SUNDRY DEBTORS UPDATE - DOC by baIFLQY1

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									         Report of the Strategic Director of Customer & Support Services to
        Customer & Support Services Scrutiny Committee – 23rd January 2006.

                               SUNDRY DEBTOR UPDATE

Introduction

This report reviews the sundry debtor collection performance in 2005/06, the outstanding
debt at 31st December 2005 and provides details of debt written off and collection
performance over the last four years.

Monitoring Sundry Debtor Collection Performance

Income collection performance is monitored on a monthly basis against performance
improvement targets in the Best Value Performance Plan and more detailed improvement
targets in the Customer and Support Services Service Plan. Debt recovery performance is
reported to the Lead Member for Customer and Support Services on a quarterly basis.

Sundry Debtors 2005/06

The sundry debtors account up to 31st December 2005 can be summarised as follows:-

                                                              0 - 30    31
                                                  Total       days     days
                                                                         +
                                                   £m          £m       £m
                    st
 Debt Outstanding 1 April 2005                       16.55      13.6     2.95
 Add : Bills issued to December 2005                 83.95
 Less: Income received to December 2005              90.31
 Less: Debt written off to December 2005             0.179
 Less: Debt charged back to directorates             0.100
 Debt Outstanding 31st December 2005                  9.91      7.08      2.83

The total value of outstanding debt reduced between April and December 2005, from
£16.55m to £9.91m largely due to a reduction in the level of debt less than 30 days old. Over
30 day debt reduced by £0.12m which arises from some schools not having settled charges
due to the Christmas break and also from several high value accounts subject to complex
disputes. The Financial Services Group (FSG) billing and recovery team have also been
proactively pursuing older debts with positive results. Further comment is made with regard
to this later in the report.




                                             1
     Debt Analysis 31st December 2005

     The outstanding debt can be analysed by age and Council directorate as follows:

                                                                           Less part                   Land
                  0-30        31-59       60-89       90-119      Over      payts/                  charged
Directorate       Days        Days        Days         Days     120 Days    Credits     Total       accounts
                    £           £           £            £          £         £          £          (already
                                                                                                    included
                                                                                                     in total)
Community       2,672,318     439,580     110,646     124,623    603,146   -651,500    3,298,813      295,803
& Social
Services
Envl Services     341,186      68,560      16,071      33,291     97,307    -40,028      516,387       81,779
Chief           1,385,731      11,163       1,175          60     45,408         -0    1,443,537            0
Executives
Dev              895,198       66,672      26,278       9,391    160,778   -182,929     975,388        38,960
Services
Commercial       719,443       18,674      16,644      30,352    145,376          -0    930,489             0
Rents
Corporate       1,320,845      80,326      39,487      16,614    134,884    -49,767    1,542,389            0
Services
Housing          161,804       44,127      11,798       1,947     73,735    -19,522     273,889        17,449
Services
Personnel                0            0           0         0          0          -0            0           0
Services
Education &      442,351      314,790       4,417     117,321     17,365   -221,716     674,528         4,058
Leisure
Total SAP       7,938,876    1,043,892    226,516     333,599 1,277,999 -1,165,462     9,655,420     438,049
debt
Ex RADIUS                0            0           0         0    254,609          -0    254,609      173,718
debt
Total debt      7,938,876    1,043,892    226,516     333,599 1,532,608 -1,165,462     9,910,029     611,767




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    The debt can be further analysed as follows:

                0-30         31-59       60-89       90-119    Over 120                   Land charged
  Account       Days         Days        Days         Days      Days        Total            accounts
   Group          £            £           £           £          £          £          (already included
                                                                                              in total)
Individuals    1,917,989     199,814      66,850      93,815    830,059     3,108,527               426,538
Companies      1,710,764     163,561     110,489      32,578    165,124     2,182,516                11,511
Schools          665,940     115,851       9,736     139,027       -667       929,887                     0
Public         2,791,127     550,694      27,215      40,067     25,387     3,434,490                     0
Bodies
Total SAP      7,085,820   1,029,920     214,290     305,487   1,019,903    9,655,420             438,049
debt
Ex RADIUS              0             0           0        0     254,609       254,609             173,718
debt
Total debt     7,085,820   1,029,920     214,290     305,487   1,274,512    9,910,029             611,767

    The collection rate of SAP debt at December 2005 is 97.8%.

