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The Color of Money: No way to collect taxes

posted on 2014-05-27 by Michelle Singletary

 The federal government needs money. I get it.

The Internal Revenue Service has a significant number of overdue tax debts it needs to collect. More than 5 million taxpayers were delinquent near the end of April, according to the agency.

But a proposal to allow the IRS to turn over those delinquent accounts to private debt collection agencies isn’t the solution. It’s a bad idea, used before — in the late 1990s and again in the last decade. Both times the outsourcing failed.

Many people are already scared of the IRS if they owe money. I see little upside to this already tenuous relationship if we return to having private collection agencies go after tax delinquents.

This is also what Nina E. Olson, the national taxpayer advocate, said in a 21-page letter to the chairmen and ranking members of the congressional tax-writing committees. Ms. Olson noted that she and the Office of the Taxpayer Advocate were involved in the private debt collection program between 2006 and 2009.

“Based on what I saw, I concluded the program undermined effective tax administration, jeopardized taxpayer rights protections, and did not accomplish its intended objective of raising revenue,” Ms. Olson wrote. “Indeed, despite projections by the Treasury Department and the Joint Committee on Taxation that the program would raise more than $1 billion in revenue, the program ended up losing money. We have no reason to believe the result would be any different this time.”

Ms. Olson is also concerned that collection efforts would put a “bull’s-eye on the backs of low-income taxpayers,” who make up an overwhelming majority of folks whose accounts would be turned over to debt collectors.

I fear, as Ms. Olson does, that private debt companies driven to collect as much revenue as possible will result in overly aggressive collection tactics, including pressuring people to agree to payments they can’t possibly afford. If someone then defaults, it can cost more money to go back and establish a fairer payment plan.

“Low-income taxpayers often lack financial savvy and are terrified of what a debt collector might do to their lives,” Ms. Olson wrote.

The Federal Trade Commission has been regularly going after and sanctioning debt collectors for bad and illegal behavior. Debt collection is among the top consumer complaints received by the FTC.

Here’s something else about the pending tax-collection legislation that should cause concern. It would require the IRS to send delinquent cases arising from the Affordable Care Act to private debt collectors.

The collection agencies could get cases under two scenarios. With the ACA, people shopping on the health exchange may qualify for a tax credit to help pay for insurance. But consumers who receive too much of this subsidy must pay back the excess. Additionally, individuals and their dependents are required to have minimum essential health insurance unless they qualify for an exemption. If it’s determined they were in the financial position to pay for coverage and don’t fall under an exemption, they face a penalty for being uninsured, which they have to pay when they file their federal income tax returns.

The IRS is responsible for collecting in both instances. The IRS can snatch refunds to satisfy the debt. However, the agency is prohibited from using its usual tough collection tools to collect payments.

“If debt collectors come to be seen as the public face of the ACA, I am concerned that could make the IRS’ job more difficult as it tries to balance its twin missions of revenue collection and benefits administration,” Ms. Olson noted.

The proposal was introduced by Sen. Charles E. Schumer, D-N.Y., and has bipartisan support. But some congressmen and a consortium of 15 civil rights and consumer groups, who also penned a letter to senators, oppose the plan, as does the IRS Oversight Board, a nine-member independent body charged to oversee the IRS. The board also sent a letter to Senate and House leadership objecting to the proposal to use private debt collectors.

“The experiment has failed twice and there is nothing to lead us to believe it will not fail again,” the board said.

What’s the saying? Fool me once, shame on you. But fool me twice, shame on me. Using private collection agencies for tax debt is a foolish, foolish idea.




How to Make Receivables Harder to Collect

posted on 2014-05-11 by Dean Kaplan

We don’t know any­one who actu­ally wants to make it harder to col­lect invoices, but here are some com­mon issues that result in this scenario.

Repeat­edly Invoice Incorrectly

Develop a rep­u­ta­tion with your cus­tomer for send­ing invoices with wrong infor­ma­tion is a great way to end up at the bot­tom of their list to process.  Regard­less of the cause (e.g. wrong prices, back orders, miss ship­ments, incom­plete pur­chase orders), the result is delayed payment.

Don’t Lis­ten

If you won’t lis­ten to them, why should they lis­ten to you?

