Analysis of Write offs 200708 by lmj69923

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									                                                        PART 2                 ITEM NO 4.4
                                                        (EXCLUSION TO THE
                                                        PUBLIC)

  REPORT OF THE STRATEGIC DIRECTOR CUSTOMER AND SUPPORT SERVICES

         TO THE CUSTOMER AND SUPPORT SERVICES SCRUTINY MEETING ON
                                    23rd FEBRUARY 2009

TITLE:       SUNDRY DEBT WRITE OFFS
RECOMMENDATIONS:
          It is recommended that Members consider the improved performance of the City
          Council’s Sundry Debt Team relating to the treatment of write offs for the period
          2004/5 – 2008/9.

EXECUTIVE SUMMARY:
          This report sets out the performance of the sundry debt service relating to the
          treatment of write offs for the period 2004/5 – 2008/9.
          The report also contains information relating to benchmarking data and examples
          of the measures taken by the Sundry Debt Team before consideration to write off
          by the Lead Member of Customer & Support Services.
BACKGROUND DOCUMENTS:                  Reports to the Lead Member for Customer and
(Available for public inspection)      Support Services


ASSESSMENT OF RISK:

          Low – Effective recovery action minimises financial risk to the council

SOURCE OF FUNDING:

          Not applicable

LEGAL ADVICE OBTAINED:
          Not applicable
FINANCIAL ADVICE OBTAINED:
          Report prepared by the Finance Division


CONTACT OFFICERS:                      Tony Hennessy, Creditor and Debtor Manager
                                       Tel. 793 3279
                                       Geoff Topping, Assistant Director (Accountancy &
                                       Exchequer)
                                       Tel: 793 3240


WARD(S) TO WHICH REPORT RELATE(S)                All
KEY COUNCIL POLICIES:                  All
                                                    1
                    SUNDRY DEBT WRITE OFF UPDATE – FEBRUARY 2009

Introduction

The City Council’s sundry debt team is responsible for issuing bills and the collection of income for
all charges made by the council except council tax, business rates and housing rents. The value of
bills issued from 1st April 2008 to 31st December 2008 was over £96m.

This report reviews the sundry debtor write-offs in 2008/09, sundry debtor write off analysis for the
period 2004/5 – 2008/9, comparative benchmarking data with other unitary authorities subscribing
to the Institute of Public Finance (IPF) benchmarking clubs and examples of the recovery measures
taken before an account is considered for write off. Over the past two years the service has
received national recognition for the sundry debt service via the Institute of Credit Management
(ICM) and won the award for Most Improved Performance at the ICM08 Awards. A complementary
report has also recently been received from Internal Audit about the processes embedded within the
Sundry Debt Team.


What are sundry debts?

Sundry debt invoices are issued for a wide range of Council services, examples of which include:

      Commercial and ground rents
      Trade refuse and grounds maintenance service
      Pest control service
      Accommodation and care charges for social care clients
      Housing property recharges & service charges

In addition to sundry debts for services, miscellaneous invoices are also raised when certain
entitlements are overpaid. Examples of these include:

      Overpayment of salaries
      Charges to other local authorities and public bodies
      Service Level Agreement charges to schools and other organisations

All council invoices are payable upon receipt and payment details are printed on the reverse of
every invoice. Invoices are subject to recovery action if unpaid. This action can be avoided if the
customer pays the invoice on time or, if facing financial difficulties, by discussing payment
arrangements with a member of the Sundry Debt Team.




                                                   2
Write off analysis for the period for 2004/5 to 2007/8.

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 to the Lead Member.

To date in 2008/09 write-offs totalling £66,300 have been approved and charged against the
council’s bad debt provision.

                             Quarter              Write off

                                                        £
                        June 2008                       15,994.03
                        September 2008                  14,819.04
                        December 2008                   35,486.52
                        Total                           66,299.59
                        Recoup                        (74,148.94)
                        Net Total                        7,849.35

The total debt raised to date in 2008/9 is approximately £96.5m and the write-offs (prior to the
recoup from Bolton MBC) of £66k represents only 0.07% of this value.

Approximately £74k of the March 2007/8 quarter write off relating to commercial rent has been
recouped from Bolton MBC as lead authority for GM Industrial Estates which has replenished the
bad debt provision.

Detailed below, is an analysis of write offs since 2005 which demonstrates the reduction of the
burden on the bad debt provision and emphasises the effectiveness of debt recovery procedures.
The value of the debt written off at 31st March 2008 has reduced by 43% compared to the figure for
31st March 2005, whilst the debt raised in the same period has increased by over 35%. Applying the
recoup from Bolton MBC the reduction of the debt written off would be 73%,

       Year               Write off       Total debt raised in Total write off as a % of
                             £                   year £           total debt raised
2004/05                        247,243             92,537,326                     0.27%
2005/06                        262,127            118,568,896                     0.22%
2006/07                        125,518            124,991,001                     0.10%
2007/08                        140,279            125,127,858                     0.11%
2008/09                         66,300             96,470,000                     0.07%

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 bankruptcies /
liquidations.

