USDANEWS VOLUME 57 NO.1 -JANUARY-FEBRUARY 1998

How USDA Collects The Money That Its Customers Owe
From Foot Power, To Electronic

by Ron Hall, Office of Communications

Aauugghh! We’re into the new year, and we’ve got all those bills from December that are coming due. Now, USDA may not consider itself a bill collector, per se--but there are a number of entities and individuals who owe it money. Here’s a primer on how the Department makes its monetary collections.

“During FY 1997 USDA collected nearly $18.6 billion in amounts owed to the Department,” noted Dick Guyer, director of the Fiscal Policy Division in the Office of the Chief Financial Officer. “In fact, members of the public owe more non-tax debt to USDA than they owe to any other agency.”

This financial debt to the Department is from such items as rural housing loans to borrowers, payments for purchase of USDA aerial photos of cropland, sales of timber on National Forests, user fees for grain inspections, and even inadvertent overpayments to employees in travel vouchers or salaries.

USDA relies on seven mechanisms to make those monetary collections, and they vary from being based on an all-electronic payment to paying by personal check or cash.

Guyer clarified that, while most payments go to the U.S. Treasury, some of those payments to USDA do stay at USDA. An example is the service fee paid to the Agricultural Marketing Service when AMS specialists grade vegetables for growers.

The first method of collection, called the “Concentration Banking System” method, is the mechanism which produced the most payment to USDA in FY97. According to OCFO cash management team leader Dale Theurer, this method brought in nearly $6.1 billion in payments to the Department in FY97.

This method of collection is often found in rural areas. “Typically,” he noted, “a farmer or rancher will visit a USDA field service center to make a payment on a farm operating loan he/she owes to USDA.” That payment will likely be paper-based--in other words, in the form of a check or cash.

Staffers at that county office will then normally deposit the payment into a local bank by the next morning. But once the bank receives that payment, it can transfer the payment--electronically--to an appropriate regional bank which consolidates those funds, and then transfers them to the Federal Reserve Bank of New York.

Theurer pointed out that, for virtually all other federal departments which use this Concentration Banking System method of collection, the payment goes into what’s called the “Treasury General Account.” “But USDA has its own separate 'concentration systems',” he said. “They’re either the 'Commodity Credit Corporation System’ or the 'Rural Development System,’ depending on the USDA agency initiating the collection.”

He added that USDA was the first federal department to develop this particular form of collection in the 1980s. “Based on the success of ours,” he said, “the Treasury Department then developed a government-wide version, called the Treasury General Account.”

The second method of collection is called “Fedwire Collection.” It brought in nearly $5.5 billion in collections to USDA in FY97.

“This is a completely electronic, same-day transaction,” he noted. It is typically used by someone who needs the payment to reach USDA--or the financial institution serving as its designee--that same day.

“As a result, it costs the customer more in bank handling fees,” he advised.

The third collection method, called “Lockbox Collections,” brought in over $4.5 billion in collections. Steve Loeffelholz, a branch chief in the Financial Services Division at the National Finance Center in New Orleans, explained that USDA has lockboxes in the airport post office of each of five major airline hubs--Atlanta, Chicago, Dallas, San Francisco, and St. Louis.

“The banks under contract with the Treasury Department will check postal boxes several times a day,” he said. “They process the checks that were mailed to our Departmental lockboxes, as part of the payment agreement between the borrower and USDA.”

Once the check is received, then the bank official will electronically forward that payment to a Federal Reserve Bank and deposit it in an account in USDA’s name.

The fourth method relies directly on the Federal Reserve. It brought in over $1.8 billion to USDA in FY97.

“It’s a relatively slow, totally manual method, and often relies on the mail--or on foot power,” Theurer explained. A financial institution will typically change a customer's cash payment into a money order. The local USDA office which is receiving that payment then mails it to the local Federal Reserve Bank.

The fifth collection method is “Automated Clearing House Collections,” and it brought in over $622 million to USDA in FY97. It is an all-electronic transaction method, similar to the Fedwire Collection method.

“But the difference,” he said, “is that, while Fedwire is a same-day collection, Automated Clearing House is done overnight.”

“Accordingly, it doesn’t cost the customer as much in processing charges, to make his/her payment to USDA, as Fedwire would cost.”

“Pre-Authorized Debit” is the sixth collection method, bringing in nearly $68 million in collections to the Department in FY97. Theurer observed that this is an Automated Clearing House method--but it's essentially the reverse of that ACH approach, in which the USDA customer or borrower initiates the payment.

“Instead,” he said, “USDA obtains the authorization from the customer to, in effect, dip into the customer’s bank account and automatically deduct a payment on its due date.”

This method is also commonly used in the private sector by mortgage companies and insurance companies which have been authorized by borrowers to automatically extract payments from the accounts of borrowers or policyholders.

“When USDA uses this method,” Theurer said, “it will likely involve the repayment of a loan which USDA had made to a rural municipality, not to an individual.”

The seventh method is “Credit Card Collection,” and it brought in over $1.7 million in collections to USDA in FY97. OCFO staff accountant Mel Robinson said this is typically used by customers paying for USDA publications or making payments for campground reservations on National Forests.

“But whatever the collection device,” Guyer advised, “our goal is to be as efficient as possible, and get the payment into the U.S. Treasury account as quick as we can.”

“In the process, once that money gets into the Treasury coffers, that helps to reduce the amount of money that the federal government has to borrow.” ¤

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