As I have indicated in previous reports to the House of Assembly, Government’s systems for recording, reporting and controlling accounts receivable do not always provide timely and accurate information to users. As a result, Government does not know how much money is owed to it at any given point in time. The general exception is the amount owed as of the 31 March of each year which is determined subsequent to year end in order to prepare the financial statements of the Province. Government anticipates that this problem will be addressed with the implementation of its new accounting system. I note that Government introduced the accounts receivable function of its new accounting system in May 1999 and between May and October 1999 the accounts receivable function was implemented in 12 of the 15 departments.
Our review of Government departments also indicates that a significant portion of their accounts receivable are in arrears and that their cash management program, which includes the collection of these accounts, is not adequate.
Figure 1 provides information on amounts owed to Government for each of the seven years to 31 March 1999 along with the amount that Government considers to be uncollectible and amounts written off. These amounts owed include accounts and taxes receivable, as well as loans, advances and mortgages receivable.
Introduction
Figure 1
Consolidated Revenue Fund
Accounts, Taxes, Loans, Advances and Mortgages Receivable
Years Ended 31 March ($000’s)
Source: Consolidated Revenue Fund Financial Statements
1993 1994 1995 1996 1997 1998 1999 Total Total Receivables Less: Amounts Considered to be Uncollectible $531,265 242,480 $544,156 255,565 $551,764 279,065 $537,153 279,924 $474,797 215,210 $461,612 211,832 $471,466 242,344 Net Receivables $288,785 $288,591 $272,699 $257,229 $259,587 $249,780 $229,122 AmountsWritten-off $80,022 $14,242 $5,398 $20,790 $69,877 $7,972 $1,855 $200,156
We reviewed the amounts owed to Government as at 31 March 1999 to determine whether they are collected on a timely basis.
In addition to not collecting amounts owed to it on a timely basis, Government has written off significant amounts owed to it.
Figure 2 provides details on the $471.5 million owed to Government as of 31 March 1999:
Scope and
Objectives
Conclusion
Figure 2
Consolidated Revenue Fund Amounts owed to Government 31 March 1999
($000’s)
Findings and
Recommendation
Note 1 Of the $224.2 million relating to Crown Agencies, $134.5 million relates to Enterprise Newfoundland and Labrador Corporation, the Fisheries Loan Board of Newfoundland and the Farm Development Loan Board. The amount owed to these entities for loans made is $47.8 million in arrears. Also, of the $224.2 million, $31.3 million is owed by the Newfoundland Industrial Development Corporation on a long-term basis with no specific repayment date.
Type of Receivable
Balance
Amount
Outstanding in
Excess of One
Year
Amount
Considered
Doubtful of
Collection
Crown Agencies
$224,187
(Note 1)
$26,050
$131,122
Taxes receivable
121,062
51,303
48,246
Commercial loans
31,656
19,527
28,240
Miscellaneous receivables
41,373
10,970
4,891
Court fines
23,114
17,235
11,255
Social Assistance overpayments
26,887
22,635
17,312
Other
3,187
390
1,278
Total
$471,466
$148,110
$242,344
Amount
Outstanding in
Excess of One
Amount
Considered
Doubtful of
Our review of the amount owed to Government indicated the following: Government’s average cost of borrowing in the capital market for the year ended 31 March 1999 was 5.99%. If Government had collected the $148.1 million outstanding for more than one year and the $47.8 million in arrears with the lending entities and used these funds to retire debt or to reduce current borrowing, annualized savings on debt servicing could have exceeded $11.7 million.
During the last seven years Government has written off $200 million in accounts receivable owed to it as follows:
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Figure 3
Consolidated Revenue Fund
Accounts and Loans Receivable Written Off 1993 to 1999
($000’s)
Entity Amount
Baie Verte Mines Inc. $47,551
Newfoundland Industrial Development Corporation 29,229
Newfoundland Enviroponics Limited 15,252
Newco Corporations 15,361
Enterprise Newfoundland and Labrador 10,894
Newfoundland Dockyard 8,065
Ocean Harvesters Limited 6,649
Cape Pine Fisheries Ltd. 6,466
Fisheries Loan Board of Newfoundland 4,421
Miscellaneous Loans and Mortgages Forgiven which are less than $300,000 individually 4,097
Court Fines 3,938
St. Lawrence Fluorspar Limited 3,919
Fisheries Loans 3,849
Social Assistance Overpayments 3,802
Notre Dame Bay Fisheries 3,762
Universal Group of Companies 3,504
Figure 3 (cont’d)
Entity Amount
Harbour Grace Fishing Company Limited 2,368
Oceana Seafood Processors Limited 2,175
St. Clares Mercy Hospital 1,993
Other Government Departments - Accounts Written Off 1,645
Superior Seafoods Limited 1,567
St. John’s Metropolitan Area Board 1,475
Governor’s Park Limited 1,428
Great Northern Seafoods Limited 1,414
Petty Harbour Fishermen’s Producer’s Co-operative Society Limited 1,316
Blue Ocean Products Limited 1,314
Gander Masonic Memorial Complex 1,240
Reid’s Products Limited 931
Petty Harbour Fisheries Ltd. 926
Belle Isle Seafoods Ltd. 799
S.T. Jones and Son Limited 795
White’s Fisheries Limited 770
Department of Natural Resources 667
Island Tile and Slate 513
Nordco Limited 478
Department of Fisheries 469
Reg Petten 465
Sop’s Arm Fisheries (1988) Limited 341
Ocean Kist Products (1970) Ltd. 338
Department of Works, Services and Transportation 316
Trouty Seafoods Limited 315
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In addition to the $200.2 million, during the years 1993 to 1999 the Province wrote off $11.3 million in tax forgiveness and $19.5 million in tax remissions.
As at 31 March 1999, Government anticipated that $242.3 million or 51.4% of the $471.5 million amount owed to it will likely not be collected.
Prior to May 1999 there was no Government-wide system to record, control and collect total amounts owed to Government. Departmental systems ranged from manual year-end listings and other manual records, to computerized systems and there was little consistency among those systems. In May 1999 Government introduced the accounts receivable function of its new accounting system. Government anticipates that this system will address the concerns relating to its system of recording, controlling and monitoring accounts receivable. I am pleased to report that during the period May to October 1999, the new accounts receivable system was implemented in 12 of the 15 departments of Government.
Recommendations
Treasury Board Secretariat’s Response
Accounts receivable should be collected on a timely basis.
Government should continue to implement its new accounts receivable system so that it can ensure that all amounts owing to it are properly recorded, controlled, monitored and collected on a timely basis.
I agree with your recommendations. The departments are responsible for the timely collection of accounts receivable and the related management of their accounts. The Treasury Board Secretariat has been active in encouraging improvements in collections and related activities of the departments by sponsoring information sessions, analysis and feedback with respect to write-off requests, routine interaction with departments and provision of advice when requested, etc.
Several months ago, a committee was established to focus on government-wide matters related to collections. The committee has representation from the line departments and, as resources are available, will work towards improvements in policies and procedures identified for review. As you had noted, a government-wide accounts receivable system has been implemented to facilitate the management of accounts receivable. The system will be installed in the remaining departments.