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  -  Policy on Accepting Credit Cards, Payment for Goods and Services,

outstanding accounts receivable, Procedural requirements

Treasury Board of Canada Secretariat
Chapter 3-5 - Policy on Receivables Management

1. Effective date

(a) This document contains the entire text of the policy as revised on October 31, 1995. This chapter cancels chapter 3-5 of the "Comptrollership" volume of the Treasury Board Manual dated October 1, 1994.

(b) This policy replaces
o the parts of section 3 in Chapter 10 of the Treasury Board "Guide on Financial Administration, "consolidated revision, April 1991, dealing with internal control over accounts receivable;

o section 6 of Chapter 10 of the "Guide on Financial Administration";

o Treasury Board (TB) Circular No. 1986-6, "Strengthening Current Policies and Practices for the Management of Revenue and Collection of Debt Owed the Government";

o TB Circular No. 1986-53, "Policy on the Use of Private-Sector Collection Agencies (PCAs) for the Collection of Debts Owed the Crown; and

o TB Information Letter No. 4523-00, "Policy on the "Payment of Collection Agency Fees."

2. Policy objective
To ensure that all government accounts receivable are managed efficiently and effectively.

3. Policy statement
It is government policy to

o [u:dedf4b1a0d][b:dedf4b1a0d] collect payment before providing a product, a service, the use of a facility, a right, or a privilege; [/b:dedf4b1a0d][/u:dedf4b1a0d]o grant credit only if it benefits the government by fostering social or economic programs, for instance or when credit is the only acceptable way of operating in a particular market;

o record all accounts receivable in departmental memorandum accounts and at year end in the accounts of Canada; and

o take prompt and vigorous collection action to keep accounts receivable at a minimum.

4. Application
This policy applies to all organizations considered to be departments under section 2 of the Financial Administration Act.

5. Policy requirements

5.1 Granting credit
Departments must establish policies and procedures to ensure that they grant credit only after confirming that the potential debtor's credit status is satisfactory.

5.2 Recording and reporting receivables
Departments must establish policies and procedures to ensure that

o accounts receivable are accurately and promptly recorded in the accounts of the department and, at year end, in the accounts of Canada;

o there are proper internal controls over accounts receivable;

o accounts receivable form an integral part of the departmental accounting system;

o accounts receivable systems include all debts and other claims that are due;

o the accounts receivable system provides a complete audit trail that permits tracing of all transactions relating to an account receivable, from the transaction that gave rise to the debt to its final settlement; and

o once an amount owing has been recorded in the departmental accounts, it is not deleted from these accounts until the department has received full payment or has properly authorized a remission or other forgiveness, a write-off, or a cancellation.

5.3 Making collections
Departments must establish policies and procedures to ensure that they

o take effective collection action on all accounts receivable;

o account for all collections as outlined in Chapter 3-2: Recording Receipts of Money;

o manage their accounts receivable collections property;

o assign receivables to private-sector collection agencies (PCAs) when it is cost effective and in the public interest to do so. Details of policy requirements on the use of PCAs are found in Appendix A;

o regularly consider using set-offs under section 155 of the Financial Administration Act when more routine collection actions have failed and, whenever possible, before using PCAs; and

o conform to Treasury Board's "Policy on Accepting Credit Cards as Means of Payment for Goods and Services Provided by the Government" when accepting credit cards for the payment of outstanding accounts receivable.

