Rescinded [2009-10-01] - Policy on Receivables Management
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1. Effective date
This document contains the entire text of the policy as revised on July 1, 2002. This policy replaces the version dated October 31, 1995.
Receivables are an important asset of the government that need prudent management. Across government these receivables involve billions of dollars and a wide range of transactions that affect Canadians daily. Given this extensive scope, the sound management of receivables is significant to the government achieving its overall objective of responsible fiscal management.
This policy sets forth the management framework for the effective administration of this asset. Integrated within the policy are key roles and responsibilities, which are summarized as follows:
Treasury Board – the Financial Administration Act sets forth the statutory authority for Treasury Board to act on matters relating to 'receivables from any source whatever'. The authorities are identified in Section 10 of the policy. In support of the Treasury Board's responsibilities, the Secretariat is accountable for monitoring the effectiveness of this policy. Section 9 of this policy describes these responsibilities.
Ministers – overall, effective receivables management is a key component of Ministerial accountability for the sound financial management of their departments and agencies. Specifically, with respect to the collection of receivables, the Financial Administration Act provides an important role for Ministers through their authority to consent to requests for set-off for the purposes of recovery of debts due to the Crown. Appendix B.2.4 fully describes these responsibilities.
Deputy Heads (and their delegated officials) – in support of the ministerial accountability referred to above, Section 6 of the policy describes the mandatory requirements that are the responsibility of departments. Section 6.2 addresses further requirements that must be addressed by departments and agent Crown corporations. Deputy heads are expected to adhere to the procedural requirements addressed in Section 7. If other procedures are used, they must justify and document the reasons for doing so.
For many programs, receivables are an inherent aspect of program delivery. As long as government levies taxes, provides products, services and programs of financial assistance, there will be a receivables portfolio to manage.
The government's strategy for managing receivables is to pursue the horizontal management of knowledge and information in order to achieve the best results. This strategy addresses receivables management by treating the government as a single entity, where departments must assume a corporate responsibility for the global management of these assets in addition to their specific responsibilities for receivables under their control.
The adoption of the horizontal management approach provides the opportunity for the effective use of information and resources among departments and agencies. To this end, all departments and agencies will be encouraged to share information technology, collection facilities, practices and procedures with a view to improving the management of the global receivables portfolio, as well as the effectiveness and efficiency of their respective collection operations.
3. Policy objective
To ensure that all government accounts receivable are managed fairly, efficiently and effectively to recover such receivables and minimize the risk of loss.
4. Policy statement
It is government policy:
- to avoid, wherever possible, the creation of receivables;
- to grant credit only when it is an operational requirement;
- to recognize receivables promptly and vigorously pursue their collection;
- to treat debtors fairly;
- to charge interest on overdue accounts;
- to share information and resources between departments, where permitted, in order to locate and collect debts owing to the Crown; and
- to maximize recoveries through set-off against other forms of government payments owing to a debtor.
This policy applies to all organizations considered to be departments under section 2 of the Financial Administration Act. For the purposes of sections 6.2 and 7.2 of this document, this policy also applies to agent Crown corporations.
6. Policy requirements
6.1 Departments must:
- promote the avoidance of receivables in their program design and delivery;
- identify in advance the types of goods, services, use of facilities, rights, and privileges that they may provide on credit;
- have a plan that includes receivables management practices and a risk assessment of their receivables portfolio;
- classify, record and report accurately and promptly all receivables transactions in accordance with government accounting and financial reporting standards;
- sustain efficient and effective collection practices and systems in accordance with this policy's procedural requirement on fair treatment of debtors;
- determine the classes of payments that they will make available to other departments for set-off; and
- take action on a timely basis with respect to any write-off, remission, forgiveness, or waiver of debts in accordance with relevant regulations, Treasury Board policies and guidelines when they are not settled in full.
6.2 Departments and agent Crown corporations must:
- upon request and in accordance with this policy's procedural requirements on information sharing, share debtor information [as described in Section 7.2(a)] with other departments and corporations to enhance government-wide accounts receivable collection efforts.
7. Procedural requirements
7.1 Departments are to:
- require, to the extent possible, payment in advance, or at the same time as goods and services are provided.
- establish, through a departmental credit policy, items such as the following:
- the credit assessment process;
- the threshold for minimum value of credit sales;
- acceptable levels of credit risks;
- terms of credit;
- terms of payment;
- the information necessary to extend the credit; and
- the point at which, unless precluded by statute, the department may not provide goods, services, use of facilities, rights, and privileges because of unpaid debts to the Crown.
- seek security for debts due to the Crown when it is good business practice to do so, in accordance with the Security for Debts Due to her Majesty Regulations and TB Circular 1989-2.
