Former tenant arrears for housing rents - REPORT OF THE DIRECTOR by pengtt


									                     PART 1                      ITEM NO
                     (OPEN TO THE PUBLIC)        4.3.




RECOMMENDATION: Members are invited to consider and comment on the
contents of the report.

EXECUTIVE SUMMARY: This report gives details of the amount of former tenant
arrears written off in the past five financial years, the funding of the write off,
overview of the write off process, two examples of processes followed before the
debt was written off and how arrears have been treated through the establishment of
City West Housing Trust.

BACKGROUND DOCUMENTS: (Available for public inspection):
Reports to Lead Member for Customer and Support Services for writing debt off.
Reports of the establishment of City West Housing Trust.
Salix Monitoring Information.

Nigel Dickens, tel. 0161 793 2585

ASSESSMENT OF RISK: Effective recovery action minimises financial risks to the

SOURCE OF FUNDING: Housing Revenue Account bad debt provision.


FINANCIAL ADVICE OBTAINED: This report has been produced by the Finance
Division of Customer and Support Services, in discussion with Salix Homes.

WARD(S) TO WHICH REPORT RELATE(S): All for the period prior to transfer and
those within Central Salford post transfer.

KEY COUNCIL POLICIES: 2008/09 Housing Revenue Account.
                                    Report Detail

1     Introduction

1.1   For Housing rents there are two types of arrears, current tenants where for
      various reasons the account has fallen behind but the tenant is still in situ and
      former tenants where a tenant has left the property but still owing rent to the

1.2   The only arrears that are written off are those for former tenants as work is
      always undertaken with current tenants to try and assist them in ways to bring
      their accounts up to date.

1.3   This report only focuses on processes followed in arriving at amounts to be
      written off for former tenants as requested by the Committee.

1.4   The report also covers how arrears were treated in the establishment of City
      West Housing Trust.

2     Former Tenant Arrears Written off 2004/05 to 2008/09 inclusive

2.1 The table below shows the amount of former tenant arrears written off from
    2004/05 to date. It should be noted that it is anticipated that there will be one
    further write off in the current year for the third quarter, although the numbers
    and amount are not known at this point in time.

       Year              Amount           Number        of Average Write
                         Written off £    Cases            off per Case £

       2004/05 NPHL          72,568             461                157
       2005/06 NPHL        1,676,859           2,629               638
       2006/07 NPHL         203,847             455                448
       2007/08 NPHL         636,274            1,136               560
       2007/08 Salix        237,289             303                783
       2008/09 NPHL         102,939             53                1,942
       2008/09 Salix        385,802             702                550

       Total               3,315,578           5,739              577

2.2 It must be remembered that Salix were only established in July 2007 and that
    up until this date New Prospect Housing were responsible for the stock in the
    whole city. After the 6th October 2008 all the former New Prospect stock
    transferred to City West Housing Trust and the only remaining stock held by the
    Council is that managed on its’ behalf by Salix in the Central Salford area.

2.3 Due to the various changes in the stock ownership and management, the
    average amounts per write off case have been shown in the above table.

2.4 To also put the amounts into context the table below shows the amount written
    off compared to the debt raised in the year. It must be remembered that the
    debt written off during a year will be for accounts raised in previous years.

       Year              Amount            Total     Debt Write off as % of
                         Written off £     Raised in Year debt Raised £

       2004/05                72,568          68,949,395          0.11%
       2005/06              1,676,859         68,453,975          2.45%
       2006/07               203,847          68,149,562          0.30%
       2007/08               873,563          70,351,543          1.24%
       2008/09               488,741          52,569,000          0.93%

       Total                3,315,578         328,473,475         1.01%

2.5 The timing and amount of write off means that the total average of 1% over
    almost a five year period is a more accurate reflection of the level of write off
    rather than one year in isolation.

3     Funding of Debt Write off

3.1 Each year within the approved HRA budget there is an amount for a
    contribution to the bad debt provision.

3.2 When rental accounts are raised the HRA gets the full 100% benefit of that
    amount and as such there needs to be the offset to reflect that it will not all be
    collected and therefore not all available for use.

3.3 In accordance with CIPFA guidelines and Audit Commission recommended
    practice Councils should have a bad debt provision equating to 95% of former
    tenant arrears.

