Reporting of State Debts and Hold Offset Procedures (APS 028)

Overview

Applicable to

State agencies and institutions of higher education.

Does not apply to:

• Junior or community colleges.
• Local state governmental entities such as cities and counties.
• Federal agencies.
• Other states.
• Business-to-business or person-to-person transactions.

Policy

State agencies and institutions of higher education (“agency”) are required to:

• Report to the Comptroller’s office a person (individual or entity) who owes a debt to the agency.
• Follow the Comptroller’s office procedures to ensure proper reporting and updating of state debt records.

The Comptroller’s office procedures for administering the warrant hold statutes, including the offset of state payments against a person’s state debt, are found in the Warrant Hold section of TexPayment Resource (FPP P.007).

Legal Citations

• Texas Government Code, Sections 403.055, 403.0551, 403.0552, 2107.008 and 2252.903
• Texas Education Code, Sections 57.48 and 57.482
• Texas Family Code, Section 231.007(a), (i)-(k)
• Texas Administrative Code, Title 34, Section 5.22(h)(5)

Comptroller’s Office Responsibilities

Compliance With Warrant Hold Statutes

The Comptroller’s office is responsible for administering the warrant hold statutes and maintains procedures to administer and ensure agency compliance. To administer these statutes and procedures, the Comptroller’s office adopted this accounting policy statement.

Offsets and Overages

The Comptroller’s office is authorized to offset state payments against a person’s state debt, and must also issue a payment, referred to as an overage, to the person for any remaining amounts after an offset. The Offset Process describes these procedures.

The Comptroller’s office must provide notice of a held payment to the person on warrant hold and specify a deadline for paying the state debt before the offset. The Comptroller’s office mails the payee a notice of held payments 30 days before an offset occurs. This notice also provides an option for the payee to authorize a voluntary offset before the 30th day.

Government Code, Section 403.055 (e-1) authorizes the Comptroller’s office to release held warrants that exceed the amount of other held warrants sufficient to cover the debt amount. These warrant releases will be processed on a case-by-case basis upon request from the payee.

If the payee settles the state debt within the 30 days, the held warrant(s) will be released; otherwise, the offset will occur. When an overage payment is required, it is issued via warrant or direct deposit and distributed to the payee by the Comptroller’s office.

If the payee reports the overage warrant has not been received or is lost, the overage warrant may be canceled and reissued after two weeks from the date the original overage warrant was issued.

Note: Internal Revenue Service (IRS) tax levies and federal bankruptcy laws present unique issues. Payments payable to the IRS or a bankruptcy court or trustee may not qualify for state offsets unless authorized by a federal agency. Matters involving IRS tax levies or bankruptcies should be reviewed by the agency’s legal counsel to determine the priority of the levies or liens.

Multiple State Debts

When a payee has multiple state debts, the Comptroller’s office has the statutory authority to determine the order of offset. Family Code, Section 231.007, makes the Attorney General’s office the sole assignee of each payment to a person reported as delinquent in child support; therefore, the Attorney General’s office has the highest offset priority. The Comptroller’s tax delinquencies have the next offset priority. Other state debts are prioritized in the order of their hold dates (older debts have higher priority) as reported to the Texas Identification Number System (TINS).

Direct Deposit Instructions

Direct deposit instructions are suspended (not canceled) for payees on hold for the duration of the hold(s), regardless of the type of debt. A warrant will be issued and held by the Comptroller’s office. After the payee’s hold is released, the suspension is automatically lifted, and direct deposit payments will resume.

The payee’s custodial agency must monitor and maintain current direct deposit instructions during the time they are suspended due to a hold. This ensures accurate direct deposit payments when the suspension is lifted.

Direct deposit instructions cannot be set up for payees on hold for delinquent child support payments. After a payee’s child support hold is released, direct deposit instructions may be set up for that payee.

