Agenda Item B.3 CONSENT CALENDAR Meeting Date: November 19, 2013

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1 Agenda Item B.3 CONSENT CALENDAR Meeting Date: November 19, 2013 TO: FROM: SUBJECT: Mayor and Councilmembers Tina Rivera, Finance Director Accounts Receivable and Write-Off Policy RECOMMENDATION: Adopt Resolution No.13- entitled, A Resolution of the City Council of the City of Goleta, California Adopting an Accounts Receivable and Write-Off Policy. BACKGROUND: As the City of Goleta has matured over the last decade, there is greater organizational complexity and an increasing number of fees, charges, and other collectibles associated with City operations. Not all outstanding receivables are secured and as a normal course of business. Some become uncollectible through a matter of law, such as bankruptcy, or practical application, such as the case of an untraceable debtor owing a small amount to the City. As a result, staff has identified the need to promote fiscal responsibility through the adoption and execution of a policy addressing accounts receivable and the write-off of uncollectible debt. To date, lacking a formal policy, the City has relied on practical solutions and best practices to address collection of outstanding debt as well as the write-off of uncollectible debt. From time to time staff has also recommended Council write-off certain uncollectible accounts as needed. To provide consistency in collections and write-off administration and to avoid unnecessary Council requests for routine collection and write-off actions, it is prudent to set up general criteria that would allow for streamlined write-off of uncollectible accounts. Historically, the City s most significant receivable accounts have related to developer deposit cases from the City s early years. For many of these cases, the City lacked strong legal recourse in collection of these debts.

2 Meeting Date: November 19, 2013 In recent years, the City has put in place standard Agreements to Pay for each new developer deposit case, thus improving legal recourse for debt collection. The Agreements to Pay, along with improvements to case processing and reporting/billing systems, have significantly decreased the City s receivable exposure. The City is now able to consistently adhere to guidelines requiring that adequate deposits be on hand prior to initiating work on private development cases. The City has also put in place a process by which deposit case balances are reviewed every two-weeks to ensure adequacy of deposit levels. These steps alone work to prevent most deposit cases from converting to receivable accounts. In the event that City resources beyond the deposit amount are expended, thus creating a receivable account, the timely billing process and Agreements to Pay should assist in the quick recovery of City resources. Aside from developer deposit cases, on occasion, it is necessary to invoice other businesses or individuals for services rendered by the City. The administration of the accounts receivable function for the City is performed by the Finance Department. From time to time, invoices may become delinquent. Only after all reasonable collection efforts have been made, should the invoices be considered for write-off as uncollectible. In determining reasonable effort, the collection costs should not exceed the value of the debt. DISCUSSION: The proposed policy identifies the need for consistency in administering accounts receivable for amounts owed to the City. Consistency in account administration is critical to establishing and maintaining public trust and accountability for staff working to collect outstanding amounts. The attached Accounts Receivable and Write-Off Policy is intended to identify the steps to be taken to prevent outstanding debt, collect payment on accounts and establish conditions under which an account may be written-off. Additionally, this policy describes due diligence documentation and defines authorization levels for write-offs. Please note that the recommended policy includes multiple administrative levels of authority and reporting to ensure adequate review of all delinquencies identified as potentially uncollectible. FISCAL IMPACTS: There is no immediate financial impact to the City resulting from the adoption of this policy. However, a formal policy will help create an environment that is conducive to higher rates of revenue collection in future years. ALTERNATIVES: The Council may choose to make changes to the recommended Accounts Receivable and Write-Off Policy and direct staff to bring back a revised draft for adoption. Page 2 of 3

3 Meeting Date: November 19, 2013 Alternatively, Council may choose not to adopt the policy and continue with status quo operations. Legal Review By: Reviewed By: Approved By: Tim W. Giles Michelle Greene Daniel Singer City Attorney Deputy City Manager City Manager ATTACHMENT: 1. Resolution No. 13- adopting the City of Goleta Accounts Receivable and Write-Off Policy Page 3 of 3

4 ATTACHMENT 1: Resolution Adopting the City of Goleta Accounts Receivable and Write-Off Policy

5 RESOLUTION NO. 13- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF GOLETA, CALIFORNIA RATIFYING THE CITY OF GOLETA ACCOUNTS RECEIVABLE AND WRITE-OFF POLICY WHEREAS, the City Council wishes to protect and maximize its use of public funds, by establishing a policy addressing the consistent, efficient and effective management of Accounts Receivables and uncollectable debt; and WHEREAS, the City Council wishes to memorialize standard actions to be taken by staff to secure and recover public funds; and WHEREAS, the City Council believes this policy will help create an environment that is conducive to higher revenue recovery rates. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF GOLETA DOES RESOLVE, DETERMINE, AND ORDER AS FOLLOWS: SECTION 1: The City of Goleta Accounts Receivable and Write-Off Policy, attached hereto as Exhibit 1, is hereby adopted and made a part of this resolution. SECTION 2. The City Clerk shall certify to the adoption of this Resolution. PASSED, APPROVED AND ADOPTED this 19 th day of November ROGER S. ACEVES, MAYOR ATTEST: APPROVED AS TO FORM: DEBORAH S. LOPEZ CITY CLERK TIM W. GILES CITY ATTORNEY