3.4 Salford follow this practice and have made contributions to the bad debt
    provision in the previous years and the estimated amount for 2008/09 as shown
    in the table below for former tenants.

       Year              Contribution to Total  Debt Contribution as
                         the Bad Debt Raised in Year % of Total Debt
                         Provision £                 Raised £

       2004/05               880,834          68,949,395          1.28%
       2005/06               979,481          68,453,975          1.43%
       2006/07              1,064,181         68,149,562          1.56%
       2007/08              1,119,584         70,351,543          1.59%
       2008/09               623,240          52,569,000          1.19%

       Total                4,667,320         328,473,475         1.42%

3.5 The table shows that the average percentage contributed to the bad debt
    provision over the period of 1.42% was greater than the average percentage
    write off, of 1.01% shown above.

3.6 At the end of 2007/08 the bad debt provision for former tenants was £4.1m, split
    £1.6m Salix and £2.5m New Prospect. The treatment of those debts associated
    with New Prospect is covered in section 6 below.

4     Overview of Debt Write off Process

4.1 The processes followed by Salix and previously New Prospect were fairly
    similar and as such given that there is now only Salix, it will be their processes
    that are covered in this section.

4.2 Salix seek approval from their Resources Committee for amounts that are
    recommended to the Council for write off and the latest report is replicated
    below so that Members can see these details.

REPORT TO:                Resources Committee
DATE OF MEETING:          28 October 2008.
AGENDA ITEM:              6
CONFIDENTIALITY:          Confidential

REPORT TITLE:             Write Off of Former Tenant Arrears (July 08 to
                          September 08)
AUTHOR:                   Trevor Galley
RESPONSIBLE               Rob Wakefield
PURPOSE OF THE            To seek authority to request that the Council write off debts
REPORT:                   associated with former tenant arrears that are deemed

RECOMMENDATIONS: That the Committee:

                          1.     Authorises the referral to Salford City Council of
                                 former tenant rent arrears, totalling £119,353.00,
                                 to be written off as irrecoverable.

RESOURCE AND VFM          This paper does not have any additional impact on current
IMPLICATIONS:             resources. However, it will be a call on the Council’s bad
                          debt provision within the Housing Revenue Account.

                          Should the arrears be approved for write off it will allow
                          existing staff resources to be focused more effectively on
                          debts that are still deemed recoverable, thereby
                          contributing to improved value for money.
LEGAL                     A debt is deemed to be statute barred under the
IMPLICATIONS:             Limitations Act 1980 if it is more than 6 years old.
                          Pursuance of statute barred debt could amount to
                          harassment contrary to Section 40(1) of the Administration
                          of Justice Act 1970.
CUSTOMER                  Consultation on the Former Customer Arrears Policy and
IMPLICATIONS:             policy has been completed.
COMMUNICATIONS            The information in this report will be shared with the
IMPLICATIONS:             Council should the recommendations be approved.
EQUALITY IMPACT           This report does not require an assessment. However, any
ASSESSMENT:               former customer debt with a Court Order attached to it may
                          disadvantage the customer should they apply for credit as
                          credit reference will show the Court order still active.
RISK ANALYSIS:    Operational – the debts that are being proposed for write
                  off have been determined by following the appropriate
                  procedure. The debt itself will, if agreed by the Council, be
                  funded from the existing bad debt provision held within the
HEALTH AND SAFETY None directly from this report.
BACKGROUND        The Councils policy with regard to write off’s referenced
DOCUMENTS:        within the body of the report.

                           This report and content represents current “Good practice”
                           as identified by HouseMark and the Audit Commission.


This report provides a summary of the Council’s policy for the collection of arrears
and the reasons for proposing that arrears be written off. In addition, it identifies the
reasons why a write off would be considered necessary.

A review has been undertaken of the Former Tenant Arrears as at 30th September
2008 and identified those debts that are deemed irrecoverable in accordance with the
Council’s policy. The amount being proposed for write off this quarter is larger than
anticipated due to the Debt Collection Agency returning a number of accounts as
irrecoverable with a higher than average value. Whilst there are no write off’s
identified for emigrated, there is one account identified for write off as a bankrupt.
Eleven applicants seeking re housing have been identified as former tenants with
debts which have enabled £20,731.70 being written back on. The total amount
recommended for write off is £119,353.00.

