Bad Debt Write Off
Section: Fiscal
Index: B-13
Policy
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 receivables 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.
Definitions
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.
Procedure
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 department’s accounts receivable to the UHV Sr. Director of Finance at the end of each fiscal year. The department must have supported documentation for each individual account to be written-off available for review.
After approval has been obtained from the BOR, the UHV Sr. Director of Finance will inform the department and request recording of the write-off as follows:
- For debts recorded on student accounts, the Student Billing 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 Student Billing Office will record outstanding bad debts in the student accounts as a memo balance to maintain a 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 of 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.
Collection Procedures and Criteria for Write-Off
- Accounts Receivable Recorded on Student Accounts – Prior to writing off bad debts, the Student Billing Office will mail the student a minimum of two collection notices 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 Student Billing 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 UHV Sr. Director of Finance who will submit them 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. Accounts outstanding two years or more at the end of the fiscal year are deemed uncollectible and will be submitted to the UHV Sr. Director of Finance who will submit them to the BOR for write-off.
Bad Debt Reserve
At the end of each fiscal year, the UHV Sr. Director of Finance 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.
Supporting Documents
APPROVED BY:
Signature Obtained 05/31/2023
Robert K. Glenn, Ph.D.
President
Next Review Date: May 2028 (5 years)
Origination: Finance Department