    Debt over 30 days old

    The BVPP target for reducing outstanding debt relates to the value of debt over 30 days old.
    The target for 2005/06 was to reduce the value of over 30 day debt by 10% in the year.

    The position at the end of December 2005 showed the value of over 30 day debt had
    reduced by 4.3% largely due to the inability due to the schools Christmas closure and the
    office shutdown to collect schools and colleges debts before the end of 2005. Within the 31-
    59 day debt category there are several high value accounts relating to two public bodies
    equating to approx £433k, which were paid prior to the end of December but not actually
    credited to the SAP system until 4th January 2005. Taking these transactions into account the
    performance would have reflected a 19% reduction which is a positive indication that the
    service is well on track to achieve its targets for 2005/6. Also, there are a number of accounts
    currently subject to legal recovery, which can, by the very nature, be a slow process. As at
    31st December 2005 there are a number of complex high value accounts subject to legal
    disputes, six accounts alone totalling £211,433. Improved measures have been put in place
    to monitor cases subject to legal recovery and it is hoped a number of cases will be resolved
    in early 2006.

    The majority of the debt over 30 days is currently subject to ongoing recovery procedures
    with a significant proportion being monitored as instalment arrangements with cases at Legal
    equating to approx £1.295m either subject to land charges or formal legal recovery action.
    Liaison is also taking place with directorates regarding disputed accounts to ensure
    resolution is sought as soon as possible. An exercise is in progress to review and improve
    the administrative procedures for land charges in conjunction with the respective directorates
    and legal services. Within 2006/7 it is the intention to refer selective land charged accounts
    for legal recovery, to ensure the accounts do not become statute barred after the 12 year
    term.




                                                     3
Analysis of Write offs 2005/06

In accordance with performance targets and internal and external audit reports, proposed
write offs are considered by the Lead Member for Customer and Support Services on a
quarterly basis. Details of all individual accounts recommended for write-off are provided for
the Lead Member.

During 2005/06, up to December 2005, the sundry debtor team continued a review of the
older pre-SAP debt as well as more recent debts. Up to December 2005 write-offs totalling
£178,870 were approved.

      Quarter              Write off       Debt outstanding at     Write off as a % of total
                                               period end             debt outstanding
June 2005                      £77,608             £14,817,201                        0.52%
September 2005                 £84,469             £14,472,989                        0.58%
December 2005                  £16,792              £9,910,029                        0.17%
                         Cumulative        Total debt raised in    Total write off as a % of
                          Write off              2005/06              total debt raised
                          2005/06
                             £178,870              £83,948,171                        0.21%

The write-offs were charged against the council’s bad debt provision.

Detailed below is an analysis of write offs since 2002 which demonstrates the reduction of
the burden on the bad debt provision and emphasises the effectiveness of debt recovery
procedures undertaken by the FSG. It has to be noted that there will always be situations
when irrecoverable debts need to be written off, such as customers who die with no
redeemable funds, absconders who are unable to be traced, and insolvencies / liquidations.

       Year                Write off       Total debt raised in    Total write off as a % of
                                                   year               total debt raised
2002/03                       £883,220             £64,002,597                        1.38%
2003/04                       £583,034             £84,254,260                        0.69%
2004/05                        247,243             £92,537,326                        0.27%


Provision for Bad Debts

The provision for bad debts now stands at £2.065m, which is considered adequate by the
Audit Commission in the recently completed audit of the council’s accounts for 2004/05.

The cash flow benefit to the council as a result of reducing outstanding debt over the last 4
years is around £250,000 per annum and the annual contribution towards bad debts has
been reduced from £500,000 to £200,000.




                                              4
Analysis of Charge-backs 2005/06

In accordance with the council’s policy a total of £99,504.85 was charged back to originating
directorates within 2005/06 primarily due to the accounts being irrecoverable as unresolved
disputes.

Debt Recovery Performance

Whilst performance to 31st December shows a reduction in over 30 day debt, encouragingly,
more recent evidence suggests an further upturn in debt recovery performance with £1.55m
collected on return from the Christmas break with a number of other long-standing accounts
being settled.

The FSG debtor section also provides an excellent debt recovery service to New Prospect
Housing Limited and Salford Community Leisure Limited. As at 31st December 2005, the
collection rates for these two organisations are 99.6% and 98.7%, respectively.

