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HomeMy WebLinkAbout21-Finance CITY OF SAN BE~ARDINO - REQUES~OR COUNCIL ACTION From: ANDREW GREEN, DIRECTOR OF FINANCE Subject: REVENUE RECOVERY PROGRAM Dept: FINANCE Date: APRIL 28, 1992 Synopsis of Previous Council action: Recommended motion: 1. ADOPT RESOLUTIONS ~Ot --- Signature Contact penon: ANDREW GREEN, DIRECTOR OF FINANCE Supporting data aUached: Phone: Ward: FUNDING REQUIREMENTS: Amount: Sou rea: (ACCT. NO.) (ACCT. DESCRIPTION) Flnanca: Council Notel: ^""_... ,.__ ... Q 1-:1'1 CITY OF SAN BELARDINO .......~ - REQUES~OR COUNCIL ACTION STAFF REPORT It is very important, especially in these economically depressed times, that the City maximize revenue collection. As a result, the current revenue collection process is being updated. The City's current account receivable collection process does not allow for interest charges on delinquent accounts. Interest charges will act as an incentive for payment of outstanding receivables. Currently the legal rate of interest is one and one half percent of the outstanding balance and accrued monthly. Attached is the updated revenue recovery program which is designed to maximize revenue recovery on the City's receivables. Although most of the program can be implemented administratively, Finance has been informed by the City Attorney's office that the Mayor and Common Council would have to approve the interest charge portion of the updated program. By selecting two collection agencies, the City is again maximizing revenue collection on past due accounts. Agencies will competively work the receivables in hopes of future assignments. These two agencies were selected since their fee is lower than the industry's average and because of their working history and performance with the city. I recommend adoption of the attached revenue recovery program as the City's formal accounts receivable collection process. 75.026~ : ....".-... .,....~> 1 RESOLUTION NO. 2 RESOLUTION OF THE CITY OF SAN BERNARDINO RECOVERY PROGRAM AND AUTHORIZING THE CHARGING 3 DUE INDEBTEDNESS. 4 5 6 7 APPROVING A REVENUE OF INTEREST ON PAST BE IT RESOLVED BY THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO AS FOLLOWS: SECTION 1. The City of San Bernardino Revenue Recovery Program, a copy of which is attached hereto and incorporated herein marked Exhibit "A," is hereby approved. 8 SECTION 2. The Finance Department of the CITY is hereby 9 authorized to charge the legal rate of interest on accounts which 10 are more than thirty (30) days in arrears, pursuant to the terms of 11 the Revenue Recovery Program hereby approved. 12 13 14 15 / / / / / / / / / / / / 16 / 17 / 18 / 19 / 20 / / / / / / / / / / / 21 / / / 22 / / / 23 / / / 24 / / / 25 / / / 26 / / / 27 28 1 #2/ .. "",...'. ,....'....., 1 RESOLUTION OF THE CITY OF SAN BERNARDINO APPROVING A REVENUE RECOVERY PROGRAM AND AUTHORIZING THE CHARGING OF INTEREST ON PAST 2 DUE INDEBTEDNESS. 3 I HEREBY CERTIFY that the foregoing resolution was duly 4 adopted by the Mayor and Common Council of the city of San 5 Bernardino at a meeting thereof, held on the 6 day of , 1992, by the following vote, to wit: 7 Council Members: AYES NAYS ABSTAIN ABSENT 8 ESTRADA 9 REILLY 10 HERNANDEZ 11 MAUDSLEY 12 MINOR 13 POPE-LUDLAM 14 MILLER 15 16 17 City Clerk The foregoing resolution is hereby approved this day of , 1992. 18 19 20 21 22 Approved as to form and legal content: 23 24 25 26 27 28 W. R. Holcomb, Mayor City of San Bernardino JAMES F. PENMAN, city Attorney t; /) , ?-' i .. ". By: ).h1,,,,,- ,/~,- o 2 . . REVENUE RECOVERY PROGRAM (PROPOSED PLAN) Submitted to: Andrew Green DIRECTOR OF FINANCE Submitted by: Anthony Parrish ACCOUNTANT March 25, 1992 . . OBJECTIVE: The Revenue Recovery Program, as proposed, intends to devise, implement, and evaluate a method to effectively collect City's receivables. This proposal does not, however, intend to circumvent any process presently in place, but builds thereupon. The purpose of this program is to establish a systematic approach to collecting outstanding accounts receivable. These systems, once established, are ultimately designed to increase cash in-flows. Overall, the Revenue Recovery Program converts uncollectible receivables into realized revenues. ~-.- ,"'--'-, . . Revenue Recovery (Proposal) March 27, 1992 page 2 SCOPE At the last interim reporting period ending February 29, 1992, total City receivables were $7.6 Million. Notwithstanding the Construction Funds, the General Fund portion comprises 42% of the remaining receivables. Inherently Construction Funds receivables are handled differently (See Construction Funds below). Therefore, initial efforts to collect are focused on General Funds Receivables. The nature of the program dictates making various in-house and outside contacts for the purpose of collecting debt. Outside contacts include the general public, legal professionals, and various other professional agencies. In-house contacts are City officials, and department heads. Automating this process, using Lotus 1-2-3 software, will ease the operational workload. worksheets are planned and will be developed. and other computer Certain forms and ASSESSMENT In order to determine the probability of collection, financial status, and the present collection process City receivables were assessed. To direct the assessment, these questions that follow were to be resolved. What is the receivables' book value? How does the total breakdown by fund? How old are these accounts? What processes are in place to collect these accounts? Can these processes be improved? What are the exceptions? ..1 - ,...... . . Revenue Recovery (Proposal) March 27, 1992 page 3 Financial Analysis. This analysis is based on the period ending February 29, 1992. Total City accounts receivable $7,604,621. Construction Funds receivable $3,529,858 (See Construction Funds) Remaining Funds receivable $4,074,763 General Fund accounts receivable comprises 42% of the Remaining Funds' total. General Fund receivables aging more than four years total $337,270. Whereas accounts aged less than ninety-one days total $766,250. Account Receivable Balance by Fund. 001 1,702,443 130 8,082 002 507 239 110,905 048 221,880 *** 3,529,858 107 4,652 630 163,501 110 3,640 676 421 112 14,113 675 4,903 120 480,027 678 58,870 123 181,306 736 1,071,441 124 13,930 772 30,706 127 63 784 3,373 ***All Construction Funds statutes of Limitations. Professional advice indicates, an account that has aged more