- prepare a receivables management plan that includes, but is not limited to, the following:
- the evaluation of risks associated with each major component in the portfolio;
- the materiality of the impact of any potential loss;
- strategy for managing the receivables portfolio;
- monitoring and control practices; and
- results-based management approaches.
- recognize in departmental receivables management systems the types of debts described in Appendix A or any other amounts that are debts due to the Crown.
- take appropriate, timely and cost-effective collection actions that will normally be progressive and usually include the steps outlined in Appendix B.
- incorporate into their business practices, the following principles on fair treatment:
- debtors are informed of their obligations under applicable Acts and Regulations and advised of any existing administrative review or appeal processes that provide relief and/or redress;
- applicable Acts, Regulations or policies are applied consistently towards all debtors;
- any information provided to debtors is accurate and understandable;
- the financial situation and any other special circumstances regarding a debtor are considered when collecting a debt; and
- service expectations are openly communicated to debtors.
7.2 Departments and agent Crown corporations must comply with the following requirements on sharing information:
- Any public officer or agent of Her Majesty, including agent Crown corporations, upon the request of a department or
agent Crown corporation, shall provide that department or corporation with the following information concerning a person
that has a debt due to Her Majesty:
- the person's last known address and telephone number;
- the name and address of the person's last known employer; and
- any payment coming due to the person.
To limit unnecessary disclosure of the three information elements identified above, only the information that is necessary to comply with the purpose of the request is to be provided. Therefore, for requests concerning attempts to locate a person, only the first and second elements of information are to be provided. When a request concerns use of set-off authority, all three of the above elements of information may be necessary, and to the extent possible, are to be provided to the requestor.
Federal institutions that are subject to the Privacy Act or the Personal Information Protection and Electronic Documents Act must also comply with their obligations under these Acts. Please refer to Appendix B.7 for the procedural requirements concerning the sharing of personal information.
- The information must only be required to locate the person in order to collect the person's debt or to set-off the debt against any sum of money that may be due or payable by Her Majesty in right of Canada.
- Any information provided in response to the request must be obtained from any account, return, record, statement, document or report pertaining to the person and not from any other person such as a relative or a spouse and must not be used for any other purpose.
- This requirement was established by Treasury Board pursuant to paragraph 7(1)(c) and subsection 9(3) of the Financial Administration Act. Advice should be sought from the organizations legal counsel to confirm the application of this policy in light of special program legislation providing for confidentiality of certain information.
- Departments and agent Crown corporations are to require assurance from the department requesting the information specified in item 7.2(a) of this document that it will be protected from disclosure in the manner consistent with requirements of the program under which it was collected.
8. Related comptrollership requirements
Departments are to:
- Establish a framework of internal controls for the administration of accounts receivable. The principles for this
framework include, but are not limited to, the following:
- the appropriate division of duties related to credit granting, collections, maintenance of accounting records, and handling and reconciling of money;
- the provision of complete audit trails to track all claims from the transaction that gave rise to the debt to its final settlement;
- the establishment of monitoring and results measurement mechanisms; and
- the preparation and distribution of periodic management reports on the financial and non-financial activities of the portfolio.
- Accept appropriate forms of payment, as supported by the Receiver General, for the settlement of accounts receivable.
- Record all receipts of monies as outlined in the Policy on Recording Receipts of Money.
- Maintain systems and controls for receivables management as outlined in the Policy on Financial Systems and Controls.
- Estimate the allowance for doubtful accounts in accordance with the information outlined in the Policy on Allowances for Valuation of Assets and Liabilities.
- Establish procedures to ensure that once an account owing has been recorded in the departmental accounts, it is not removed from these accounts until the department has received full payment or has properly authorized a remission or other forgiveness, a write-off, or a cancellation. When it becomes known in the future – after an account has been written-off, but not extinguished – that the debtor's financial position has improved and the debtor is capable of paying the debt, the account should be reinstated and collected.
- In accordance with the Policy on Internal Audit, develop internal audit plans that include provision for the review of internal management policies, practices and controls of the accounts receivable program. Terms of reference for audits should address whether the accounts receivable are managed in accordance with this policy and the effectiveness of the collection process.
- Comply with Appendix B of this policy for the collection of delinquent loans and loan guarantees as outlined in the Policy on Loans.
The Treasury Board of Canada Secretariat will monitor the effectiveness of this policy by noting departmental internal audit and program evaluation reports and conducting reviews where warranted. The policy will be reviewed in five years time.
This policy is issued pursuant to sections 7(1)(c) and 9(3) of the Financial Administration Act.
This reference section is an integral component of this policy. In addition to the requirements addressed in this policy, the references identify other Acts, Regulations, policies and publications that shall be followed in the management of receivables.
