8776 ACCOUNTS RECEIVABLE
(New 1/79)
For our purposes, an accounts receivable is defined as a claim against a person, firm, corporation, or other entity for money owed to the State. There are two types of accounts receivables: contingent and valid.
8776.1 CONTINGENT ACCOUNTS RECEIVABLE
(Revised 2/94)
There are many situations in which an agency may find that it has a claim against a party. For example, there may be claims for damages to state property, claims against third parties, claims against estates and others which are contingent in nature, etc. When this occurs the agency must make a determination as to whether or not these claims should be treated as contingent or valid accounts receivables. The difference between a contingent and valid accounts receivable is the uncertainty of the legal obligation.
Claims may be either contested or uncontested. Contested claims are those claims in which either the amount is in dispute or the validity of the claim is challenged or both. A contingent receivable will be established for those contested claims which appear to have a prospect of favorable settlement or of becoming a valid receivable. Where the amount is contested, the amount to be recorded should be the potential due and payable.
Generally, uncontested claims will be recognized as valid receivables. However, uncontested claims of a type which are subject to potential legal dispute and which have a history of legal disputes, will be recorded as contingent receivables until the statute of limitations have expired for objections to the claims.
A contingent receivable need not be established if any agency feels that a disputed or doubtful claim has very little likelihood of being recovered. However, it is the responsibility of each agency to oversee outstanding claims so that a contingent or valid receivable may be established, when appropriate.
Valid accounts receivable will be recognized in the accounts by the following entry as of the date the claim against the adverse party becomes a valid receivable.
Debit:
1311 Accounts Receivable–Abatements
1600 Provision for Deferred Receivables
Credit:
1380 Contingent Receivables
9000 Appropriation Expenditures
Account No. 9000, Appropriation Expenditures, will be credited only if the original expenses were paid from the current year appropriation.
The collection of contingent receivables and accruing of valid accounts receivables at year end will be credited as an abatement to the appropriation from which the original expenses were paid. If the appropriation has reverted, the credit will be to Account No. 9891, Refunds to Reverted Appropriations. Any recoveries in excess of the actual expenses will be remitted as current year Miscellaneous Revenue to the state fund from which the agency derives its major support.
8776.12 ACCOUNTING FOR CONTINGENT RECEIVABLES
(Revised 1/85)
Contingent receivables will be recognized in the accounts at the time the claim arises. Where the claim is to repay the state for expenses incurred by the state, the receivable will be recognized as of the date the expenses are incurred. The following entry will be made:
Debit:
1380 Contingent Receivables
Credit:
1600 Provisions for Deferred Receivables
If a contingent receivable becomes a valid accounts receivable, it will be recognized as such in the accounts and the contingent receivable will be reversed. Contested claims should be established as a valid accounts receivable when they have been either (1) brought to judgment, or (2) the contested amount has been converted to a sum certain by negotiation.
8776.2 VALID ACCOUNTS RECEIVABLE
(Revised 2/98)
A valid accounts receivable is a receivable which is due and payable and for which there is no apparent disagreement over the validity of the claim or the amount at the time it was established. Due and payable refers to either a portion of or the whole claim. For instance, a long-term receivable which is payable in installments spread over many years would be "due and payable" when the obligation is incurred. Disputes arising after the receivable is established does not convert a valid receivable into a contingent receivable. Generally, disputes would be over the amount of the bill because of alleged non receipt of goods, overbilling, prior payments, etc. Agencies will investigate complaints to determine if they are valid and take any necessary corrective measures. The adjustment of receivables to reflect their correct amounts may be made by agencies without the necessity of going through the State Controller's Office.
Valid accounts receivables are divided into current and deferred. A current accounts receivable is a receivable which has been billed and is expected to be collected within one year, whereas, a deferred accounts receivable is expected to be outstanding for over a year. During the fiscal year, current and deferred accounts receivables are treated alike. If it is an abatement or reimbursement, it will generally be credited back to an appropriation. See SAM Sections 8287, 10407, and 10408. At June 30, an entry will be made to reduce abatement, reimbursement, and non revenue receivables to the amount that is estimated to be collectible during the ensuing fiscal year. See SAM Section 10614, Standard Entry No. A-12. These amounts will remain deferred until they are either collected or written off.
Accounts receivables for revenue will be fully reserved during the year. At June 30, an adjusting entry will be made (SAM Section 10610, Standard Entry No. A–9) to accrue as revenue that portion of income earned as of June 30, but not received, that is estimated to be collectible within the ensuing fiscal year (except for CALSTARS agencies.)
Also, at June 30, an entry will be made to accrue those abatements or reimbursements that were not previously billed or accrued, but which are estimated will be collectible within the ensuing fiscal year. See SAM Section 10602, Standard Entry No. A-3. For accrual of revenue not previously billed, see SAM Section 10610, Standard Entry No. A-9.