The current economic situation could adversely affect recovery performance and potentially
increase the value of write-offs as business and individuals experience financial difficulties. As an
example we have 13 property developers who entered into planning agreements with the council
under s106 of the Town and Country Planning Act 1990 with an outstanding value of £679,000. Due
to a downturn in the property market it is proving difficult to secure payment. Whilst recovery is
being pursued it is unlikely that these debts will be cleared in the near future.




                                                  3
Comparative information / data with Other Local Authorities

Salford City Council subscribe to the Institute of Public Finance (IPF) benchmarking clubs to
measure our performance against other unitary authorities. Detailed below, are three benchmarking
measures of collection performance, cost and best practice.


    A. Collection Performance        Salford         Unitary               Notes
                                                     Council
                                                     Average
    1. Average invoice value           £5,215           £3,064    Sundry debt
                                       £1,509             £896    Commercial rents
    2. Write off value as a % of        0.1%              0.4%    Sundry debt
    debit                               1.5%              1.0%    Commercial rents
                                            0             1.3%    Ground rents & charges
                                        0.1%              1.3%    Residential care
    3. Debtor days                         46                71   Sundry debt
                                           65                71   Commercial rents
                                           31               159   Ground rents & charges
                                           27               134   Residential care
    4. % of debts cleared in IPF         96%               85%    Number of invoices
    specified periods                    99%               87%    Value
    5. Credit notes as a % of           5.8%              7.6%
    debit
    6. % of referrals to legal and       0.2%             0.9%    Legal
    debt recovery agencies               0.1%             0.4%    DRA
    (DRA)
    7. % of recovered cases               11%             37%     Legal
    from legal action/DRA                 48%             23%     DRA




    B. Cost performance              Salford           IPF                 Notes
                                                     Average
    1. Total cost                        £5.67           £9.26    Per invoice - 38.8% lower
    2. Staff cost                        £3.51           £5.01    Per invoice - 29.9% lower
    3. Cost per £1000 debit              £2.00           £6.96    Per invoice - 79.9% lower
    4. Legal                             £0.45           £0.30    Per invoice - 50% higher
    5. Debt Recovery Agency              £0.11           £0.17    Per invoice - 35.3% lower




                                                 4
    C: Best practice




From a Greater Manchester perspective Salford regularly has the lowest percentage 90 day old
debt of all Greater Manchester Authorities. Detailed, below, is a graph detailing the latest
performance data up to the end of the second quarter 2008/9.


                   Percentage of debt outstanding for over 90 days



        25.00%

        20.00%

        15.00%

        10.00%

         5.00%

         0.00%
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                                               5
Examples of recovery action taken against an individual and business before consideration
to ‘write off’.

Individual

In February 2008 an invoice was raised to a former council employee in respect of an overpayment
of salary of £328 which had arisen due to a late notification to payroll of the individual leaving the
council’s employment.

A standard reminder and final notice followed at 18 and 25 days with no response from the debtor.
A bespoke letter was sent on 19th March 2008 requesting payment in full or to contact the council to
discuss repayment. A further letter was sent on 22nd April 2008 advising that failure to pay will result
in the debt being passed to a debt collection agency for recovery. Again there was no contact and
the debt was referred to the debt collection agency on 29th July 2008. On 5th November 2008 the
Sundry Debt Team were advised that the debtor had absconded. Attempts to trace the debtor
proved fruitless. The debt of £328 was approved for write-off by the Lead Member for Customer and
Support Services in December 2008.

Business – Former Commercial Rent Tenant

Write-offs in respect of commercial rent accounts total £29,938 this financial year up to December
2008 quarter made up of 11 accounts of which £24,398 relates to five companies that went into
receivership/liquidation.

Typical of these five is an auto products supplier who rented a commercial unit in the Broughton
area. The company has been operating from these premises from around 1984 with an annual rent
of £13,500 since 1990.

Rent was paid on a weekly basis though the company periodically experienced financial difficulties.
Senior officers on the Sundry Debt Team worked with the company at these times in order to reach
a repayment solution affordable by the company and acceptable to the council. Payments from
2005 were made in advance with no action being required by the council.

In early 2008, the Company ceased making payments and were contacted by the Sundry Debt
Team by telephone. We were advised the company were experiencing severe financial difficulty
and that matters were made worse by major problems with security around the unit. The company
reported that cars belonging to the staff had been vandalised and they had experienced several
instances of threats of violence from youths. The company claimed that no-one at the council would
help although this has never been substantiated and Urban Vision did make contact to discuss
these issues. The company also claimed that these problems had a negative impact on running the
company as potential clients would not visit the premises. An agreement was secured with the
company to make payments that would bring their rent account up to date by the end of the quarter
due and that the Sundry Debt Team would contact the relevant council to address their security
concerns.

In March 2008, the company remained in arrears and a number of telephone messages were left for
them to contact the Sundry Debt Team. Following no response a letter was sent to the company
warning that action would be taken to forfeit the lease if payments continued to be withheld. In April
2008 the company went into liquidation. Subsequently, rent arrears of £2,829 were written off
following approval by the Lead Member of Customer and Support Services in June 2008.

Alan Westwood
Strategic Director of Customer and Support Services

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