10.2 Relevant legislation
10.3 Relevant regulations
Receipt and Deposit of Public Money Regulations, 1997 – issued pursuant to section 17 of the Financial Administration Act
Interest and Administrative Charges Regulations, 1996 – issued pursuant to section 155.1(6) of the Financial Administration Act
Debt Write-off Regulations, 1994 – issued pursuant to section 25(1) of the Financial Administration Act
Security for Debts Due to Her Majesty Regulations, 1987 – issued pursuant to section 156 of the Financial Administration Act
10.4 Treasury Board policies
Interdepartmental Settlements Policy
Policy on Allowances for the Valuation of Assets and Liabilities
Policy on Charging Interest on Overdue Accounts
Policy on Classification and Coding of Financial Transactions
Policy on Deletion of Debts Due to the Crown (under revision)
Policy on Deposits
Policy on Evaluation
Policy on Financial Systems and Controls
Policy on Internal Audit
Policy on Loans
Policy on Recording Receipts of Money
Policy on Recovery of Amounts Due to the Crown (from employees)
Policy on Statutory Financial Reporting
Policy on Privacy and Data Protection (which includes the Policy on the Use of the Social Insurance Number and the Policy on Data Matching)
Government Security Policy
10.5 Treasury Board of Canada Secretariat publications
Chart of Accounts
TB Circular No. 1989-2, "Policy Related to the Regulations Governing Security for Debts Due to Her Majesty"
TB Circular No. 1987-18, "Policy on Accepting Credit Cards as Means of Payment for Goods and Services Provided by the Government"
10.6 Other publications
Practitioner's Guide to Management of Receivables in the Federal Government
Please direct enquiries about this policy to your departmental headquarters. For interpretation of this policy, departmental headquarters should contact:
Financial Management Policy Division
Treasury Board of Canada Secretariat
Telephone: (613) 957-7233
Facsimile: (613) 952-9613
Appendix A - Types of debts and other claims to be included in the departmental receivables management systems
This Appendix identifies types of debts managed by departments that may need to be recognized and administered in the department's receivables management system. Not all of these debts will appear in the government's consolidated financial statements, although they may be reported in departmental reports. Examples of accounts that may not appear in the government's financial statements include debts between federal government departments and some disbursements made under repayable contribution agreements. For repayable contributions, the disbursed amount may not result in a receivable if the condition that triggers repayment is not met.
These debts include, but are not limited to, the following:
- amounts due from taxation (including tax assessments), sales of goods, provision of services, use of facilities, and statutory or other obligations, including dividends and transfers of profits and surpluses arising from the government's financial interest in outside organizations;
- overpayments or erroneous payments of salaries, allowances, supplier accounts, grants, contributions, and benefits;
- disputed claims, at their estimated value;
- gross amounts assigned to third parties for collection;
- amounts due from repayable contributions when the conditions that make the contribution repayable have been met;(1)
- amounts due from defaulted loans as a consequence of the department honouring a loan guarantee;
- amounts due from penalties, fines and court awards;
- interest, penalties, or administrative charges on the amounts and items specified above; and
- amounts due from other federal government departments.(2)
Appendix B - Procedural requirements for collections
Departments will use whatever collection method is appropriate and cost-effective in each circumstance. Collection actions will usually be based on the methods and information outlined below.
B.1 Common routine collection actions
- confirming the validity of the debt due to the Crown
- establishing the location of the debtor including obtaining location information from other departments
- providing timely statements or notices
- communicating with the debtor to collect payment, to establish a repayment schedule, or to renegotiate an existing repayment schedule
B.2 More advanced collection actions
B.2.1 Voluntary deduction or assignment
Departments may act on a debtor's voluntary authorization to deduct the amount of a debt from payments the Crown owes the debtor. For voluntary transactions, it is not required to seek ministerial approvals that are required before processing a set-off. Voluntary assignments to the Crown of payments due to the debtor by a third party should be sent to departmental legal advisors for review.
B.2.2 Present Value Payment
Departments may collect an account by accepting payment that represents the present value of an established repayment schedule or an amount due at a future date as payment-in-full. In calculating the amount of a present-value payment, departments must determine and apply an appropriate discount rate. This discount rate should approximate the cost of borrowing to the federal government and the risk factors associated with the account. The Debt Write-off Regulations provide the authority to write-off the balance that remains after payment has been accepted as full settlement of the debt.
The policy related to the Security for Debts Due to Her Majesty Regulations is intended to encourage departments to require security to protect the payment of amounts owing to the Crown. Neither the Regulations nor the policy oblige a debtor to provide security. Departments must decide on a program basis, when requiring an amount to be paid to the Crown, whether security could be required in order to facilitate the collection of debt.
Departments should assess when it is appropriate in their collection process to realize the securities provided to the Crown.
Section 155(1) of the Financial Administration Act provides the general authority for the set-off of payments for debt collection when specific program legislation does not override this general authority.
