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Bankruptcy Trustee Program cuts bankruptcy audit program

The U.S. Trustee Program (USTP), which administers bankruptcy cases, has announced the last month it "indefinitely suspended" its audit program for consumer bankruptcies. This has been done because of budgetary constraints. This is not surprising, as the USTP is part of the Justice Department, and Justice, like every other department in the federal government, has been subjected to very tight budgetary controls for many years. The sequestration, which requires all departments of the federal government to make 5 percent cuts across the board, is only the most recent and high-profile budget cut to come along.

The audit program was part of the 2005 budget reform act, and was included at the insistence of the credit industry, which claimed the bankruptcy system was rife with fraud. The program was supposed to audit one out of every 250 bankruptcy filings, to determine if all of the supporting documentation was accurate.

The problem with the program was that it was an "unfunded mandate" from Congress. They did not appropriate additional funds for the USTP to engage outside accounting firms to perform the audits.

Because of this, since 2008, the audits have been performed on fewer and fewer bankruptcy filings, dropping last year to one out of every 1,450 filings. According to the Wall Street Journal, spokespeople from trade groups representing the credit industry, funding these audits is "critical" they claim, to keep credit affordable.

Perhaps if they really believe that, they could collect funds from their members and send a check to the USTP office to adequately fund the audits. One would imagine that organizations that deal with money would understand that one could not expect more services for less money.

Source: The Wall Street Journal's Bankruptcy Beat blog, "Bankruptcy Watchdogs Suspend Debtor Audits," Jacqueline Palank, April 1, 2013

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