Delay Resolv­ing Disputes

You can­not col­lect while a dis­pute is unre­solved.  Regard­less of the rea­son (too busy, can’t get inter­nal coop­er­a­tion, can’t locate doc­u­ments, etc.), the longer it takes you, the longer your pay­ment gets delayed.  Wait long enough, and it becomes even harder as the nec­es­sary infor­ma­tion, includ­ing people’s mem­ory of the trans­ac­tion, is more dif­fi­cult to compile.

Auto­mated Nasty-grams

Keep send­ing auto­mated, increas­ingly nasty let­ters on dis­puted invoices that you haven’t had time to deal with to resolve.  Keep remind­ing them of your fail­ure to address the issues while threat­en­ing  to take esca­lated action against them.  They’ll remem­ber this unpleas­ant treat­ment long after the par­tic­u­lar dis­pute is resolved.

Bounce Them Around Your Company

“I can’t answer that ques­tion; you need to talk to _____”.  Make it their job to sort things out with the var­i­ous peo­ple in your company.

Treat All Cus­tomers The Same

Sure, poli­cies and pro­ce­dures are required for effi­ciency and effec­tive­ness.  But not all cus­tomers are alike.  Refuse to develop dif­fer­ent approaches, or even poli­cies and pro­ce­dures, and you can end up with repeated pay­ment issues.

We get a large num­ber of claims at our B2B col­lec­tion agency that reflect one or more of these issues.  We’ve become experts at dis­pute res­o­lu­tion with resul­tant debt col­lec­tions while try­ing to pre­serve vendor-customer affin­ity.  We under­stand that for clients where this is a rare occur­rence, turn­ing it over to us for the inten­sive time com­mit­ment and exper­tise required makes eco­nomic sense.  But, we have con­cern for our clients and their long-term cus­tomer rela­tion­shipsif we see this too often.

 




Free Fraud Detection Resources

posted on 2014-05-04 by Dean Kaplan

One of the sim­plest ways to detect poten­tial fraud is to con­firm cer­tain infor­ma­tion pro­vided on a credit appli­ca­tion using easy, free resources on the Inter­net. As a com­mer­cial col­lec­tion agency, we reg­u­larly get claims where this has not been done and we dis­cover that the infor­ma­tion pro­vided was either mis­lead­ing or out­right fraud. In either case, it is no sur­prise that the invoices were not col­lected by our clients. In less than five min­utes you can use four free resources on the web to uncover indi­ca­tors of the most com­mon fraud fac­tors.

The first thing to do is look for the company's web­site. Frankly, if a com­pany does not have a web­site in 2012, it is a cau­tion­ary indi­ca­tor, either as poten­tial fraud or as a com­pany that may strug­gle to per­form well in the Inter­net age. Typ­i­cally, sim­ply putting "www." in front of the text after the @ sym­bol in the email address pro­vided by the poten­tial cus­tomer will lead to the company's web­site. If this infor­ma­tion isn't avail­able, we sim­ply search on the Inter­net to find the com­pany web­site. If the email address pro­vided from an email ser­vice, such as Gmail, hot­mail, etc., that too is a cau­tion­ary indi­ca­tor, either of poten­tial fraud or sim­ply a very small business.

The next step is to ver­ify that the con­tact infor­ma­tion on the web­site is the same as pro­vided on the credit appli­ca­tion. This helps to ensure that you have found the cor­rect web­site as well as con­firm­ing that the cus­tomer is pro­vid­ing con­sis­tent con­tact infor­ma­tion. It is very impor­tant to call the phone and fax num­bers to ver­ify they are valid. Be care­ful if:

  • The phone is not answered in a pro­fes­sional manner;
  • The voice mail sys­tem does not iden­tify the company;
  • You can't get a live per­son via the voice­mail system;
  • It is a cell phone voice mail greeting;
  • It is a direct line to an individual.

Make sure you get the company's main phone num­ber, and for smaller busi­nesses get the owner's mobile phone num­ber and direct email address. If the busi­ness phone is a mobile phone, that typ­i­cally is an indi­ca­tor about the size or pos­si­bly the legit­i­macy of the business.

If there is no phone num­ber on the web­site, that is a red flag. Any com­pany that does not pub­lish a phone num­ber means they don't want their cus­tomers call­ing them. It is dif­fi­cult to pro­vide good cus­tomer ser­vice if there can­not be phone com­mu­ni­ca­tion, and if a poten­tial cus­tomer doesn't pro­vide good cus­tomer ser­vice, how long can their com­pany per­form well? The lack of a phone num­ber on a web­site is a com­mon fac­tor on a sig­nif­i­cant por­tion of the fraud­u­lent cases we see.

