10.4 Uncollectible Amounts
Senate Bill 73, codified as OCGA Section 50-16-18, provides state agencies with a mechanism for writing off debts of an immaterial nature owed to the state. The materiality threshold, as specified by the legislation, is “$3,000.00 or less for the institutions of the Board of Regents of the University System of Georgia.”
This legislation authorizes state agencies and departments
…to develop appropriate standards, in conjunction with the Department of Audits and Accounts, which will provide a mechanism to consider administratively discharging any obligation or charge in favor of such agency or department when such obligation or charge is ….. $3,000 or any lesser amount for the institutions of the Board of Regents of the University System of Georgia.
The following standards or procedures should be followed when writing off receivables that qualify under this statute.
Collection of receivables is primarily a responsibility of the institution. Amounts not collected through routine follow-up should be referred to collection agencies for further collection effort. In addition, presidents and chief business officers are authorized to file actions in small claims courts for the collection of debts over which they have administrative control. Adequate information concerning the age of outstanding bills and claims is essential for proper overall control of accounts receivable and related reserves for bad debts. Therefore:
Aging information must be collected, maintained, reported, and acted upon in a standardized and consistent manner.
Levels of effort in record keeping and collection must be commensurate with collection value. See Section 10.7.4
In general, bills must be collected as expeditiously as possible, but the cost of collection must not be allowed to exceed the expected revenue. Accounting data gathering systems must recognize and preclude situations in which collection effort and potential benefits become imbalanced.
10.4.1 Provision for Bad Debts
Governmental Accounting Standards Board (GASB) requires that bad debts be treated as a contra-revenue rather than an expense for financial reporting purposes. Budgetary reporting for Georgia also allows for like treatment for bad debts. This treatment effectively reduces revenue for debts that are not probable for collection. In order that realized revenue will be reflected properly, bad debts must be regularly recognized in the accounts of the University System as follows:
All uncollectible accounts will be reserved as specific accounts are aged and consequently deemed to be uncollectible. Generally, debts aged more than one hundred eighty (180) days from the due date are no longer probable for collection. Circumstances may arise when specific accounts become uncollectible earlier than one hundred eighty (180) days.
Note: Due date is defined as follows:
- For student accounts, the due date is the first day of classes for the term.
- For non-student accounts, the due date is generally thirty (30) days after the invoice date.
- A student account due date may be modified to the date that financial aid is withdrawn in order to give the student and institution an opportunity to locate other payment arrangements.
Accounts receivable should be analyzed and accounted for monthly as appropriate, no less than quarterly.
All uncollectible accounts aged more than one hundred eighty (180) days from the due date should be reserved as an uncollectible account. This is the time by which collection agency efforts should commence.
Once an invoice is determined to be uncollectible, either before or by the one hundred eighty (180) day past due date, all invoices within that account should be reserved as an uncollectible account.
When uncollectible accounts are reserved, a funding source must be identified to fund the reserve. GASB requires that revenue-generated transactions, which generate accounts receivable that are deemed uncollectible, should be reversed. This methodology is the correct method for both budgetary and GAAP financial reporting. Georgia Annotated Code 50-16-18 allows for true write-off of uncollectible receivables for $3,000 or less.
In order to accomplish the appropriate recognition of revenue, the following method will be used: The Allowance for Doubtful Revenue (Contra Revenue) account should be debited and the Allowance for Doubtful Accounts Receivable (Contra Accounts Receivable) account should be credited. This effectively reverses the revenue from current year operations for both budgetary accounting and GAAP reporting.
The Contra-Revenue entry ensures that the uncollectible account amount is not spent. For budgetary reporting purposes, the Allowance for Doubtful Accounts Receivable (Contra Receivable) is reported as a Net Asset reserve and not as a reduction to Accounts Receivable.
This method will be used regardless of the amount of each uncollectible account. As approved by the state auditors under Procedural Directive 17 (July 21, 1992), “fund integrity must be maintained at all times with regard to the uncollectible accounts”.
When accounts receivable of $3,000 or less are ultimately determined uncollectible and due diligence for collection has taken place, the Accounts Receivable account should be credited and the Allowance for Doubtful Accounts Receivable account should be debited. This eliminates the receivable from the books of the campus in compliance with Georgia law.
Note: Due diligence is defined as the performance of both:
- Collection efforts by the institution according to the minimum guidelines in Section 10.7.4, and
- Collection agency efforts, subject to cost vs. benefit assessment by the institution.
