orders of deportation. Our 1993
inspection also disclosed INS had failed to pursue cases that had been administratively
closed but still had breachable bonds worth approximately $540,000.
During our current follow-up inspection, we reviewed a random sample of bonds for aliens in four district offices. Nationwide, a total of 3,479 bonds fell within our review parameters.3 The four districts, Los Angeles, New York, San Francisco, and Miami accounted for over 70 percent of these bonds. The two districts with the largest number of these bonds, Los Angeles and New York, together accounted for over 50 percent of the total. Surety bonds for these two districts were also reviewed during our 1993 inspection.
In these four district offices INS had lost the opportunity to breach and collect on an estimated 147 surety bonds with a value of $775,000 because actions had not been taken within 6 months of final orders of deportation. At these districts, due to error or neglect, INS was also not pursuing cases that had breachable bonds with an estimated value of over $440,000. We noted the following:
· Los Angeles District. We reviewed 168 of the 909 surety bonds (18.5 percent) within our review parameters. We determined that INS had lost the ability to breach and collect on 11 of these bonds, valued at $51,500, because deportation personnel failed to make demands for aliens to appear within 6 months of final orders. If the sample was representative, we can expect that the ability to breach 60 bonds with a total value of $278,400 was lost. In 1993 we found 21 bonds in our sample were lost, with a value of $44,250, and we estimated that a total of $210,000 was lost.
· New York District. We reviewed 198 of the 898 surety bonds (22 percent) within our review parameters. We found 14 bonds in our sample, valued at $91,500, were lost due to failure to take timely actions. If our sample was representative, we can expect that the District lost the ability to breach and collect on 63 bonds with a total value of $415,000. In 1993 we found 33 bonds, valued at $128,000, were lost and estimated that a total of $535,000 was lost.
· San Francisco District. We reviewed 105 of the 286 surety bonds (36.7 percent) within our review parameters. Only three bonds in our sample, valued at $15,000, were lost due to lack of timely action. If this sample was representative, we can expect that the ability to breach eight bonds with a total value of $40,800 was lost.
· Miami District. We reviewed 139 of the 376 surety bonds (37 percent) within our review parameters. Six bonds in our sample, valued at $15,500, were lost. If this sample was representative, we can expect that the ability to breach 16 bonds with a value of $41,900 was lost.
The low estimate for Miami's bond loss may be due to the composition of the Miami deportation docket. Over 70 percent of the aliens in the Miami sample were nationals of Nicaragua, Cuba, El Salvador, and Haiti. Aliens from these countries were allowed some form of extended temporary relief from deportation on humanitarian grounds. For example, between 1986 and 1992 final orders of deportation had been issued for 42 of the 83 Nicaraguans in our sample, but because they could not be deported their bonds were not subject to breach.
DELAYS IN PROCESSING APPEALS
District Offices. Our 1993 inspection found that district offices were slow in forwarding appeals of breach bond decisions to the Administrative Appeals Office (AAO) and the AAO was slow in processing the appeals. We found that district offices had taken an average of 150 days after appeals were filed to forward these appeals to the AAO.
Our current follow-up inspection also found that district offices were slow in forwarding appeals to the AAO. While inspecting the operations of the AAO, we selected all breached bond appeals on hand from the district offices we intended to visit. We found 83 appeals from these districts, the majority of them (69) New York cases. The districts took an average of 133 days after appeals were filed to forward these appeals to the AAO. This delay was less than the average of 150 days that we found in 1993. The delays that occur during each stage of the breach process accumulate and cause bills to be issued late thereby resulting in a corresponding delay in collection of funds by the government.
Administrative Appeals Unit. During our 1993 inspection, we found that the unit within the AAO responsible for adjudicating breached bond appeals had 262 breached bond appeals pending decisions.
Only 16 of these appeals had been assigned to officers to adjudicate. As of June 1, 1996, the AAU had 367 breached bond appeals awaiting adjudication. Only nine of these appeals had been assigned to officers to adjudicate.
In 1993 we estimated that the average time the appeals had been at the AAU awaiting adjudication was six months. During our current follow-up inspection we also estimated the average waiting time at the AAU to be six months. The oldest documents on hand had been there almost 21 months. Based on the total pending workload of 367 bonds and the average value of the 83 case files we reviewed, we estimated the total value of bonds being held on appeal at the AAU to be about $2.8 million. The delay in adjudicating these breached bond appeals delays collection of the bonds and any related accrued interest and late charges. Interest charged at the nominal rate of 5 percent on $2.8 million would amount to $380 per day.
We visited the AAU again near the end of our field work and found that the number of appeals awaiting adjudication had been reduced from 367 to 28. Substantially reducing the backlog after our first visit demonstrates that these appeals can be adjudicated expeditiously and backlogs need not be allowed to develop.
DELAYS IN ISSUING BILLS
All immigration bond management and control functions, including the billing and collection for breached surety bonds, are performed by two of the four INS administrative centers, Burlington and Twin Cities.
