Office of the Vice President for
Administration and Finance
SECTION: FISCAL INDEX: B-13
SUBJECT: BAD DEBT WRITE OFF
This policy establishes the criteria and procedures to be followed to designate a receivable account as uncollectible and to remove such accounts from the general ledger account fund balance (e.g. writing the debt off).
Accounts receivable are eligible for write-off once they have been outstanding for two years. To be considered for write-off, the University must be able to demonstrate that adequate steps were taken to collect the amount due. All accounts receivable to be written off must be approved by the UH System Board of Regents (BOR). The University must compile a list of all such accounts receivable for submission to the BOR on an annual basis. (References)
Debtor: Entity purchasing goods or services on credit (i.e., the buyer).
Creditor: Entity selling goods or services on credit (i.e., University department)
Account Receivable: An asset that represents a claim against another entity for goods or services that have been provided, but for which cash has not been received.
State Hold: When a debtor remains delinquent after in-house collection efforts at recovering the obligation have been unsuccessful, the University, as a state entity, is required to report to the State Comptroller the names of persons who have indebtedness or tax delinquency to the Comptroller. Reporting indebtedness to the Comptroller places the debtor on hold with all State of Texas agencies (including state universities) preventing any payments from the state to the debtor. See UHV Policy A-7, Reporting Indebtedness to the State Comptroller, for further information.
Departments with uncollected accounts receivable meeting the criteria for write-off will submit a list of individual accounts to be written-off and a current reconciliation of the departments accounts receivable to the UHV Comptroller at the end of each fiscal year. The department must have supporting documentation for each individual account to be written-off available for review.
After approval has been obtained from the BOR, the UHV Comptroller will inform the department and request recording of the write-off as follows:
- For debts recorded on student accounts, the Bursars office will first apply credits to the student accounts for all approved bad debt write-offs for which a balance is still owed. These credits will record the write-offs in the general ledger. Second, the Bursars office will record outstanding bad debts in the student accounts as a memo balance to maintain record of the financial obligation still owed to the University in the student financial accounting system.
- For debts not recorded on student accounts, the department will be instructed on the proper journal entry to record the write-off in the general ledger. The department will be responsible for maintaining adequate records regarding the financial obligation still owed to the University.
The write-off of an uncollected account is a bookkeeping entry only and does not relieve the debtor from financial responsibility to the University. Although the uncollected account has been removed from the books, the uncollected amount is not forgiven. The University may still have a claim against the debtor and can still seek legal remedy (e.g., sue for collection in a court of law). Alternatively, the debtor can still pay on the account. Therefore, it is the responsibility of the University to maintain adequate records regarding financial obligations (i.e., debts) owed to the University. (References)
Collection Procedures and Criteria for Write-Off
- Accounts Receivable Recorded on Student Accounts – Prior to writing off bad debts, the student will be mailed a minimum of two collection notices via certified mail to his or her last known mailing address, each approximately thirty days apart. The envelope must bear the notice, Address Correction Service Requested. During this period, the debtor will be offered the option to complete a repayment plan agreement. If a repayment plan agreement is not arranged within this period, the debt will be turned over to the collection agency and the Bursars Office will apply the state hold. The liability reported will include the original debt the student incurred plus any institutional late fees or penalties. The liability reported will not include any fees imposed by third party collection agencies. Additionally, should a student subsequently default on a repayment agreement, the student will immediately be placed on hold and the debt will be turned over to collections. Accounts outstanding two years or more at the end of the fiscal year are deemed uncollectible and will be submitted to the BOR for write-off.
- All Other Accounts Receivable – Prior to writing off bad debts, the department holding the obligation should make reasonable efforts to collect the debt. Those efforts should include sending a letter (via certified mail return receipt requested) informing the individual that if the debt is not satisfied within fifteen calendar days from the date of the letter (hereinafter referred to as the Due Date), the debt will be treated as a delinquent debt and will be reported to the Comptroller. If the debt is not satisfied by the debtor on or before the Due Date, the department will contact the Bursars Office who will then follow the proper procedures in applying the state hold. The department will then send a second letter to the individual within 30 days after the Due Date, which will inform the individual that the debt has now been treated as a delinquent debt. The second letter will also inform the individual that if he or she fails to satisfy the debt within 15 calendar days from the date of the second letter, the matter will be referred to the Universitys legal department, the Office of the General Counsel. The second letter must be sent via certified mail and the envelope must bear the notice Address Correction Service Requested. If the debt is not satisfied within 15 days from the date of the second letter, the department will send a copy of the two above-referenced letters and all supporting documentation regarding the debt and any correspondence with the debtor to the Office of the General Counsel for further handling. Accounts outstanding two years or more at the end of the fiscal year are deemed uncollectible and will be submitted to the BOR for write-off.
Bad Debt Reserve
At the end of each fiscal year, the UHV Comptroller will estimate an allowance for bad debts for accounts receivable on student accounts. A bad debt reserve and bad debt expense will accordingly be recorded in the general ledger. As actual write-offs occur, they will be charged against the bad debt reserve. Subsequent collections of bad debts written off will be credited to the bad debt reserve.
- UH System Administrative Memorandum 03.A.24, Extension of Credit by University of Houston System Component Universities
- UHV Policy A-7, Reporting Indebtedness to the State Comptroller
Signature Obtained 10/07/13
Phillip Castille, Ph.D. Date
Next review date: September 2018
Origination: Finance Office