6. Procedural requirements
6.1 Granting credit
Departmental financial manuals must contain information on

o the situations when the department may grant credit and the types of goods, services, use of facilities, rights, and privileges that it may provide on credit;
o [u:dedf4b1a0d][b:dedf4b1a0d] issuing invoices when goods, services, use of facilities, rights, and privileges are not paid for when provided;[/b:dedf4b1a0d][/u:dedf4b1a0d]
o terms of credit;
o the acceptable level of credit risk; and
o the point at which the department will no longer provide goods, services, use of facilities, rights, and privileges because of unpaid debts.
6.2 Recording and reporting receivables
(a) Details on which accounts receivable must be included in departmental accounts receivable systems are listed in Appendix B.
(b) Departments must keep accounts receivable records in the name of the debtor so that they can quickly determine and analyze the debtor's total debt.
(c) Departments must maintain separate records for the portion of loans, repayable contributions, and advances that have matured or become due.
(d) Departments must design control accounts, which summarize and provide a total of all individual accounts receivable, to ensure the integrity and reliability of individual accounts.
(e) Departments must separate duties between functions related to granting credit, maintaining accounting records, and handling and reconciling cash.
(f) Employees must not have continuous control of any one function for an extended period of time. Departments must use mandatory annual leave or job rotation.
6.3 Making collections
Procedural requirements related to collections are outlined in Appendix C.
7. Monitoring
(a) Departments must ensure that they manage receivables activities effectively and efficiently.
(b) Senior management should receive, review, and act on accounts receivable reports periodically.
(c) Departments should periodically review and audit their management of receivables activities to ensure that they conform to the requirements of this policy.
(d) Treasury Board Secretariat will monitor the effectiveness of this policy by reviewing departmental audit and monitoring reports on receivables management.
8. References
8.1 Authority
This policy is issued pursuant to the Financial Administration Act.
8.2 Relevant legislation
Financial Administration Act (R.S.C., 1985, Chapter F-11), sections 2, 17, 17.1, 76(4), 78, and 155.
Receipt and Deposit of Public Money Regulations, C.R.C., c. 728, as amended by SORs/80-449, 83-828, and 94-402.
Security for Debts Due to Her Majesty Regulations, issued pursuant to section 156 of the Financial Administration Act (SOR/87-505).
Debt Write-off Regulations, 1994 issued pursuant to section 25(1) of the Financial Administration Act (SOR/94-602).
8.3 Treasury Board Secretariat publications
Policy on Recording Receipts of Money. Chapter 3-2 of the "Comptrollership" volume of the Treasury Board Manual.
Policy on Deposits. Chapter 3-3, of the "Comptrollership" volume of the Treasury Board Manual.
Chart of Accounts. Sections 8.2.2 and 8.3.2 of the "Program Management and Comptrollership Component" supplementary volume of the Treasury Board Manual.
TB Circular No. 1989-2, "Policy Related to the Regulations Governing Security for Debts Due to Her Majesty."
TB Circular No. 1987-18, "Policy on Accepting Credit Cards as Means of Payment for Goods and Services Provided by the Government."
9. Enquiries
Please direct enquiries about this policy to your departmental headquarters. For interpretation of this policy, departmental headquarters should contact
Financial Management Policy Division
Financial and Contract Management Sector
Financial and Information Management Branch
Treasury Board of Canada, Secretariat
Ottawa, Ontario
K1A 0R5
Telephone: (613) 957-7233
Facsimile: (613) 952-9613
Appendix A
Policy requirements for using private-sector collection agencies and paying of their fees
o Departments may use the services of private-sector collection agencies (PCAs) to recover debts owed to the Crown when their own normal collection activities have failed.

o Departments will choose one or more PCAs from the master standing offer.

o The following debts must not be transmitted to PCAs for collection:

o debts owed by other government departments, government agencies, and governmental organizations such as the United Nations or foreign governments;

o debts that can be readily recovered through set-offs or by reducing the future amounts of recurring payments; and

o debts under appeal or in litigation.

o Departments shall cease active collection on accounts sent to PCAs.

o Only fees payable for the successful collection of debts due to the Crown are covered by section 17.1 of the Financial Administration Act (FAA). Expenses for fees such as those for tracing, credit assessment, and cheque verification must be charged to departmental operating votes and not to the statutory authority.

o Departments must report their expenditures under this statutory authority in the Public Accounts for each fiscal year and in the final Supplementary Estimates of the applicable fiscal year when required by the Treasury Board.

