Town of Front Royal to write off more bad debt & update policy

The Town Council is requested to approve a revision to the Bad Debt Policy, and approve additional write-offs associated with the revision, and to review other possible alternatives for collection on bad debt.

The Town of Front Royal has had a large dollar value of uncollectable “bad debt” recorded yearly on the Town’s ledger, due to non-payment of utility bills which had not been addressed for over 30 years until 2012. The Town’s auditing firm, Mitchell & Company, requested that Town Council approve a policy that would allow the Department of Finance to review outstanding uncollectable debt annually, and abate the bad debt from ledgers after all avenues for collection had been exhausted. Town Council adopted a bad debt policy on November 13, 2012 that deemed an uncollectable account as having no activity for a period of 7 years.

Code of Virginia § 8.01-246 allows action to be taken to collect on written contracts for a period of 5 (five) years. Written agreements are used for Town of Front Royal Utility Accounts. Based on the Code of Virginia, a Town of Front Royal Utility Account would be deemed uncollectable after there has been no activity from the account holder for a period of 5 (five) consecutive years.

Town Council is requested to approve the removal of 5 years or older of outstanding accounts receivable (bad debts) on the Town’s ledger in the amount of $277,974.34 from enterprise and general fund liability accounts. This value includes 652 utility accounts. All recourse of attempting to collect these amounts has been completed and the accounts have no activity for at least 5 years.

Based on the utilities billed during FY2018, the Town of Front Royal Department of Finance currently collects approximately 99.5% of the amounts billed annually before an account is deemed uncollectable and written off. Town Council is requested to review the additional options for the collection of bad debt that follow this cover sheet and provide staff with direction if an option would like to be reviewed further.

BUDGET/FUNDING: No funding is required. Journal entry will be done effecting balance sheet only.

STAFF RECOMMENDATION: Staff recommends, to approve the revisions to the bad debt policy,approve the write-offs, and to review additional collection alternatives.

Staff has determined that the accounts presented meet the criteria for uncollectable as determined by the Town’s bad debt write off policy:

1. No activity on closed account for at least 5 years
2. All other methods of collection have been exhausted

The amount of bad debt approved to be removed by Council continues to decrease:

• Dec 2013 – $848,191 – approved for removal
• Dec 2014 – $144,049 – approved for removal
• Feb 2016 – $225,318 – approved for removal
• Feb 2017 – $203,808 – approved for removal
• Nov 2017 – $175,999 – approved for removal
• Oct 2018 – $166,191- approved for removal
• Mar 2019 – $277,974.34 – requested to be approved

The FY19 budgeted revenue for the sales of electric, water, sewer, & refuse totals approximately $30.8 million. The amount of $277,974.34 represents approximately 0.9% of the budgeted sales and is approximately 2 years of bad debt.

Royal Examiner’s camera was at the March 4, 2019 Town Council Work Session when this was discussed:

Click here to download the List of Bad Debt Addresses and Bad Debt Policy. [spacer height=”10px”]