Overall, significant improvements are continually being made with the Sundry Debtors
service following on from the Service Excellence Award awarded to the team last year for
performance since formation of the FSG.

Sundry debtor performance was one of the key services involved in the award of the
prestigious Local Government Chronicle award for Best Exchequer Function for the City
Council in November 2005. The award was formally presented to members of the directorate
at the full council meeting in November 2005. Additionally, Salford’s sundry debtor
performance regularly tops the charts compared with other Greater Manchester authorities,
which is a further indicator of the improvements in the service since formation of the FSG five
years ago.

Salford’s sundry debtor performance also compares favourably against other unitary councils
within the IPF benchmarking group. Salford’s number of days worth of debt that is
outstanding at 31.3.2005 was 11 days compared to an average of 42 days for other unitary
councils, Salford having the fourth lowest days against 44 other unitaries. Also, Salford’s cost
per invoice at £6.54 is significantly lower than the average of £8.20 for IPF comparators.
Finally, in terms of Best Practice, and how the service is effectively managed, Salford is 82%
compliant against an average of 69% for other unitary councils.

Debt recovery targets 2005/6

Targets included in the Best Value Performance Plan for 2005/06 are to reduce over 30 day
and over 60 day debt by a further 10% from the level of debt outstanding at 31st March 2005.


                     Debt o/s      10%        Target debt      Performance     Increase (+)
                    31.3.2005    reduction        o/s              as at       Reduction (-)
                        £            £         31.3.2006        31.12.2005          %
                                                   £                 £
Over 30 day         2,952,052     295,205       2,656,847         2,824,210              -4.3
debt
Over 60 day         1,855,702     185,570          1,670,132      1,794,290              -3.3
debt

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As described above it is anticipated that these targets will be achieved by 31 st March 2006.

Commercial Rents performance

Members of the Scrutiny Committee have previously raised specific questions in relation to
the recovery of commercial rents. Prior to formation of the FSG the collection of commercial
rents was historically a problem area. Since formation of the FSG this aspect of debt has
been targeted robustly and the administrative procedures prior to taking on tenants has been
reviewed to take the council’s best interests into account. This activity has resulted in positive
results and the commercial rent debt over 90 days old (including Radius legacy debt)
continues to reduce. The overall commercial rent debt at 31st December 2005 was £993,308,
with debt over 90 days being at the lowest level since statistics have been maintained at
£238,547. Debt greater than 30 days was £273,865, 27.6% of the overall debt, once again,
the lowest since statistics have been maintained. Performance over the past four years
relating to 90 day old debt is detailed below:


                             Commercial Rents debt over 90 days old

               £1,400,000
               £1,200,000
               £1,000,000
                £800,000
                £600,000
                £400,000
                £200,000
                    £-
                              2002          2003          2004          2005



The above reflects an 80% reduction from 2002, 66.7% reduction from 2003, and 37.1%
reduction from 2004.


Reduction in debt over past 4 years

The most accurate barometer to determine effective overall debt recovery performance is the
level of debt over 60 days old. Detailed below is a graph showing the reduction in 60 day old
debt outstanding over the period 2002-2005. Whereas in an ideal scenario debts are
recovered within 30 days, the 60 day threshold is where proactive debt recovery action really
takes effect for most organisations.




                                                   6
                                Debt outstanding over 60 days


                   6

                   5

                   4

               £m 3
                   2

                   1

                   -
                         2002          2003        2004         2005



Within the Best Value Performance Plan, LPI51 (reduction in debts over 60 days old) has
been set up to measure activity in this debt category. The amount of debt outstanding for
over 60 days has been reduced from £5.8m in 2002 to £1.9m in 2005, a reduction of 67%.
Current business plans are targeted at reducing debt by a further 10% per year. At the
request of senior management, performance in this debt area has been monitored monthly
since 2002/3. Detailed below is the percentage reduction up to March 2005.

          Reduction in 60 day debt
2002/3    -52.5%
2003/4    -34.6%
2004/5    -23.7%


Further Reports

As requested by Customer & Support Services Scrutiny Committee regular update reports on
sundry debtors will be submitted for consideration.




Alan Westwood
Strategic Director of Customer and Support Services




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