BILLING 8776.3
(New 2/98)
An invoice or other type of claim document will be prepared and sent out as soon as possible after the recognition of a claim. See SAM Section 10408 for an example of a standard journal entry to record the establishment of accounts receivables when invoices are prepared and sent. When deemed appropriate, invoices will not be prepared and sent for contingent receivables.
8776.4 PREPAYMENTS
(New 1/76)
Prepayments of claims are not receivables. They should not be set up as a credit accounts receivable. Instead, they should either be treated as revenue received in advance or as a liability until the transaction is completed.
8776.5 COLLECTION PROCEDURES
(Revised 03/02)
Accounts receivable collection procedures differ depending on if the receivable is owed to the State by an employee or nonemployee. If amounts are due from former State employees, follow the collection procedures for nonemployee accounts receivable. In addition, notify the SCO, Division of Personnel/Payroll Services of the situation by sending a Personnel Action Request form, STD. 680A, and ask to be notified if the person reenters State service. See SAM Section 8593.3.
8776.6 NONEMPLOYEE ACCOUNTS RECEIVABLE
(Revised 06/07)
Each department will develop collection procedures that will assure prompt follow-up on receivables. Following are procedures and guidelines that departments will use for the collection of amounts owed to the State from nonemployees. These procedures are in accordance with the Accounts Receivable Management Act as provided in GC Sections 16580-16586.
Locating Debtor
When the address of the person/entity indebted to the State is unknown, request the debtor's address using a Gov't Agency Request for Driver License/Identification Record Information form, INF 254 from the Department of Motor Vehicles, Accounts Processing Unit.
Collection Letters
Once the address of the debtor is known, the accounting office will send a sequence of three collection letters at 30 day intervals. If a reply or payment is not received within 30 days after sending the first letter, the accounting office will send a second letter. This follow-up letter will reference the original request for payment letter and will be stated in a stronger tone. If a response is still not received from the debtor, a third letter will be sent 30 days later. This last letter will include references to prior letters and will state what further actions may be taken in the collection process.
Collection Actions Review
If the three collection letters are unsuccessful, departments will prepare an analysis to determine what additional collection efforts should be made. The analysis should include a cost/benefit analysis of the collection actions listed below. Departments should initiate one or more of the following actions:
- Offset Procedures—An offset, as the term indicates, is the interception and collection from amounts owed by other State departments to the debtor. Possible departments are the Franchise Tax Board, Board of Equalization, Employment Development Department, Lottery Commission, and SCO. For more offset details, see SAM Sections 8790.1–8790.8.
- Court Settlements—There may be instances where it would be cost effective for departments to seek court judgments against debtors. Departments should consider the possibility of filing action in small claims courts. For larger sums, department counsel should be consulted for advice.
- Collection Agencies—Departments may consider contracting with another department that has a collection unit or with an outside collection agency.
The State Contracting Manual, the Public Contract Code Section applicable to contracts for services, and GC Section 19130 should be consulted when a department is considering contracting with a collection agency. Any contract made with a collection agency must specify that all funds collected on behalf of a department will be remitted to that department. The collection agency can then be paid in one of several ways for its services - by a set fee per collection, on an hourly basis, or on a percentage basis, in arrears, based on services rendered.
Prior to assigning the debt to a collection agency, departments are required by law to notify the debtor in writing at the address of record that the alleged accounts receivable debt will be turned over for private collection unless the debt is paid or appealed within a specified time period.
- Sale of Accounts Receivable—Departments are authorized to sell accounts receivables to private persons or entities. Departments will record the net income from the sale in their accounting records. Specific accounting entries for the sale of accounts receivable are detailed in SAM Section 10536, Standard Entry No. 36.
Prior to selling the debt, departments are required by law to notify the debtor in writing, at the address of record, that the alleged accounts receivable debt will be turned over for private collection unless the debt is paid or appealed within a specified time period.
Departments will select the collection actions that are likely to generate the highest net income and do not compromise future State income collections. In addition, departments should consult with the Franchise Tax Board or any other State agency that has successfully established an effective accounts receivable collection system to develop methods for improving their collection rate.
Discharge From Accountability
If all reasonable collection procedures do not result in payment, departments may request discharge from accountability of uncollectable amounts due from private entities. Departments will file an Application For Discharge From Accountability form, STD. 27, with the SCO, Division of Collections. Applications for Discharge from Accountability of uncollectable amounts of more than $7,500 will be filed separately from applications for amounts of $7,500 or less. The $7,500 amount applies to the total of all amounts owed by the debtor, not to each invoice. The application for discharge shall include:
- Statement of the nature of the amount due
- Name(s) of the person(s) liable
- Estimated cost of collection
- Any other fact(s) supporting the request, including offset attempts (See SAM Sections 8790.1–8790.8.)
- If the discharge from accountability is due to bankruptcy, the supporting documentation must include a copy of the court's final discharge of the debtor and evidence that the specific dept is included in the petition for bankruptcy.