than four years is without legal grounds to pursue or to enforce collection. Present Process. Currently only primary collection efforts are utilized for all funds except for the Refuse Fund. The Refuse Fund receivables comprises less than one percent of the total City receivables. The City has agreements with two professional collection agencies for collecting its receivables. A "Department Director Letter", dated October 1, 1991 describes the '. procedure to follow for collecting bad debts. /,"" .. Revenue Recovery (Proposal) March 27, 1992 page 4 Construction Funds. Compared to city receivables overall, Construction Funds' Receivables are handled differently. These receivables inherently are different from the other funds' receivables in that they are due from the Federal and/or state government. The Federal and state government awards grants and the city is reimbursed based on its performance. Commonly, ten percent of the City's total billed amount is retained, by these other government agencies, until a construction project is completed. PLAN OF OPERATION Several operational tools are introduced to ascertain the success of collecting on otherwise bad accounts. These tools will aid in evaluating the probability to collect and help communicate to each debtor the stance of the city regarding its receivables. Definitions. As defined in the efforts "consists for the bad debt. "Department Director Letter", primary collection of calling and/or writing the responsible party" Primary collection is performed by Finance. Secondary collection efforts includes utilizing "collection agenc1es, small claims courts, the city Attorney, Police referrals for District Attorney filings, and other such legal action as deemed necessary to protect the interest of the City." An uncollectible account is an account that has exhausted primary collections efforts, or has aged ninety-one days, or insufficient information is maintained. After evaluating an account other criteria may deem the account uncollectible. I ,....-'"'- . . Revenue Recovery (Proposal) March 27, 1992 page 5 Aging Receivables Collection Systems. Collectible accounts aging more than thirty days but less than ninety-one days are monitored regularly. Accounts within this criterion are pursued with primary collection efforts. Primary collection efforts help to identify uncollectible accounts. Whenever an account is determined to be uncollectible, secondary collection efforts are initiated immediately. Accounts aging more than sixty days require a telephone call to the responsible party of the account. Although primary collection efforts are still in force, these accounts are evaluated as being uncollectible. When an account has aged ninety-one days, unless prior arrangements have been made, the account is considered difficult to collect. With primary collection efforts exhausted, a "Final Notice" is mailed to the responsible party and the account is prepared for secondary collection efforts. These accounts, aging ninety-one days, are considered uncollectible and with the proper approval are "written off". Secondary collection efforts are implemented with uncollectible accounts while waiting for write off approvals. The Director of Finance will approve a receivable write off up to $500. Uncollectible accounts exceeding $500 are reported (by memorandum) to the City Administrator with a recommendation to write off. Written approval to write off uncollectible accounts exceeding $500 and up to $1000 comes from the City Administrator. Write offs for accounts that exceed $1000 requires the City Administrator to request authority from the Mayor and Common Council. Outstanding invoices that are paid subsequent will be handled by Finance according to accounting principles. to being written off generally accepted Interest Charges. Pending approval of the Mayor and Common Council, each account aging more than thirty days will accrue an interest charge. Interest is based on the invoice balance. The interest rate will be the legal rate of interest at the time interest is accrued. The frequency of the interest accrual will be every thirty days and disclosed accordingly on monthly statements. ,"'"' . , Revenue Recovery (Proposal) March 27, 1992 page 6 Monthly statements. A "statement of outstanding Invoices" will be mailed to the responsible party for each account aging more than thirty days. The statement will list outstanding invoices plus any accrued interest. Payment Plans. Resultant to primary collection efforts, if the responsible party indicates difficulty making full payment at once, the responsible party will be offered a payment plan in writing on a "Payment Plan Agreement" form. The responsible party must sign, date, and return the original Payment Plan Agreement to the Director of Finance within the specified period of time not exceeding fifteen days of the agreement date. Failure to return the agreement within the specified period of time nullifies the agreement and it becomes void. The debtor should retain a copy of the agreement for his records. Assigning Accounts for Collections. In order to optimize collections efforts, receivables will be assigned to various collection agencies who meet certain City requirements. Competitively, agencies will work City receivables anticipating future assignments. Presently, the City has accepted the proposals of Lewis & Associates and the Credit Bureau of San Bernardino, Inc. Whenever an account is deemed uncollectible or ages ninety-one days, it is prepared to be placed on assignment with an agency for collections. An account is considered uncollectible whenever primary collection efforts are unsuccessful or bad information is maintained (i. e. no telephone number, returned mail). Unless prior arrangements are made, an account aging ninety-one days is uncollectible. Alternately, assignments will be placed with collection agencies on a monthly basis and more frequently as necessary. Assignments will be equitably distributed among contracted collection agencies. Monthly distributions will be based on the number of accounts already assigned and total dollar amount assigned. The "BAD DEBTS PLACED ON ASSIGNMENT" report will be utilized to place accounts on assignment with the collection agencies. Each collection agency will send a list thus verifying accounts assigned. Further, a monthly report from the collection agencies indicating results of their efforts, with their remittance will be received by the city.