District Offices. District Offices delayed the processing of breach actions which in turn caused excessive delays from the time a breach occurred until the bill was issued. The two administrative centers shared responsibility for all 33 districts nationwide, and we reviewed all the billing records at the centers for surety bonds breached and billed or awaiting billing in FY 1996. These records indicated the date the actual breach occurred so we could determine how long it took all district offices in INS to process these actions during the period of review. We found that it had taken an average of 211 days for district offices to notify the administrative centers that bills should be issued for bond breaches. Even though this time is excessive, it is less than the average of 290 days processing time reflected in our 1993 inspection.
Administrative Centers. In our 1993 inspection we found the centers were not issuing bills for breached bonds in regular billing cycles that met the timeliness requirements of the Treasury Financial Manual. Chapter 8000 of the Treasury Financial Manual requires that a bill be issued within 5 business days after the day a payment is due, unless it would be more cost beneficial to do otherwise. Our 1993 inspection found that the Twin Cities center had an estimated $650,000 in breach notices on hand waiting to be billed. Some of the notices had been on hand for more than a year.
In our current inspection, we found breach notices on hand at both centers that totaled almost $1.5 million -- $500,000 at Twin Cities and almost $1 million at Burlington. The age of the breach notices averaged seven months. None of the unprocessed notices was older than 12 months. While we were on site at the administrative centers in June 1996, officials told us that more billing cycles would have taken place, but they had not been able to use any automated billing equipment for the previous three months. The hardware for their billing system had broken and could not be repaired. Hardware was in place for a new billing system, but the software had not been completed. Subsequently, INS officials told us that all of the bills in question were issued as of July 30, 1996.
COLLECTION OF BREACHED BONDS
The INS has been more aggressive in collecting delinquent accounts since our 1993 inspection. Delinquent accounts have been reported to the Department's Civil Division for collection and have been reported to the Department of the Treasury in accordance with the Federal Claims Collection Standards so that Treasury may take decertification action against surety companies when appropriate.4 INS has also advised some companies that it would stop accepting their surety bonds if they did not bring their accounts current. In addition, the bond contract itself, Form I-352 (Immigration Bond), has been changed to include surety company agents as co-obligors. This provision makes the agent liable for debts, as well as the surety company, and allows INS to bar the agent from future business. However, even with increased attention and vigilance, collections for breached surety bonds during FY 1993 through FY 1996, excluding installment payments resulting from prior settlements, amounted to less than 50 percent of billings.
According to INS records, during FYs 1993 through 1996 INS issued bills for breached surety bonds amounting to $25.8 million with total collections of only $15.7 million. The $15.7 million collected included $4 million in installment payments resulting from settlements that occurred before 1993. If the $4 million is excluded from collections made during the most recent inspection period to obtain a more accurate picture of current operations, we find that only $11.7 million was collected relative to the $25.8 billed. That amount represents only 45.5 percent of billings. If cash bonds or Treasury bonds had been required, instead of surety bonds, INS could have recovered all $25.8 million. Surety bonds should offer relative certainty of collection when the bonds' terms are breached. A 45.5 percent collection rate on breached surety bonds defeats the purpose of requiring bonds for the release of detained aliens.
During our 1993 inspection, we found that in return for a fixed dollar amount, INS agreed to cease collection action not only on bonds already breached, but also on those issued but not yet breached. Records of four settlements, which occurred between December 1987 and June 1992, showed that surety companies agreed to pay INS just over $22 million to forgo collection action on bonds already breached and on many not yet breached. The value of bonds, breached or not breached, for which INS and the Department agreed to forgo collection, was not recorded in either the settlements or in INS accounting records. Based on the limited records available, we estimated the amount to be about $55 million.
The companies agreed to pay the $22 million through a variety of installment payments beginning in 1988 and ending in 1996. INS did not create accounts receivable to ensure that these payments were made and by the conclusion of our 1993 inspection could not verify that all payments up to that point had been received. Subsequently, INS had extensive reviews conducted by a contractor and INS assured us that the entire $22 million has been collected.
We noted improvement over the next four years. As we had recommended, INS had notified some surety companies with delinquent accounts that INS would not accept any more bonds from the companies if debts were not paid. The companies then began paying bills when faced with the loss of business. In addition, as recommended, delinquent debts were reported to the Department of the Treasury, and the Department of Justice, Civil Division.
In spite of these improved actions, in new litigation from 1993 to 1996, INS still lost the ability to collect over $5 million due to three additional settlements. This loss was largely due to the fact that one company that was heavily indebted to INS did not have the funds to pay all its debts when it was declared insolvent. At the end of our follow-up field work, INS had entered into negotiations with a fourth surety company that had delinquent debts of over $1.6 million and a possible liability of another $8 million.
