GFOA RECOMMENDED PRACTICE APPLICABLE IN CANADA
Revenue Policy: Accounts Receivable Controls (2007) (Cash)*
Background. To ensure strong fiscal management practices, the proper controls over revenues are
imperative in accounts receivable management and general oversight over the various revenues
collected. Sometimes governmental services are provided on credit. This generates the need to set up
accounts receivables and thereafter, a process to collect these receivables. It is incumbent on
management to ensure proper controls exist over these receivables. Sound financial management
principles include the establishment of an allowance for doubtful accounts. Efforts should be made to
pursue the timely collection of delinquent accounts. When such accounts are deemed uncollectible,
they should be written-off from the financial statements.
Recommendation. This recommended practice advocates the inclusion of accounts receivable
controls and policy statements as part of a revenue policy.
When formulating accounts receivable controls and policy statements, it is imperative that such
controls abide by authoritative standards and practices as set forth by the Canadian Institute of
Chartered Accountants and federal and provincial laws. There may be some variability amongst
entities in applying parameters for management discretion regarding delinquent penalties, account
write-off and related fiscal management decision-making creating a requirement for understanding
the uniqueness of each entity’s revenue policy. The following factors, as applicable, should be
considered in developing accounts receivable controls in a revenue policy:
• Internal Controls: All aspects of revenue recording and accounts receivable monitoring shall be
subject to proper internal controls. Management should establish standard internal controls that
are properly documented and followed by affected department(s) generating the receivable,
receipting the payment, and performing collection activities on delinquent accounts:
• Segregation of duties – authorization, recording and custodian functions should be performed
by different personnel or mitigating procedures should be in place.
• Reconciliation to the general ledger and other supporting accounting ledgers shall be
performed in a timely manner for receivable balances and subsidiary ledgers.
• Automated system resources should be utilized where practical to provide better support
towards processing and reconciliation.
• Upon any suspicion of fraud, management should be notified. Management shall then notify
the appropriate personnel (e.g., internal audit, law enforcement) in a timely manner for
* Cash Management
• If there is any suspicion regarding non-compliance with internal control directives,
management will notify the appropriate personnel (e.g., internal audit) for further review.
• Depositing of Received Funds for Services
• When services are provided by the department prior to the receipt of funds for such services,
an on-going accounts receivable system, with documented internal controls, will be
maintained for those functions as approved by appropriate officials.
• All other functions shall require payment prior to or in conjunction with the service being
• Depositing of Received Funds from Grants, Developers, Partners and Other Entities
• There may be transactions (e.g., grants, developer contributions, etc.) whereby agreements,
resolutions and/or ordinances require remittance to the entity of an established amount.
• As many governmental projects and services have a portion of their cost recovered from non-
government sources, the proper accounting for such recoveries is necessary to ensure that
funding is not adversely impacted.
• At a minimum, each department shall establish its own accounting practices to ensure that
proper accounting procedures are followed relative to the types of non-government revenue
such department initiates. Preferably the accounting practices will be centralized and uniform
through out the entity.
• Receivable balances are formally established in the financial system at fiscal year-end, but
should either be maintained in the financial system throughout the fiscal year or, at a
minimum, have on-going balances and their subsequent receipts monitored by the initiating
department throughout the fiscal year.
• Billing Practices - Unless otherwise stated per ordinance or resolution, all initiated bills should
have established terms (e.g., 30 days from bill date) and all bills should be generated within an
established time after initial service provision (e.g., within 45 days).
• Accounts Receivable Collection
• All accounts receivable should be recorded in a manner to permit an analysis of the aging of
such receivables (e.g., <30 days, 30-60 days, etc.).
• For those accounts that become past due, the initiating department should have specified
practices that ensure proper delinquent notice is provided to customer and continued service
is restricted, unless continuation of service is required by law or resolution, until such
accounts are current. Such practices should specify the threshold and materiality of a
delinquency for which further collection efforts would be pursued (e.g., >180 days and over
$25). To facilitate such collection efforts, departments shall establish information criteria as
part of the initial credit application process with the customer (e.g., bank account #, driver’s
license #, etc.) subject to Freedom of Information and Protection of Privacy Act (“FOIP”)
restrictions. Utilization of collection agencies should be performed utilizing all federal and
provincial notice requirements and in a manner in which the entity receives all of its
• Bad Debt Expense - The determination of the need for an allowance for doubtful accounts
should be based upon an established method (e.g., the percentage of receivable method). The
computation of an allowance for doubtful accounts should be performed at least annually
based upon the aging of such receivables and recent history of write-offs at fiscal year-end,
with any material changes reported to appropriate officials. For write-offs of delinquent
balances, subject to federal and provincial laws, thresholds should be established to permit
the timely write-off of immaterial balances (e.g., balances <$25 and >180 days delinquent)
upon appropriate authorization. For balances greater than established threshold (e.g., >$25),
collection efforts should be performed for a period equivalent to the statute of limitations or
sooner if bankruptcy has been discharged for account, business no longer exists or individual
is deceased, at which point such amounts will be written off upon appropriate authorization.
For any account written-off, such customer information should be retained for as long as
practically feasible in automated system capacity in order to have continued enforcement of
service denied on credit until previously written-off balances have been paid. Many
provinces have restrictions for certain types of revenues that cannot be written-off (e.g.,
property taxes), therefore policy should appropriately differentiate between various allowable
practices for different revenues.
• GFOA Recommended Practices:
• Adoption of Financial Polices,
• Revenue Control and Management Policy: Accounts Receivable Controls (2003),
Approved by the GFOA’s Executive Board, 2003.
Approved by the GFOA Committee on Canadian Issues, June 2007.