Agency Responsibilities

Compliance With Hold Statutes and Comptroller Procedures

To ensure compliance with the warrant hold statutes and procedures described in Warrant Hold, agencies must:

• Provide the following to its debtors:
  • Opportunity to exercise due process before reporting the state debt to the Comptroller’s office as required by Government Code, Section 403.055 (f) and (g).
  • Notice of the state debt being reported to the Comptroller’s office, with the required information in Government Code, Section 403.055 (g-1).
• Submit an Application to Report Indebtedness form (74-188) to identify each type of debt owed to the state.
• Set up and update hold records via online or batch.
  • Agencies must not set up hold records in TINS using a Comptroller taxpayer number with a 3 prefix.
  • Agencies may set up hold records using a Comptroller-assigned 3 TIN.
• Release payments by submitting the Warrant Release or Reinstatement Request form (00-432) as needed and in a timely manner to avoid erroneous offsets.
• Follow the instructions in Cancellation of Held Warrants.
• Report the following to the Comptroller’s office (for debts referred to the Attorney General’s office):
  • The principal amount of the debt, plus penalty and interest when applicable, on state debts referred to the Attorney General’s office for collection.
  • The Attorney General’s office must report a hold record on the same debtor for only the amount owed as a result of the collection process, such as attorney’s fees or court costs.
• Agencies must also report IRS tax levies and bankruptcy information on their debtors.
• If approved by your agency’s legal staff, follow the instructions for IRS tax levy and bankruptcy payments and other holds as described in the Hold Special Circumstances. Submit a Payee Change Request form (74-157) for the Hold Bypass Indicator as needed.
• Submit the Debtor Hold File Extract Request form to request a daily extract of all hold records reported to TINS, and then use the file to:
  • Verify a person’s hold status.
  • Restrict payments from local funds to state debtors, including travel advance payments to employees who are on hold.
  • Update and reconcile your agency’s hold records within your internal system.
  • Restrict access to the Debtor Hold Extract File records with third-party vendors or agents.
• Monitor and research warrants on hold and released via online screens and reports to:
  • Ensure timely release of held warrants to avoid erroneous offsets.
  • Respond to questions from the agency’s debtors and payees.

Accounting for Offsets and Overages

Refer to the hold Offset Process for instructions and the required coding blocks.

The hold source agency must transfer funds from its warrant hold offset account to the correct appropriation and fund within 15 business days from the date the offset deposit is received. Hold source agencies must then update their internal systems to ensure the debtor is immediately credited with the offset funds.

When an offset is found to be erroneous, follow these instructions for corrective actions.

If…	The paying agency…	The hold source agency…
A held warrant was offset in error or issued with federal funds that exempted it from being held and offset,	Must contact the hold source agency to recoup the funds.	Must return the funds to the paying agency. Then: Reestablishes the TINS hold record if released by the offset, – OR – Adjusts the liability amount if the offset reduced the debt amount.
An erroneous overage payment was issued to the payee,	Must recoup the amount of the overage payment directly from the payee.
The paying agency fails to recoup the funds from the payee due to an erroneous overage payment,	Must report the payee as a state debtor in accordance with Government Code, Section 403.055 (f) and (g).	Is now the paying agency for the erroneous overage payment amount it was unable to recoup from the payee. Submit an Application to Report Indebtedness form (74-188) for this type of debt if not already on file for your agency.
The liability amount on a hold record is overstated and an offset occurred based on that amount,		Must refund the overpayment to the payee using that payee’s TIN if the refund is processed through the Comptroller’s office. If the refund is issued from local funds, ensure the payee is not on hold status.

The warrant hold statutes — Government Code, Sections 403.055(k) and Government Code 2107.008(k) — allow for the Comptroller’s office or a state agency to make a payment to a person on hold if the hold source agency consents to the payment and the release of that payment. Agencies must retain documentation of each hold source agency’s consent to issue and release the payment; documentation must be made available to the Comptroller’s office or the State Auditor’s office upon request.

Maintaining Accurate Hold Information

The Comptroller’s office must rely on the information in TINS when processing offsets and adjusting liabilities; therefore, it is critical that the liability amounts be accurate.

Each agency must keep its hold records current in TINS to prevent unlawful warrant holds and offsets. When a debt has been satisfied, the agency must release the debtor’s hold record in both its internal system and in TINS.