Write-off of receivables is based upon the aggregate of the debtor, not on individual transactions. For example, a student may owe $4,000 in aggregate, with ten transactions of which no single transaction exceeds $3,000. In this case, the $4,000 cannot be written-off.
The accounts receivable should be analyzed to determine if all receivables aged more than one hundred eighty (180) days from the due date are collectible. After due diligence collection efforts, the bad debts (less than or equal to $3,000) should be written off as follows:
- Against existing Allowance for Doubtful Accounts Receivable account, as described in item #6 above, or
- Against the contra-revenue account if the account was not previously reserved.
The entries for uncollectible Accounts Receivable and the funding source for those amounts can be summarized in the following table:
For accounts receivable write-offs resulting from non-revenue transactions, such as cash advances, there is no offsetting revenue. Therefore, the accounting entry should debit the bad debts expense account and credit the receivable account.
10.4.2 Death of a Debtor
A claim against the estate of a Georgia resident must be prepared in accordance with specific regulations and filed within six (6) months after first publication of notice to creditors. Therefore, in order to assure that the University System’s interests are fully protected, help from the institution’s general counsel or the USO, as appropriate, is to be sought whenever an institution receives notification that a person owing money to the institution has died. Potential claims against deceased nonresidents are to be referred to the institution’s general counsel for guidance. All tuition and fees shall be refunded and the revenue transaction reversed in the event of the death of a student at any time during the academic session. Refer to Section 7.3.5, Refunds, of the BoR Policy Manual.
10.4.3 Other – Accounting Issues for Uncollectible Accounts Federal Funds
Federal receivables resulting from contract and grant activity are to be considered, for write-off purposes, as disallowed charges. The funding source for disallowed charges is indirect cost recoveries (revenue). The account number for indirect cost recoveries is 4721xx. Other receivables from the federal government such as tuition, fees, veterans’ processing allowances, etc., that result in uncollectible accounts will qualify for one of the categories described in Section 10.4.1, item numbers 1 through 6, depending on the credit side of the entry setting up the receivable.
From time to time it may be possible that amounts due the University System may not be recorded in any account. For instance, it may not be practical or cost efficient to maintain a perpetual subsidiary account balance for small dollar receivable amounts, such as parking fines and library fines. Write-offs of these accounts would therefore not be necessary. However, controls must be in place to ensure that:
- Reasonable collection efforts are made.
- Proper/independent supervisory personnel approve any non-collection.
- Non-collection approval is documented.
When loans advanced from loan funds are determined to be uncollectible and have been approved for write-off, they are to be written off either against the specific fund from which the loan has been advanced or against campus current funds, if any are available.
Punitive Damages – Bad Checks
When punitive damages have been collected from the writer of a bad check, the amount is to be recorded as income of the fund receiving the credit when the receivable was established. The cost of the collection effort may be recorded as an expense of the same fund.
Recoveries will be recorded by reversing the entry made to create the allowance for uncollectible accounts, with the exception of uncollectible accounts charged to bad debts expense. Recoveries of this nature will be recorded as miscellaneous income.
10.4.4 Assigning Receivables to Third Party Collection Agencies Write-off Policy
Uncollected accounts are to be considered as bad debts and, if less than or equal to $3,000, written off within thirty (30) days after notification by a collection agency that collection efforts have been exhausted. Before that point, institutions should consider reserving at least the portion of the account balance that will be kept as the collection fee by the collection agency, if the entire balance is not already reserved.
Authority to approve writing off of uncollectible accounts in the categories shown above has been delegated to the chief business officers for their respective institutions, and to the Vice Chancellor for Fiscal Affairs for the University System Office (USO). Final approval for write-offs must be made by the State Accounting Office. See Sections 10.7.6 and 10.7.7
In order to maximize collection effectiveness, accounts should be referred to a collection agency as soon as the collection efforts specified in Sections 10.7.1 and 10.7.2, are completed. Unless there has been evidence of good faith intention to pay, an uncollected account should be referred for collection when it has become more than one hundred twenty (120) days and less than one hundred eighty (180) days past the due date. Collection agencies should not retain accounts more than twelve (12) months unless there is evidence that collection is imminent.
See Georgia Unannotated Code 10-1-382 for Georgia state law regarding collection agencies.