There are no statute barred debts identified in this report.

Whilst there are no write off’s identified for emigrated, there is one account identified
for write off as a bankrupt. Eleven applicants seeking re housing have been identified
as former tenants with debts which have enabled £20,731.70 being written back on.

As a direct result of our enquiries with the Rent Income Excellence Network, they
have supplied us with a number of good practice initiatives which will now form part of
the Income Management Strategy Action Plan with key elements to be incorporated
within the Former Tenant Debt Policy for Salix Homes.


A.     Salford City Council’s Policy

A.1    The Council’s policy on collecting former tenant rent arrears is as follows:-

A.2    All tenants who leave the Council’s properties owing rent arrears receive an
       initial letter requesting payment of the outstanding debt. If this is unsuccessful
       further letters and attempts to contact the debtor are made.

A.3    Where no forwarding address is provided, strenuous efforts are made to trace
       tenants using our own records and the services of a private tracing company.

A.4   Where the pursuance of the debtor does not result in the tenant paying off the
      debt or making a suitable arrangement to pay, the matter is then referred to a
      private debt collection agency. They take on the debt and collect payments on
      our behalf on a commission only basis.

A.5   Former tenant arrears are only recommended for write off when all efforts to
      trace the tenant and/or secure payment have been exhausted.

A.6   Most companies write off debt throughout the year, Salix Homes have decided
      to seek authorisation to write off debts on a quarterly basis, which is in line
      with recommended good practice.

A.7   There are a number of reasons why former tenant’s arrears will be
      recommended to be written off. These are:

            Empty Property and Supported Housing Manager/Income Manager
             This is usually where there is a dispute over the termination date of the
             tenancy and the appropriate manager agrees to waive rent charges for
             a period.

            Tenant Deceased
             Where the tenant has died and there is no estate to claim the debt

            No Trace
             Where the tenant has left without providing a forwarding address and
             we are unable to trace them.

            Emigrated/Deported
             Where the tenant has left the country.

            Uneconomical
             It is considered uneconomical to pursue debts of less than £50 if our
             initial letter is unsuccessful.

            Elderly
             Where the tenant has been admitted to an elderly person’s home and
             there are no funds to repay the debt.

            Debt Agency recommendation
             Where the case has been referred to the debt collection agency but
             they have been unable to secure an agreement to pay.

            Bankruptcy
             This is where the tenant has been made bankrupt.

A.8   If at a future date we trace a customer, or in some instances customers
      contact us to make an agreement to clear their debt, the debt would be written
      back on and a repayment agreement established. We also have former
      tenants who request re-housing from us. When we register their application a
      check is made for rent arrears against any addresses they declare. If they left
      any rent arrears we would write the debt back onto our records and ask the
      customer to clear the debt before they are considered for re-housing. In
       exceptional circumstances they would be re-housed and an agreement
       reached to recover the debt on a weekly basis.

B.     Proposed Write Off (July 08 - September 08)

B.1    The total amount of debt that is being recommended for write off for the
       second quarter of the 2008/09 financial year is £119,353.00. The following
       table identifies the reasons for recommending the write off and the amount
       attributable to each reason.

       Reason                                 Amount            Number of
                                                    £             Cases
       Tenant Deceased (91)                   8,607.14             14
       No Trace (92)                          4,530.67              4
       Uneconomical (94)                              74.27         9
       Elderly (97)                                 973.08          3
       Debt Agency Recommend (99)              101,280.12          49
       Service manager write off (90)            2,420.07           2
       Bankrupt                                  1,467.65           1
       Total                                   119,353.00          82

       Five of the debts in the uneconomical to pursue category are for less than

      Previous write offs.
       Amount written off to date.              Amount          Number of
                                                   £             Cases
      Quarter 1                                101,540.51         132
      Total                                    101,540.51         132

      Arrears for write on
       Reason.                                   Amount         Number of
                                                    £            Cases
      Debts written back on                     20,731.70          11

      This report represents the second write off for 2008/09, and the second
      reported write on for 2008/09. (Eleven accounts formerly written off have been
      written back on since May 2008 as above due to the former tenants wanting to
      clear their arrears to enable them to be re-housed by Salix Homes).

