REPORT TO COUNCIL
SUBJECT
Title
Action to Approve an Accounts Receivable Collections and Write-Off Policy
Report
COUNCIL PILLAR
Deliver and Enhance High Quality Efficient Services and Infrastructure
BACKGROUND
Accounts receivable represents expected income for services performed, goods sold, or other miscellaneous billings (e.g., fines and penalties, third-party property damage, etc.) that the City of Santa Clara (the “City”) has not yet received payment. Accounts receivable internal controls and policies provide formal guidance to ensure that invoices are accurately recorded, customers pay in accordance with agreed upon terms, past-due accounts are properly pursued, and the write-off of past due accounts are appropriately approved and reflected in the City’s financial statements.
The Government Finance Officers Association (GFOA) recommends that state and local governments adopt comprehensive written revenue control and management policies to establish proper control over receipts and receivables and help ensure sound financial management practices.
Furthermore, Section 904 of the Santa Clara City Charter provides that the Director of Finance shall collect all taxes, special assessments, utility charges, license fees and other revenues of the City for whose collection the City is responsible. The Municipal Services Division Utility Services Rules and Regulations authorizes the Director of Finance to write off utility accounts with a balance of $5 or less, non-sufficient fees, late fees, and balances deemed uncollectible by an outside collection agency.
DISCUSSION
In accordance with best practices, the City’s Finance Department (the “Finance Department”) recommends adoption of the Accounts Receivable Collections and Write-Off Policy (the “Policy”). The Policy will help ensure that all reasonable diligence is used to collect and reduce outstanding receivables, provide collection agency guidance, refine measurement of the City’s accounts receivables for financial reporting, optimize the use of City revenue collection resources, and formalize write-off authorization requirements and limits of past due accounts. This Policy shall apply to the City’s Miscellaneous Accounts Receivable, excluding the Housing & Community Services Division’s accounts receivable which are governed by a separate policy approved by City Council on January 25, 2022. In addition, the Municipal Services Division Utility Services Rules and Regulations shall govern the establishment of credit and collection of accounts receivables related to utility bills for electric, water, sewer, and refuse services provided by the City.
The City shall actively pursue collection of revenue and past-due accounts receivable, regularly review the status of past-due accounts, and write-off amounts reasonably determined to be uncollectible. The City has entered into an agreement with Ray Klein, Inc. dba Professional Credit to provide professional collection services for bad debt and delinquent accounts.
In conjunction with the preparation of the Policy, the Finance Department surveyed local municipalities to determine prevailing accounts receivable authorization levels and corresponding write-off limits. Consistent with other local municipalities, the Finance Department recommends the authorization levels and write-off limits presented in the following table:
|
Authorization Level |
Write-off Limit |
|
Accounting Division Manager/Assistant Director of Finance |
$1 to $4,999 |
|
Director of Finance |
$5,000 to $9,999 |
|
City Manager |
$10,000 to $24,999 |
|
City Council |
$25,000 and greater |
A write-off of uncollectible accounts receivable from the City’s accounting records does not constitute forgiveness of the debt or gift of public funds. All accounts referred for write-off are reviewed and approved by staff prior to submission for final write-off approval.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of a California Environmental Quality Act (“CEQA”) pursuant to section 15378(b)(5) of Title 14 of the California Code of Regulations in that it is a governmental organizational or administrative activity that will not result in direct or indirect changes in the environment.
FISCAL IMPACT
There is no cost to the City other than administrative staff time and expense.
COORDINATION
This report has been coordinated with the City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
Approve the attached Accounts Receivable Collections and Write-Off Policy.
Staff
Reviewed by: Kenn Lee, Director of Finance
Approved by: Jovan D. Grogan, City Manager
ATTACHMENTS
1. Accounts Receivable Collections and Write-Off Policy