Appendix B

Procedural requirements for debts and other claims to be included in accounts receivable systems

These debts include, but are not limited to, the following:
o amounts due from taxation (including tax assessments), sales of goods, provision of services, use of facilities, and statutory or other obligations, including dividends and transfers of profits and surpluses arising from the government's financial interest in outside organizations;
o overpayments or erroneous payments of salaries, allowances, supplier accounts, grants, contributions, and benefits;
o disputed claims, at their estimated value;
o gross amounts assigned to third parties for collection;
o amounts due from repayable contributions when the conditions that make the contribution repayable have been met;
o amounts due from defaulted loans as a consequence of the department honouring a loan guarantee;
o amounts due from fines and court awards;
o the matured (due) portion of loans and advances;
o interest, penalties, or administrative charges on the amounts and items specified above; and
o amounts due from other government departments.

Appendix C
Procedural requirements for collections

C.1 Normal collection process
Departments will use whatever collection method is appropriate and cost effective in each circumstance. Collection action will normally be progressive and will usually include the actions outlined below.

C.1.1 Routine actions
o Issuing invoices
o Sending monthly statements
o Sending letters
o Making telephone calls
o - Making personal contact

C.1.2 More advanced collection actions

C.1.2.1 Voluntary deduction or assignment
Departments may act on a debtor's voluntary authorization to deduct the amount of a debt from payments the Crown owes the debtor. Voluntary assignments to the Crown of payments due to the debtor by a third party should be sent to departmental legal advisors for review.

C.1.2.2 Set-offs
Before initiating a set-off, departments must ascertain that the debt is legally enforceable and make an effort to advise the debtor that they are contemplating such an action.

If the debtor is not prepared to give a voluntary assignment, and if it is cost effective or if a matter of principle is involved (such as collecting of certain fines or penalties), departments should take action either under a specific authority or under the general authority provided by section 155 of the FAA.

Departments must obtain the paying minister's consent to the set-off except in cases of set-offs to recover overpayments of salaries, wages, and employment- related allowances of federal Public Service employees.
Departments should try to avoid creating undue hardship when initiating set-offs against salaries, pensions, or social benefits. Both the department responsible for collecting the debt and the department responsible for making the payment should agree to the collection rate. Set-offs against contractual payments are normally for the full amount.

C.1.2.3 Security

Departments should seek security for debts due to the Crown when it is good business practice to do so, in accordance with the "Policy Related to the Regulations Governing Security for Debts Due to Her Majesty" outlined in TB Circular No. 1989-2.

C.1.2.4 Garnishment

Unless departmental legislation gives departments specific authority to garnishee moneys payable by an independent third party, garnishment is usually subject to the provincial law of the province in which the garnishment order is to be implemented. These cases should be referred to legal services.

C.1.2.5 Private-sector collection agencies: See Appendix A

C.1.2.6 Legal action
All cases involving legal proceedings must be referred to the Department of Justice.

C.1.2.7 Compromise settlements
Departments may consider accepting a partial payment as full payment of a debt when the cost of litigation would be more than the departments could collect or when the debtor is on the verge of bankruptcy and the settlement exceeds what the departments would receive if the debtor went bankrupt.

The authority to recommend a compromise settlement, which rests with the Department of Justice, is limited to cases where compromises are incidental to litigation or contemplated litigation. For settlements based on compassionate grounds or public interest considerations, a forgiveness authority is required.
Departments must write off the difference between the original debt and the amount of the settlement pursuant to the Debt Write-off Regulations.

C.2 Accounts receivable reports

Each month, departments should send reports on the ageing of accounts receivable to the managers responsible for the accounts receivable function. These reports should be produced by type of receivable and type of debtor, and should include detailed listings to allow follow-up on individual accounts. They should also include data summarized according to overall collection performance (e.g., average collection period, collection rate, and write-off rate).

C.3 Payments required from income

To determine the amount that can be reasonably be recovered from a debtor whose account is in arrears, departments should take into account the debtor's ability to pay. One source of guidance is the Superintendent of Bankruptcy's payment guidelines for cases involving debtor insolvency. They are a useful guide for establishing upper limits on repayment when dealing with debtors in severe financial circumstances