Before initiating a set-off, every possible attempt should be made to advise the debtor that set-off action is being contemplated. If departments decide to pursue set-off against debtors that have already made satisfactory repayment arrangements, then debtors should be advised of this process when establishing the repayment arrangements with the department.
Departments must obtain the consent of the paying department's Minister (or his or her delegate) to the set-off except in cases of set-offs to recover overpayments of salaries, wages, outstanding travel advances and employment-related allowances of federal public service employees. Both the department responsible for collecting the debt and the department responsible for making the payment should agree to the collection rate. Set-offs against contractual payments are normally for the full amount.
Departments should make every effort to avoid creating undue hardship when initiating set-offs against government payments.
B.2.5 Private-sector collection agencies (PCAs)
The following are the procedural requirements for using private-sector collection agencies and paying for their fees:
- Departments may use the services of private-sector collection agencies (PCAs) to recover debts owed to the Crown when it is effective and efficient to do so.
- Departments will utilize PCAs from the National Master Standing Offer established by Public Works and Government Services Canada.
- The following debts must not be transmitted to PCAs for collection:
- debts owed by other government departments, government agencies, and governmental organizations such as the United Nations or foreign governments; and
- debts under appeal or in litigation.
- Departments shall cease active collection on accounts sent to PCAs. Processing an account for set-off is not considered to be an active collection measure.
- Only commissions payable for the successful collection of debts due to the Crown covered by section 17.1 of the Financial Administration Act can be charged to the statutory authority.
- Expenses for services, not provided through the National Master Standing Offer, such as those for tracing, credit assessment, and cheque verification must be charged to departmental operating votes and not to the statutory authority.
- Departments must report their expenditures under this statutory authority in the Public Accounts for each fiscal year and in the final Supplementary Estimates of the applicable fiscal year as required by the Treasury Board.
B.3 Compromise settlement
A compromise settlement involves accepting partial payment as fully satisfying a debt and releasing the debtor from any obligation to pay the balance. The authority to accept a compromise settlement is held by the Minister of Justice, who normally acts on the advice and recommendation of the appropriate Minister.
Compromise settlements are normally considered in a process that is incidental to litigation. The necessary condition for accepting a compromise settlement is the determination that the cost of litigation would be more than the expected recoveries or, when the debtor is on the verge of bankruptcy, that the settlement exceeds what the departments would receive if the debtor went bankrupt. It may be determined that a compromise settlement should be accepted either before or after the commencement of legal proceedings.
For settlements based on compassionate grounds or public interest considerations, a forgiveness or remission authority is required. Departments must write off the difference between the original debt and the amount of the compromise settlement in accordance with the Debt Write-off Regulations and the Policy on Deletion of Debts Due to the Crown.
There is a need to differentiate between administrative garnishment initiated by departments under authority of their program legislation and garnishment proceedings issued under provincial law. In the former, the Department of Justice Canada plays no role, except in circumstances when departments consider it appropriate. In the latter, the departmental legal counsel must be consulted.
B.5 Use of departmental legal counsel
Unless departmental legislation gives specific authority, all cases involving legal proceedings must be referred to the Department of Justice Canada.
Departmental legal services should be consulted to determine any other assistance they may provide in the collection of debts to the Crown.
B.6 Limitation period
Unless the limitation period for collections of debts is specified in program legislation, the applicable provincial statute may apply to federal debts. As the collection (including set-off) of Crown debts is not always bound by provincial legislation, advice should be sought from departmental legal counsel to confirm the applicable limitation period.
B.7 Sharing of Information
The authorities for sharing of information to locate debtors for the purposes of collecting amounts due to the Crown are as follows:
- Section 7(1)(c) of the Financial Administration Act provides Treasury Board with the power to make directions on receivables applicable to departments.
- Section 9(3) of the Financial Administration Act addresses the sharing of information for locating and set-off purposes.
- Section 8(2)(b) of the Privacy Act addresses the disclosing of personal information for any purpose in accordance with any Act of Parliament or any regulation made thereunder that authorizes its disclosure.
- Section 8(2)(l) of the Privacy Act addresses the disclosing of personal information for the purpose of locating an individual to collect a debt due to the Crown.
TB Policies regarding the administration of the Privacy Act, including the Privacy and Data Protection Policy, which includes the Policy on Data Matching and the Policy on the Use of the Social Insurance Number (SIN) must be observed.
To ensure compliance with the provisions of the Privacy Act, parties shall establish bilateral agreements governing the exchange of personal information identified in section 6.2 of this policy regarding policy requirements on sharing debtor information. The purpose of the agreements is to set out the parameters of the planned information exchange in accordance with sections 4 through 8 of the Privacy Act, which refer to the collection, use, disclosure, retention, disposal and protection of personal information.