B.2 The City Council maintains a bad debt provision for all debts owed, including
    dwellings rents, against which this write off will be charged. The provision is in
    the region of £6m for 2008/9 for the City of Salford, and is calculated by
    reference to the Communities and Local Government guidelines. Contributions
    to the bad debt provision are funded from Housing Revenue Account resources.
    The write off for quarter 1 of 2008/09 was approved by lead member on the 23
    September, 2008.

B.3 By actively chasing current tenant arrears and following the arrears collection
    procedure, we have seen a slight increase in the number of Notices to Quit
    being served being 40.14% against a year end target of 40% due to current
    tenants failing to agree or maintain an agreed repayment schedule. However,

     despite this slight increase the number of actual evictions has remained fairly
     static again at 0.48% against the year end target of 0.5%. This reduction
     demonstrates that current tenant arrears agreements are in the main being
     adhered to and that the support and financial advice given by the Income
     Management Team, and partnering agencies, is beginning to have a positive
     impact. This has led to a reduction in the number of immediate possession
     requests to County Court, and subsequent reduced number of evictions
     providing the added value of reduced of homelessness and associated void

B.4 The opening balance of FTAs at 1st April 2008 was £1.6m. The closing balance
    as of the 30th September 2008 was £1.26 million. This includes the write off’s
    for Q3 and Q4 of 2007/08, and the Q1 write off of 2008/09. The 2008/09
    performance target for FTAs is a closing balance of £1.409m.

B.5 HouseMark have recently issued the 2008 ALMO Benchmarking Report which
    provides a wide range of information as to Salix Homes’ performance when
    compared with the 22 other Metropolitan ALMOs. Encouragingly, it identifies
    Salix Homes as being in the Middle Upper Quartile for the percentage of arrears
    written off as a percentage of rent due in 2007/08 demonstrating prudent
    management of the write off mechanism for managing arrears.

B.6 A major contributing factor impacting on the performance of Salix Homes has
    been the large historic debt transferred from New Prospect Housing Limited
    (NPHL). The current Former Tenant Debt being managed by Salix Homes
    represents approx 33.2% of the Council’s total former tenant arrears.
    Furthermore, of the total former tenant arrears being managed by Salix Homes
    over 80% relates to debts incurred whilst the tenant was being managed by
    NPHL. Of the £119k recommended from write off in this period, over 92%
    (£110k) related to NPHL management.

B.7 Work is continuing as part of the tactical improvements to the ICT to extract
    performance information in order to fully understand and report on the level of
    debt moving forward. Preliminary discussions have been held with officers at
    the Council on the level of former tenant arrears Salix Homes is managing with
    a view to seeking a larger level of write off of historic non Salix Homes debt.

C      Actions being Taken

C.1 It is crucial to ensure that the services provided present value for money and
    Salix Homes recognises that to continue to pursue former tenant debt when
    there is so little chance of recovery would be uneconomical and would not
    demonstrate value for money. Nine cases have been identified in this current
    report as uneconomical to pursue. However, as with other FTA write off’s,
    should a forwarding address be identified any write off will be returned as active
    and will be pursued in keeping with agreed good practice. (See 2.1. Arrears
    write on).

C.2 It is also important that Salix Homes ensures that its own internal processes are
    robust and that those accounts recommended for write off have been pursued
    effectively and that the write off is justified. The Income Manager is satisfied that
    the debts identified in this report are irrecoverable and that the debt “write on”
    can be pursued.

C.3 Salix Homes must ensure that it effectively and robustly pursues former tenant
    debt to ensure that payments are made when debts are deemed to be
    recoverable. This action will result in payments being recovered from former
    tenants and paid to former tenant accounts.

C.4 We have reduced the backlog of FTA accounts, which has allowed more time
    for pursuing the more recent accounts. We have also been able to take a much
    more proactive stance when chasing the debt in house with those tenants still
    living within the locality by undertaking home visits, contacting by letter or
    telephone and if the debt is above £50 the Former Tenant Arrears Officer can
    refer collection to a Debt Collection Agency

C.5. Income Management surgeries continue to take place at the Blackfriars and
    Precinct neighbourhood offices on Tuesday and Thursday mornings which
    continue to generate a number of referrals for the Former Tenant Arrears
    Officer to contact re agreeing a repayment plan.

