Accounting for Uncollectible Accounts (APS 027)

Overview

Applicable To

State agencies and institutions of higher education

Policy

State agencies and institutions must take all appropriate actions to collect accounts receivable. However, when accounts are uncollectible, specific accounting entries must be performed in the Uniform Statewide Accounting System (USAS) for proper reporting.

Legal Citation

Government Code, Sections 403.031(c), 2107.004.

Legend

Background

Government Code, Section 403.031(c), reads as follows:

The Comptroller, in consultation with the state auditor and the attorney general, may develop standards and criteria to account for or to reclassify receivables determined to be uncollectible. The standards and criteria developed by the comptroller must comply with generally accepted accounting principles as prescribed or modified by the Governmental Accounting Standards Board or its successors and must provide proper accounting controls to protect state finances. The attorney general shall review and approve the standards and criteria for classification of receivables. Receivables may be reclassified as collectible or uncollectible on a case-by-case basis as determined or approved by the attorney general. The classification of receivables as uncollectible under this subsection does not constitute forgiveness of the debt, and any person indebted to the state remains subject to Section 403.055.

Additionally, Government Code, Section 2107.004, states:

Except as provided by Section 2107.003, not later than the 30th day after the comptroller determines that its efforts to collect a delinquent obligation have failed, the comptroller shall report the uncollected and delinquent obligation to the attorney general for further collection efforts.

OAG Procedures

Agencies are responsible for adhering to the provisions of the Office of the Attorney General’s (OAG) collection procedures found at 1 Texas Administrative Code, Title 1, Part 3, Chapter 59, Section 59.2: Collection Process: Uniform Guidelines and Referral of Delinquent Collections.

Texas Administrative Code

HB 2304, 74th Legislature, Regular Session, allows for the Texas Secretary of State to make the Texas Administrative Code (TAC) available for viewing through their website. See the TAC viewer. For information in the TAC on collections, see Collection Process: Uniform Guidelines and Referral of Delinquent Collections.

Collectible or Uncollectible

The OAG’s Role

The OAG, as the agency responsible for providing legal services, creates the policies and procedures for the collection and litigation of past-due accounts.

Is It Uncollectible?

The agency or institution must follow the OAG’s collection procedures to collect any past due accounts owed the agency that may include contracting with an outside agent to collect the obligation per Government Code, Section 2107.003.

Only after the agency and the OAG have followed these procedures without success may a debt be classified as uncollectible and be written off on the agency’s financial accounting records. A debt is considered uncollectible if any of the following criteria are met:

• The OAG determines that the debt is uncollectible.
• The OAG determines that further measures to collect the debt are inappropriate.
• Agency management determines that the debt is uncollectible, and the debt does not meet the agency tolerances approved by the OAG established pursuant to Texas Administrative Code, Section 59.2(b)(8), below which an obligation is not referred to the OAG for collection.

The Comptroller’s office requires that the reasons for writing off an account and compliance with the agency’s write-off policy be adequately documented and readily available for audit.

Processing Uncollectible Receivables in USAS

Revenue Receivables

The revenue-generating activities of an agency will frequently result in receivables on the agency’s accounting records. If the agency arrives at the conclusion that any of the amounts so established cannot be collected using the criteria in the Collectible or Uncollectible section of this fiscal policy and procedure (FPP), reduce the amount of the receivable. The USAS transaction entry to specifically write off a revenue receivable bad debt, regardless of appropriation year (AY), using document type U, batch type 5 is:

T-code/Title	Debit GL	Credit GL	COBJ	Agency Fund/PCA
630/Generic Debit Activity – Nominal Revenue	5100/GAAP Revenue Offset	Determined by Agency	3xxx	Determined by Agency

The general ledger account debited (5100 – GAAP Revenue Offset) is incorporated in the transaction code. The general ledger account credited is entered during transaction entry and is the receivable account to be decreased.

Non-Revenue Receivables

An example of a non-revenue receivable would be a receivable resulting from an overpayment to a vendor. The USAS entry to specifically write off a non-revenue receivable bad debt is:

T-code/Title	Debit GL	Credit GL	COBJ	Agency Fund/PCA
632/Generic Debit Activity – Nominal Expenditure	5600/GAAP Expenditure Offset	Determined by Agency	7868	Determined by Agency

The general ledger account debited (5600 – GAAP Expenditure Offset) is incorporated in the transaction code. The general ledger account credited is entered during transaction entry and is the receivable account to be decreased. The comptroller object code (7868 – Uncollectible Debt) is to be used for governmental transactions.

An agency may not eliminate a revenue receivable by writing it off as an expenditure because, according to GAAP, it does not represent an expenditure of current financial resources during the period. Non-revenue receivables, however, are typically expenditures or items that can be justified as expenditures that reduce appropriations; thus, decreasing these receivables by reclassifying them to expenditures is appropriate.

Petty Cash and Travel Allowances

Petty cash and travel advances made from petty cash or travel advance accounts are not considered receivables for reporting purposes because these are imprest balances. Write-offs of petty, imprest and travel cash amounts must be made by a cash reimbursement transaction. Complete all other write-off procedures for uncollectible accounts, including proper documentation and state auditor approval.

Proprietary Fund Receivables

For proprietary funds, any type of receivable can be written off directly. The USAS entry for this transaction is:

T-code/Title	Debit GL	Credit GL	COBJ	Agency Fund/PCA
632/Generic Debit Activity – Nominal Expenditure	5600/GAAP Expenditure Offset	Determined by Agency	7862	Determined by Agency

Processing Uncollectible Receivables in CAPPS

Generic entries done in USAS as instructed in the Processing Uncollectible Receivables in USAS section of this FPP can be duplicated in the Centralized Accounting and Payroll/Personnel System (CAPPS) if an agency determines that the Agency Fund/PCA is being tracked in the CAPPS system.

CAPPS agencies need to determine if U documents are being loaded to the inbound HX file for matching purposes.

Revenue Receivables

T-code/Title	Debit GL	Credit GL	Agency Fund/PCA
Use a manual (MAN) T-code if an agency needs to match to the HX file; no T-code is needed if only duplicating transaction in CAPPS	3XXX	Determined by Agency	Determined by Agency

Non-Revenue Receivables

T-code/Title	Debit GL	Credit GL	Agency Fund/PCA
Use a manual (MAN) T-code if an agency needs to match to the HX file; no T-code is needed if only duplicating transaction in CAPPS	7868	Determined by Agency	Determined by Agency

Proprietary Fund Receivables

T-code/Title	Debit GL	Credit GL	Agency Fund/PCA
Use a manual (MAN) T-code if an agency needs to match to the HX file; no T-code is needed if only duplicating transaction in CAPPS	7862	Determined by Agency	Determined by Agency

For More Information

Cash Reimbursement Procedures

Cash reimbursement transaction procedures are found in Travel Advance Account and Petty Cash Account (APS 010) (FPP A.044).

Using the Warrant Hold Process

In addition to collection procedures, use the Comptroller’s warrant hold process to ensure it does not issue a warrant to any person indebted to the state. For information about the warrant hold process, see the Reporting of State Debts and Hold Offset Procedures (APS 028) (FPP E.037) and TexPayment Resource.