- Signature, phone number, printed name, and title of person completing the STD. 27
- Signature, printed name, and title of manager authorizing the STD. 27
The individual authorizing the Application for Discharge from Accountability should be at a level at least equivalent to that of manager of the accounting office.
GC Section 13943.2 provides that upon written authorization by the California Victim Compensation and Government Claims Board (CVCGCB), formerly known as the State Board of Control, State departments may refrain from collecting amounts of $250 or less. The $250 limitation applies to the total of all amounts owed by the debtor, not to each invoice. Questions regarding this authorization should be directed to the CVCGCB, Government Claims Program, at (916) 491-3700 or toll free (800) 955-0045.
Departments who do not obtain approval from the CVCGCB shall apply for discharge from accountability with the SCO, as indicated above.
The California State Universities must refer to Education Code Section 89750.5 for application limitations.
8776.7 EMPLOYEE ACCOUNTS RECEIVABLE
(Revised 06/05)
Government Code Section 19838 requires reimbursement to the state of overpayments made to employees. Employee overpayments can arise from Office Revolving Fund (ORF) salary and travel advances and payroll warrants issued by the State Controller's Office. Refer to SAM Section 8116.3 for additional collection procedures regarding travel advances. For the purposes of this section, an amount owed to the state by an employee (an account receivable) is the equivalent of an overpayment. Accordingly, the collection procedures described below should, to the extent applicable, be employed to collect accounts receivable due from state employees.
The following procedures and policies will be followed when collecting employee overpayments:
- Departments will notify employees (in writing) of overpayments and provide them an opportunity to respond. The overpayment notification should include at least the following items:
- Amount due;
- Pay period affected if overpayment relates to salary;
- Reason for overpayment;
- Response time afforded to employee prior to collection action;
- Optional: proposed repayment plan and method of collection.
The employee will be given 15 calendar days to respond, either orally or in writing. If the employee is on vacation, sick leave, out-of-town assignment, etc., and cannot be reached, the time afforded the employee to respond should be adjusted accordingly. All responses will be documented and maintained in department files.
- The employee will be given the opportunity to satisfy the amount due by payment in cash, check, or payroll deduction. Departments will attempt to negotiate a repayment plan acceptable to both parties.
- Repayment may also be made by installment through payroll deduction to cover at least the same number of pay periods in which the overpayment occurred. When overpayments have continued for more than one year, departments may require full payment in one year.
- Once a repayment plan has been agreed upon, it will be put in writing and signed by the employee. The signature block will include a statement similar to the following: "I agree to the repayment schedule described above and acknowledge the gross amount set forth as a legitimate debt owed by me to the State."
- If the employee does not agree to repay an overpayment or does not respond to the written overpayment notification by the afforded time, departments will collect overpayments in the manner set forth in #3 above.
- For separating employees, it may not be possible to provide written notification regarding overpayments. Regardless, Government Code Section 19838 authorizes the state to withhold amounts owed for outstanding travel and salary advances from an employee's final separation pay. See SAM Section 8580.4..
- Payroll deduction to repay overpayments will not exceed 25% of the employee's net (gross minus mandatory deductions) monthly or semi-monthly salary, except from separating employees, as provided in #6 above. Mandatory deductions include taxes and garnishment/levy. For a complete listing of mandatory deductions, see the State Controller's Office Payroll Procedures Manual.
- These employee overpayment collection procedures do not affect procedures for the collection of ORF salary advances in lieu of a State Controller's warrant when the pay period for the advance and warrant are the same. An ORF advance in lieu of State Controller's warrant is the check given to the employee as a substitute for the warrant when the warrant is incorrect or not available.
If the amount of an employee's State Controller's pay warrant is greater than the actual amount of pay owed the employee in the corresponding pay period, departments may withhold the employee's pay warrant and issue an ORF check for the difference. For example: if an employee is due less pay due to dock, etc., in the current pay period, and a full month State Controller's warrant was issued (although not yet distributed to the employee), a department can intercept the pay warrant and issue an ORF check for the difference between the pay warrant and the amount owed.
The employee should be notified of this offset, but a formal overpayment notification letter is not necessary.
However, if an ORF advance is from a different pay period than the State Controller's warrant, the department must follow the procedures outlined above.
- These collection procedures do not apply to separated employees (see SAM Section 8776.6) or collection procedures for Industrial Disability Leave overpayments.
- Recoupment action must be initiated (written notification of overpayment to the employee) within three years from the date of overpayment in order to collect without the employee's consent, as provided in these procedures.
- Refer to SAM Section 8116.3 for additional overpayment collection procedures to recover temporary travel advances.
Collective Bargaining Unit contracts (Memorandums of Understanding) for represented employees may contain overpayment collection provisions. The provisions of these contracts supersede any other collection procedures. Therefore, contracts should be reviewed carefully to identify overpayment collection provisions.
