FLASHBACK: Accounts Receivable Operational Review Report

Today, one of our favorite topics here at VACostCutting, Accounts Receivable. Again, we look back and share with you again the report presented by the Accounts Receivable Operational Review Team.

Accounts Receivable Operational Review

The final Operational Review Team report on Accounts Receivable has been completed. The Operational Review Oversight Committee has yet to accept the report or make revisions, but the preliminary goals and recommendations are summarized below.

Accounts receivables are taxes due to the Commonwealth that have not yet been collected. Collecting these taxes can result in mllions on dollars in additional revenue. In 2003, 98.3 million was collected as a result of renewed efforts by the Department of Taxation.This report is an update to the Governor’s Commission on Efficiency and Effectiveness Final Report published in late 2002.

That report made the following recommendations:

• Standardize collections management across all Commonwealth agencies;
• Shorten the time period for declaring accounts delinquent;
• Use multiple collection agencies to foster competition; and
• Consider legislation enabling the use of “debt sales” to provide cash.

The first three recommendations have already been implemented and are resulting in improved state revenue flow. Accounting policies and procedures were revised, and the deliquency designation was shortened from 90 to 60 days. Private collection agencies were also contracted to strengthen collection efforts. The fourth recommendation of the Governor's 2002 report will be harder to implement. There are significant constitutional and legislative barriers to debt sales. Before this can be accomplished, the General Assembly and Office of the Attorney General must address the legal issues.

There is still work to be done as Virginia adapts to new technologies and economic uncertainty. The report notes that Virginia needs to maximize collections from accounts receivable in order to offset declining cash flows from several revenue streams that are showing the effects of falling markets. The most effective way to do this is to use the new technologies to speed up collections and simultaneously reduce collection costs.

The Operational Review team has identified six areas where small investments could yield large returns in maximizing collections:

• Enhance agencies’ abilities to skip trace. Several agencies, notably the Department of Social Services, now access current address and other contact information from new data sources including cell phone records, cable user records and insurance company records. These new information sources should be identified and made available to all agencies and institutions, including local governments.
• Revise setoff procedures to stop uncompleted matches. Currently, debtors are informed of their rights of due process at the time a payment or refund is intercepted. This after-the-fact approach has cost approximately a million dollars a year in lost setoff payments. The current methodology should be changed. Debtors should be notified what the debt is and what their rights are as soon as claims are submitted to the setoff programs. The responsibility for exercising the identified rights should be placed on the debtor, not the State agencies. This way, successful matches will be final and available for timely deposit.
• Establish one master database of debtors’ contact information. Information from TAX, Virginia Employment Commission, State Corporation Commission, Motor Vehicles and several other license-granting agencies should be selectively combined in one secure database that other agencies and institutions would have read-only access to. Combine repositories into one new “debtors’ database.
• Do not issue business or personal licenses to delinquent debtors. Match state and local government permits, licenses (both business and personal), and registrations against setoff records. This would be facilitated by using a central database. Debtors would be encouraged to pay the entire amount or follow signed payment plans in order to retain current permits and licenses or apply for new ones.
• Leverage the economies of scale and specialization for smaller agencies. Small and medium sized state agencies have a disadvantage when it comes to collecting accounts receivable. They lack the capacity to dedicate full time positions to the business of collecting money from slow or non payers. This disadvantage can be overcome by outsourcing delinquent accounts to a vendor that would receive all of the debt files from the agencies, distribute the files to the private collection agencies under State contract, and monitor the ongoing efficiency of those private collection agencies. Good experience has resulted from the operation of a centralized payroll services bureau which has covered the cost of its operation through users’ fees. This model can be used to build a receivables management bureau from resources created through service arrangements made between smaller agencies and larger agencies to provide administrative and business functions.
• Measure agencies’ efficiency and effectiveness at collecting receivables. Measure individual state agency performance in collecting the dollars they have billed. The agencies’ performances should be disclosed and reported quarterly. One measure is Collections as a percentage of Billings. This measure shows the effectiveness of agencies in getting paid for providing services when the service is provided. The second measure is the percentage of Delinquent (over 60 days past-due) Receivables compared to Gross Receivables. This measures the efficiency of agencies in following up on unpaid billings and obtaining subsequent payments. These two measures would reflect the agencies’ efficiency and effectiveness at managing their accounts receivable and help ensure the Virginia Debt Collection Act is being followed.

Thanks again to everyone who contributed their time and work to this report. Participants include Robert Meinhard Department of Accounts, Deborah Madison Department of Corrections, Karen Stephenson Department of Medical Assistance Services, Jerry Lewis Department of Social Services, Thodore Darden Department of Social Services, David Jordan Department of Taxation, and Wendell Vest Virginia Polytechnic Institute and State University.