If the cus­tomer indi­cates they are a cor­po­ra­tion, LLC (lim­ited lia­bil­ity com­pany), or part­ner­ship, con­firm this with the appro­pri­ate Sec­re­tary of State. Forty-seven of the 50 states have free web­sites where you can get this infor­ma­tion with a sim­ple search. A com­plete list of these sites with links directly to the search pages is pro­vided on our web­site at http://www.kgaction.com/secstlinks/. Also on this page is the info-graphic dis­played here as well as a free down­load­able file that you can import into your web browser. It cre­ates a favorites folder in your browser with links to all 50 states for easy future reference.

Con­firm that the name and address reg­is­tered with the state is con­sis­tent with the infor­ma­tion on the credit appli­ca­tion and inves­ti­gate dis­crep­an­cies. If nec­es­sary, use a sim­i­lar process with the respec­tive licens­ing authority's online web­site if the busi­ness is required to have a pro­fes­sional license, such as a con­trac­tor, real estate bro­ker, or med­ical professional.

Next, ver­ify that the busi­ness address is valid and is a com­mer­cial loca­tion. Type the address into Google Maps. Use the satel­lite view to quickly estab­lish the type of build­ing at the loca­tion. Use street view when avail­able and if you feel the need to take a closer look. Fur­ther inves­ti­ga­tion is rec­om­mended if:

The build­ing does not look appro­pri­ate for the type of busi­ness;
Sig­nage view­able on street view shows a dif­fer­ent com­pany name;
It is a res­i­den­tial location.

Most impor­tantly, con­firm that this is not a mail­box ser­vice, such as a UPS Store, or exec­u­tive suites loca­tion. Over 90% of the fraud cases we see have a mail­box ser­vice, exec­u­tive suites or res­i­den­tial loca­tion as a pri­mary address.

There are a num­ber of dif­fer­ent ways to try to deter­mine if a com­mer­cial loca­tion might be a mail­box ser­vice such as a UPS store. Google Maps typ­i­cally will give you a list of the busi­nesses located at a spe­cific address. More research is needed if:

  • Sev­eral busi­nesses are listed at the address
  • The busi­nesses have suite num­bers, which might actu­ally be mail­box numbers
  • The name of one of the busi­nesses indi­cates a print, copy, pack­age or mail ser­vices firm

If noth­ing shows up on Google Maps, do a copy and paste of the address into your default search engine for a quick search. In a recent fraud case, Google Maps listed 15 other busi­ness names at the loca­tion, but not the UPS Store. But, the first result when we put the address into reg­u­lar Google search gave us the UPS Store phone num­ber at that address.

If you ship mer­chan­dise to a mail­box, you are not going to have proof that your cus­tomer actu­ally got the mer­chan­dise. You will only have proof that it was received by the mail­box ser­vice (or exec­u­tive suite in that sce­nario). Your col­lec­tion agency will also be at a dead-end if the debtor skips on payment.

If you sus­pect or con­firm that an address is a mail­box ser­vice, ask the com­pany for their phys­i­cal loca­tion and con­firm it. If the loca­tion is a mall unit, con­firm that it is a phys­i­cal store and not sim­ply a kiosk in the com­mon area. Con­firm any home addresses pro­vided through Inter­net search and maps. It is crit­i­cal to have a home address if the busi­ness does not have a per­ma­nent phys­i­cal loca­tion or you get a per­sonal guar­anty.

Finally, use the Inter­net to get the phone num­bers and other con­tact infor­ma­tion for the trade ref­er­ences pro­vided by the poten­tial cus­tomer. Some fraud­sters pro­vide the name of a legit­i­mate com­pany as a ref­er­ence, but the con­tact infor­ma­tion is directed towards a con­spir­a­tor instead of the actual company.

If you are deal­ing with a legit­i­mate, estab­lished com­pany, this process can take less than five min­utes and be per­formed by any­one who uses the Internet.

This is not meant to be a com­pre­hen­sive list of fraud detec­tion activ­i­ties. Nor does the uncov­er­ing of a cau­tion­ary indi­ca­tor mean fraud is being attempted, just that fur­ther inves­ti­ga­tion may be war­ranted. In these cases, you may want to get addi­tional forms of con­tact infor­ma­tion, a copy of a driver’s license, busi­ness license, or util­ity bill for the busi­ness, and check trade ref­er­ences and credit reports more carefully.