6 STATE OF CALIFORNIA ) COUNTY OF SANTA BARBARA ) CITY OF GOLETA ) ss. I, DEBORAH S. LOPEZ, City Clerk of the City of Goleta, California, DO HEREBY CERTIFY that the foregoing Resolution No. 13- was duly adopted by the City Council of the City of Goleta at a regular meeting held on the 19 th day of November, 2013 by the following vote of the Council: AYES: NOES: ABSENT: (SEAL) DEBORAH S. LOPEZ CITY CLERK

7 CITY OF GOLETA ACCOUNTS RECEIVABLE AND WRITE-OFF POLICY POLICY STATEMENT It is the City s policy to prevent the creation of accounts receivables by requiring payment at or before services are rendered. In some cases, however, an accounts receivable account may be established and may become delinquent. It is the City s policy to actively pursue collection of past-due accounts receivable, regularly review the status of past-due accounts, and write-off amounts determined to be uncollectible. Types of receivables covered by this policy include, but are not limited to: Business license fees; Permit fees; Private development project fees; Transient occupancy tax; Fees for services; Regulatory and development impact fees; Fines and penalties; Recovery for damage to City property; Legal judgments; and Various unpaid fees. A write-off of uncollectible accounts receivable from the City s accounting records does not constitute forgiveness of the debt or a gift of public funds. Accounts receivable should generally be written-off during the fiscal year in which an account is determined to be uncollectible. Subsequent collection of an account previously written-off will be treated as new revenue in the appropriate fund. POLICY OBJECTIVE The purpose of this policy is to set authorization levels and standard guidelines to prevent accounts receivable, administer accounts receivable and write-off uncollectible accounts receivables. POLICY PROCEDURES A. Prevention Procedures: Accounts Receivable and Write-Off Policy City of Goleta 1

8 1. City staff shall secure the following items on all private development projects prior to commencing work: a. An executed Agreement to Pay; b. An adequate deposit for the payment of costs of all processing fees and consultant costs. 2. City staff shall frequently monitor all developer deposit cases to ensure adequate deposit levels are on hand. 3. City staff shall require an advance payment of all fees and costs in accordance with the City s User Charges and Fee Schedule. B. Collection Procedures: Collection procedures are established by the Finance Department, and will vary depending on the nature of the receivable. Whenever possible, the City will avoid advancing City resources. Once a receivable exists, the City will take the following steps in collection efforts: 1. Generate multiple invoice notices. 2. Attempt phone collection. 3. Refer to City Attorney for collection assistance if warranted. C. Write-Off Procedures: 1. Designation of an Account as Uncollectible: After the appropriate collection procedures have been followed, an account will be considered uncollectible if it meets one or more of the following criteria: The debt is disputed and the City has insufficient documentation to pursue collection efforts; The cost of further collection efforts will exceed the estimated recovery amount; The amount is up to $50 and remains unpaid after one year; The account remains unpaid after the lesser of four years or the applicable period for commencement of a recovery action (statute of limitations); The debtor cannot be located, nor any of the debtor s assets; The debtor has no assets and there is no expectation they will have any in the future; The debtor has died and there is no known estate or guarantor; The debtor is a company that is no longer in business; The debt is discharged through legal action (bankruptcy or court judgment); and The debt has been forgiven by action of the City Council. Accounts Receivable and Write-Off Policy City of Goleta 2

9 2. Preparation of Write-off of Accounts Receivable List: Annually or as warranted, the Finance Director will work with the appropriate departments to identify any accounts receivable that meet the criteria for designation as an uncollectible account. An itemized list of uncollectible accounts to be written-off will be compiled specifying the following: Debtor name; Account balance; Due date; Brief description of receivable type; Criteria under which the account was deemed uncollectible; and Account number of the receivable in the City s financial system if applicable. For each uncollectible account, documentation should be attached supporting the uncollectible account designation and substantiating that collection procedures have been followed and the due diligence has been exercised in collection efforts. Due diligence documentation should, at a minimum, include: Invoices, reminder letters, returned checks and/or collection letters (and any documentation that is returned as undeliverable, no known forwarding address, etc.); Bankruptcy claims and any documents supporting a claims court or other judgment rendered by proper authority; Judgment awarded by a court or settlement agreement; and Notice of discontinuation of services. 3. Approval Authority for Write-off Requests: The Finance Director will review the list of uncollectible accounts to ensure that it is complete and that all necessary due diligence documentation has been attached. Once the review is complete, the qualified accounts will be written-off after approval from the corresponding authority is received. Subsequent to the write-off step, the write-off list will be presented to the appropriate reporting party according to the following Council approved authority levels: Transaction Amount: Write-Off Authority: Reported to: Up to $100 Finance Director City Manager $101 up to $5,000 City Manager Finance Committee Excess of $5,000 City Council City Council Accounts Receivable and Write-Off Policy City of Goleta 3

10 If new developments arise suggesting that a possibility exists for collection of an account previously written-off, the collections process will be resumed. D. Criteria for Maintaining Accounts Receivable: Accounts receivable write-off will not be performed based on the criteria listed below: a. Insufficient collection efforts have been made or demonstrated; b. Existence of a lien and future collection is possible; c. Knowledge that the debt will be collected in the future; and d. Lack of proper approval. Summary: The above guidelines cannot cover every issue, exception, or contingency that may arise in operating the City. Staff s best judgment will prevail in situations where these guidelines lack specific direction. Effective Date: November 19, 2013 Date Ratified by City Council: November 19, 2013 Approved By: DANIEL SINGER, CITY MANAGER Accounts Receivable and Write-Off Policy City of Goleta 4