Our current follow-up inspection found that payments by surety companies are continually late. At the end of FY 1996, INS debt collection attorneys were holding delinquent bills referred to them by the administrative centers amounting to over $6.8 million. All but $2 million of these bills were over a year old. By the time bills are referred to debt collection attorneys they have been billed one time and followed up with two collection notices by the administrative centers. Requiring cash bonds rather than surety bonds would eliminate the need for this repetitive collection action by the administrative centers and attorneys.
ACCOUNTING FOR BREACHED BONDS
As recommended by our 1993 inspection, the INS accounting system has been enhanced to automatically accrue interest, penalties, and handling charges and include such charges in official reports. Further, INS officials and outside contractors were able to determine that payments from past settlement agreements were in fact received and deposited to Government accounts.
Office of Management and Budget (OMB) Circular A-129, Policies for Federal Credit Programs and Non-Tax Receivables, requires that all commercial accounts in excess of $100, if delinquent, be reported to commercial credit bureaus. The circular also prescribes that agencies shall report any written-off debt over $600, including principal, interest, penalties and administrative charges, to the Internal Revenue Service (IRS) as income to that company. The debt is to be reported to the IRS by February 28 of the year following the agency's determination that no further collection action will be taken. We recommended in our last report that uncollectible debts be reported to IRS.
Debt collection officials told us that prior to 1997 INS was unable to report written-off debts to IRS because the accounting system did not accumulate written-off debts by vendor. With enhancements to the system in 1996, this capability was added. After the February 28, 1997, cut-off date for issuing Forms 1099, we asked INS finance officials for a list of written-off debts reported to IRS. Although some written-off debts were reported to IRS, most were not. INS officials told us that some settlement agreements were structured so that the written-off debts did not create a tax liability and were not required to be reported for income tax purposes.
As of the end of our follow-up field work, no delinquent accounts had been reported to commercial credit bureaus as recommended in our last report. A debt collection official told us that he did not want to report delinquent accounts to commercial credit bureaus unless he could be certain that the reported debts were accurate and actually owed. He said that he had some reservations as to the accuracy of the INS accounting records.
Our 1993 inspection also recommended that INS set up accounts receivable for installment payments that result from settlements with surety companies. There were no installment payments due at the end of our field work; the last payment due was paid in November 1996. However, none of the installment payments received since our last inspection had been set up as a receivable. Procedures for handling financial transactions resulting from settlements had been formulated. However, as of November 1, 1996, the procedures had not been fully implemented by the INS Office of Finance.
We believe that the INS has been more aggressive toward debt collection and has improved its procedures since our 1993 inspection. However, INS needs to continue to improve debt collection procedures and use all of the debt collection tools available to it.
The long history of INS' ineffectiveness in managing delivery bonds and the dismal record of surety companies in meeting their responsibilities provides little evidence that INS will improve its performance in the future without substantially reengineering the surety bond process. An alternative to such a reengineering would be to discontinue the acceptance of surety bonds and accept only cash bonds or Treasury bonds to guarantee the required appearance of aliens.
When cash bonds or Treasury bonds are breached the value of the bond is already on deposit with the Government. It only has to be transferred to the INS bond account and no collection activity is required. If cash bonds or Treasury bonds had been used in lieu of surety bonds since 1992 INS could have conceivably collected another $14 million of the $25.8 million billed for breaches of surety bonds. Additionally, by eliminating surety bonds, the cost of collection actions involving surety companies can be saved. However, if surety bonds are eliminated, some aliens would almost surely be unable to afford cash bonds or Treasury bonds and detention costs might increase.
The Inspections Division recommends that the Commissioner, Immigration and Naturalization Service, ensure that:
1. Action is taken to either reengineer the surety bond process to minimize losses to INS, or to discontinue accepting surety bonds and to require cash bonds or Treasury bonds to guarantee delivery of aliens.
2. Deportation staffs conduct an immediate review of all bond cases to identify and take all required actions on bonds that should be breached.
3. A procedure is established to adjudicate breached bond appeals within 10 business days of receipt at the Administrative Appeals Office.
4. Administrative centers bill surety companies for breached bonds within 5 business days of receipt of billing documents.
5. Delinquent surety company accounts are referred to commercial credit bureaus in accordance with the Office of Management and Budget Circular A-129.
6. Accounts receivable are established based on settlement agreements and payments received are recorded against these accounts.
1 The Illegal Immigration and Reform Act of 1996, Public Law 104-208, enacted on September 30, 1996, makes substantial changes in the authority and requirements to detain criminal aliens and aliens ordered removed. The transactions covered by our review occurred prior to passage of this act. Under the new law, aliens may still be released under bond. However, our review did not include an analysis of how the new law might affect the delivery bond process.
2 The status of the 1993 recommendations is discussed in detail in Appendix II.
3 Our sampling methodology and review population are discussed in Appendix I.
4 A surety company must be certified by the Department of the Treasury before it can conduct business with any United States Government entity. The Department of Treasury can withdraw this certification if a company fails to honor its obligations.