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SAM - Chapter 8700

8776     ACCOUNTS RECEIVABLE
(Revised and replaced 8776.1 thru .4 03/09)

An accounts receivable (AR) is defined as a claim against a debtor, such as a person, business, or governmental entity for money owed to the state.  An invoice or other document requesting payment will be prepared.  The invoice shall be sent to the debtor as soon as practical and within 30 days after the event giving rise to the AR.

Departments must ensure prompt and ongoing action is taken for the collection of ARs.  See SAM Section 8776.6.

Characteristics common to all ARs:

  • Legal authority exists to bill for the amount owed.
  • Amount due is derived from an arithmetical calculation, schedule of fees, or other method to arrive at the amount.
  • Sufficient documentation exists to support the AR.  For example, the department must have the debtor name and an invoice or other document identifying the amount owed.

Recording ARs

Departments must ensure ARs are recorded promptly and accurately into the accounting system.  When ARs are collected, the collections will generally be classified as abatements, reimbursements, revenue, or refunds to reverted appropriations.  See SAM Sections 7620 and 10407 - 10416 for general ledger account descriptions and 10506 for the standard journal entry.  Prepayments of ARs should be treated as revenue received in advance or as a liability until the transaction is completed (e.g., revenue is earned).  See SAM Section 10507 for the standard journal entry.

Reconciling ARs

Departments will review and reconcile ARs in the accounting system to ARs recorded by the State Controller's Office (SCO) and/or those ARs maintained in departmental records (e.g., program records, payroll records, etc.).   AR reconciliations will be prepared monthly within 30 days of the preceding month. 

Contingent ARs

Contingent ARs are those ARs for which there is some uncertainty of the legal obligation but have a prospect of a favorable settlement.  Generally, a contingency involves some future determination, e.g., judgment or settlement.  Contingent ARs will be recorded in the accounting records at the time the AR arises, as follows:

                Debit:  1380  Contingent Receivables

                                Credit:  1600  Provision for Deferred Receivables

Contingent ARs will be reversed if reclassified to another AR type (e.g., AR- Revenue).   This may occur when either a judgment or settlement is made or the disputed amount has been finalized.  Also, it may be appropriate to reclassify an AR to a contingent AR.  Such reclassification should be based upon the degree of uncertainty associated with the validity or amount of the AR.  The reclassification should not be based solely on a debtor's action to contest an AR.

Reclassifying or Adjusting ARs

Departments must perform an analysis on their ARs to verify the correct amounts are recorded.  ARs should be reclassified or adjusted in certain situations:

  • Legal authority does not exist to bill for the amount owed.
  • Sufficient documentation does not exist to substantiate the AR (e.g., debtor name and an invoice or other document identifying the amount owed).
  • Validity or amount of the AR is disputed. 

Departments may reclassify, increase, or decrease the amount of an AR to correct the classification or amount owed by making an adjusting entry.  Note that an appropriate description of why the adjustment is made must be documented. 

Department Responsibilities at Year-End

At year-end, departments are responsible for ensuring AR balances are accurate:

  • Assess the amounts owed to the department, including estimates, and when the amounts are expected to be collected. 
  • Record accrual entries for amounts owed to the department at June 30, but not yet recorded.  See SAM Sections 10602 and 10610.

  • Record entries to reclassify existing ARs when an appropriation reverts.  See SAM Section 10603.
  • Record adjusting entries to reduce AR balances for deferred amounts.  The deferred amount is the portion not expected to be collected in the next fiscal year.  See SAM Section 10610.

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 09/08)

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 debtor is unknown, departments shall attempt to obtain a current address.  Departments may utilize Internet search engines and/or a data research service.  Departments should perform a cost benefit analysis to determine if procuring services to locate debtors would be cost beneficial.  Another alternative is to request the debtor's address from the Department of Motor Vehicles by completing a Gov't Agency Request for Driver License/Identification Record Information form, INF 254.  In order to use this alternative, the date of birth or driver's license/identification number of the debtor is required.

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:

  1. 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.
     
  2. 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.
     
  3. 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.
     
  4. 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 review their accounts receivable no less than quarterly to identify receivables for discharge.  If departments have identified receivables for discharge, departments will file an Application For Discharge From Accountability form, STD. 27, with the SCO, Division of Accounting and Reporting, no less than quarterly.  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:

  1. Statement of the nature of the amount due
  2. Name(s) of the person(s) liable
  3. Estimated cost of collection
  4. Any other fact(s) supporting the request, including offset attempts  (See SAM Sections 8790.1–8790.8.)
  5. 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.
  6. Signature, phone number, printed name, and title of person completing the STD. 27
  7. 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), 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:
    1. 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:
       
      1. Amount due;
      2. Pay period affected if overpayment relates to salary;
      3. Reason for overpayment;
      4. Response time afforded to employee prior to collection action;
      5. 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.
         
    2. 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.
       
    3. 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.
       
    4. 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."
       
    5. 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.
       
    6. 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..
       
    7. 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.
       
    8. 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.
       
    9. These collection procedures do not apply to separated employees (see SAM Section 8776.6) or collection procedures for Industrial Disability Leave overpayments.
       
    10. 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.
       
    11. 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.

     
    Updated : 3/23/2009