Write-Offs (AR107)

Process Group/Policy Details

• Subject:  Accounts Receivable

• Process Group: Write Offs, Release, and Compromise

• Title of Policy: AR_ Write Offs Release, and Compromise

• Effective Date: 07/01/2014

• Approved/Revision Date: 07/01/2014

• Approved by: State Controller

Process Group Description:

Write Off, Compromise, and Release

• If customers do not pay for the goods and services delivered to them by the due date, CORE provides numerous approaches for performing collection activities, which include the use of dunning messages and collection letters, setting up payment plans, referring past due accounts to collections, and recording write offs.

• This process group includes the policy related to write-offs, compromises, and releases, and provides departments with definitions of selected terms. The corresponding procedures also provide procedural guidance on recording, reporting, and collecting debts due the state.

• The policy applies to debts due the state from sources other than federal, state, or local governments. The policy applies to all departments, unless specifically exempted by statute. If a department determines that compliance with this policy presents an undue hardship on the operations of the department, the department should consult with the OSC on the need to deviate from the policy. CRS 23-5-113 states that the governing board of any Higher Education Institution may promulgate rules and regulations relating to the collection of any outstanding obligations owed to their institution.

Rationale or background to policy:

• In order to ensure that the Rule is properly and consistently applied, policy is required.

Policy Statement:

AR.PO.04 AR_Write-Offs

Write-Offs

• • • Departments shall, at least annually, review their accounts receivable prior to the end of the fiscal year and request a write-off of accounts deemed uncollectible. An account may not be written off if it has not been through tax offset (if applicable) and if there has been collection activity within the last 27 months. Other criteria may exist though which would support the write-off of an amount due the State.

    • When determining if an account is uncollectible, a department should consider the following factors:

      •  Age of the receivable

      •  Payment activity on the account

      •  Results of legal actions taken

      •  Financial condition or other relevant information regarding the debtor

      •  Results of tax-offset process

    • Because write-offs are done for financial reporting purposes only, they do not affect the validity of the debt or the continuing collection efforts. Agencies should maintain detail regarding the original charges and other fees even after the receivable has been written off. Generally, there is no statute of limitations on debts due the State.

    • An agency may not request a write-off of an account deemed uncollectible if it has not been referred to CCS. If deemed uncollectible the debt needs to be requested as a forgiveness of debt. See below regarding the policy on forgiveness of debt due the state.

Compromise and Release

• • • Instances of compromise and release result in the removal of the receivable from both the accounting records and from further collection efforts. Departments shall compromise or release amounts due the State only when it is in the best financial interest of the State to do so. Institutions of Higher Education that have promulgated their rules and regulations are not subject to the policy on forgiveness, settlement or other compromise. CRS 23-5-113 (2) allows these institutions to authorize write off, release, or compromise any debt or obligation due the institution according to their rules and regulations.

CRS 24-30-202.4 (3) (c) states:

• • • “The State Controller, with the consent of the State Treasurer, is authorized to write off, release, or compromise any debt due the State, but only in accordance with the rules applicable thereto. Such rules may provide delegated authority and criteria for write off, release, and compromise of debts and may include provisions to prohibit the referral of debts for tax offset based on the age or amounts of debts. The rules governing write off, release, and compromise of debts may include provisions authorizing the collection of principal, interest, and other collection fees and costs, including the fees required in subsection (8) of this section”

    • Refer to Accounts Receivable Collections Administrative Rule for procedures and approvals for a compromise.

Procedures:

AR.PR.07.1 AR_Receivable Write Off

• Because write-offs are done only for financial reporting purposes, they do not affect the validity of the debt or the continuing collection efforts. Departments should maintain detail regarding the original charges and other fees even after the receivable has been written off. Generally, there is no statute of limitations on debts due the State. 

• The request for a write-off should be processed in accordance with the administrative rule procedures. For accounts under $50, there are no required approvals from CCS or the OSC, as long as the accounts have been through one tax offset cycle and the agency has notified CCS within 30 days of such write-offs. For accounts over $50, a write-off request should be submitted to CCS. CCS will make a recommendation to the OSC, and the OSC will make a decision based on CCS’s recommendation.

• When a receivable has been approved for write off, departments shall use a WO1 transaction in CORE, which will move the receivable to a memo balance sheet account. This allows departments the ability to maintain record of the receivable; however, it will no longer be included in financial reporting.

AR.PR.07.2 AR_Receivable Release or Compromise

• Release or compromise of a debt due the State involves a decision on the part of the State not to collect an amount due the State, or to collect an amount less than the full outstanding balance, including interest and fees. A department may believe it is in the best financial interest of the State to release or compromise a debt. The department must submit a request to the State Controller to release or compromise a debt. All such requests should be submitted to the State Controller through CCS. If the request is for an account that has never been submitted to CCS for collection, CCS may be consulted for concurrence with the request.

• The request for release or compromise should include:

• • • • • Debtor name, CCS debtor number, department

        • Original balance of debt, amount paid, amount to be settled,

        • Collection efforts made, and

        • All relevant financial information used in deciding why the recommended action is in the best financial interest of the State.

    • If the State Controller concurs with the request, the request will be forwarded to the State Treasurer. If the State Treasurer concurs with the request, an approval letter will be sent to CCS, which CCS will forward to the department that made the request. Upon approval by the State Controller and the State Treasurer, CCS will apply any final payment, adjust the balance of the account on CCS’s inventory system to zero, and change the status on the account to settled in full (SIF). No further collection activity will occur. A release or compromise is treated like an administrative adjustment.

    • If the State Controller or State Treasurer does not approve the request, it will be returned to CCS as denied. CCS will forward the denied request to the department.

    • If a release or compromise is approved by the State Controller and State Treasurer, the WO transaction will be used to write off the receivable amount. The following will be performed in CORE depending on the action being taken:

Action  

Release: Absolving a debtor of all responsibility for payment of an obligation to the State with no consideration received by the State. Release results in removal of an account receivable balance from the general ledger and all subsidiary ledgers of the Claimant State Entity, and it terminates all collection efforts.

Accounted for in CORE

WO used to remove the receivable from CORE. Department is not responsible for keeping any further record of the receivable, as all collection efforts have ceased.

Action  

Compromise: Absolving a debtor of responsibility for payment of an obligation to the State in exchange for value received by the State that is less than the account receivable balance owed. Compromise results in removal of a part or all of an account receivable balance from the general ledger and related subsidiary ledgers of the Claimant State Entity. Compromise results in termination of collection efforts for the portion of all of the account receivable balance subject to the negotiated compromise.

Accounted for in CORE

A CR transaction is used for any remaining outstanding balance that is collected as part of the compromise. A WO is used to remove the remaining receivable balance from the accounting records. Department is not responsible for keeping any further record of the receivable, as all collections efforts have ceased.