C.6 The FTA Officer and Team Leader met with another tracing agency in May to
    discuss the possibility of passing our tracing accounts to them as a value for
    money exercise. This company was recommended to us from a local Housing
    Association with the information that they may offer more competitive rates than
    our current tracing agency. The outcome of the meeting was that the new
    company may be able to reduce our tracing costs by 75%. The Director
    Finance and ICT, the Income Manager and the Former Tenant Arrears Officer
    are reviewing the information gathered before we proceed with any
    procurement exercise. (Any change in supplier will be undertaken with
    consideration of the Procurement Policy).

C.7 In the previous quarters write off we made reference to the accounts (140)
    previously managed by Philips Collections and Moorcroft Debt Collection, these
    have now been returned to Salix Homes. This has resulted in a number of
    cases being re-worked by the Former Tenant Arrears Officer and a number of
    accounts recommended for write off in this quarter.

C.8 We have received a quantity of information from HouseMark which pinpoints
    good practice within FTAs. These are currently being examined to see what
    practices can be used successfully, with maximum effect within Salix Homes to
    an excellent service provision and will form the basis of a strategic approach to
    the management and collection of the FTAs within the Income Management
    Strategy Action Plan.

4.3 Once the report has been approved by Salix’s Resources Committee it is then
    presented to the Council and is then formally approved by the Lead Member for
    Customer and Support Services for write off.

5     Two Examples of Processes Followed Before Write off Occurred

5.1 Detailed in the next two paragraphs are two examples of action taken by Salix
    Homes before the accounts were passed to the Council for write off. On both
    the names and addresses have been excluded to protect the identities of those

5.2 Case number 1

            Tenancy terminated October 2006
            Internal trace actioned as no forwarding address supplied October 2006
            Trace found unsuccessful
            Passed to Incasso tracing agency December 2006
            Traced by Incasso June 2007
            First former tenancy letter sent June 2007
            Second former tenancy letter sent August 2007
            No responses received
            Account passed to debt collection agency October 2007
            Account returned from debt collector as unable to recover August 2008
            Account coded for write off August 2008
            Salix Board recommend write off to Council
            Write off approved by Lead Member Customer and Support Services
             January 2009

5.3 Case number 2
       Tenancy terminated February 2007
       First former tenancy letter sent April 2007
       Second former tenancy letter sent May 2007
       Agreement made to repay outstanding debt weekly May 2007
       Only 2 payments received June 2007
       Prompt letter sent advising restart payments August 2007
       Telephone contact made September 2007 and new payment card
          ordered as requested
       Account passed to debt collection agency as no further payments made
          October 2007
       1 payment received via debt collection agency October 2007
       Account returned from debt collection agency as unable to recover any
          further monies December 2008
       Account coded for write off December 2008
       Salix Board to recommend write off to Council
       Write off to be approved by Lead Member for Customer and Support
          Services March 2009

6    Treatment of Arrears through the Establishment of City West Housing

6.1 As part of the discussions for the establishment of City West Housing Trust
    consideration had to be given to the treatment of arrears.

6.2 The normal practice is that the new orgainsation buys the debt for current
    tenants and the debt for former tenants remains with the transferring

6.3 This what occurred for Salford and the amount the current debt was purchased
    was part of the legally binding transfer agreement. All of the details were
    reported and approved on the 15th September by the Lead Members for
    Housing and Customer and Support Services.

 6.4 Work is ongoing with Salix for them to review the former tenant arears
     remaning with the Council following the establishment of City West, for them to
     manage this on the Council’s behalf, alongside their former tenant arrears.

 6.5 Consequently although future write off reports and processes will be managed
     by Salix for the Council this will include accounts previously managed by New
     Prospect as well as those arising for Salix tenants.

 7     Conclusion

7.1   Due consideration and processes are followed before accounts are
      recommended for write off. The level of write off at approximately 1% of the
      rents raised is not a high figure.

 8     Recommendation

 8.1 Members are invited to consider and comment on the contents of the report.


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