Modernizing Government Debt Collection Symposium

November 1, 2013 IMG Collection Symposium 1

Modernizing Government Debt Collection Symposium


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1995 1996 1997 1998 1999

RevenuesReceivables

Oregon’s Assets ~ ComparisonsGrowth of Revenues Versus “Net” Receivables

Receivables = A/R, Interest, Interfund and Taxes Receivable

Billions of $

Source: Oregon’s Comprehensive Annual Financial Reports NASC PresentationMarch 2001


$ In Billions

Intel Micro-soft

Oregon(w/ taxes)

Gannet Nike

Revenue $29.39 $22.96 $13.21 $5.26 $9.00Receivables $ 3.70 $ 3.25 $2.22 $.88 $1.57

A/R as a %of Revenue

12.6% 14.2% 16.8% 16.8% 17.4%

Avg. DaysOutstanding

46 52 61 61 64

Oregon’s Assets ~ ComparisonsState versus Private ~ “Net” Receivables Ratio

Source: Annual Financial Statements NASC PresentationMarch 2001


$ In Billions

ID AZ CA OR WA UT NVRevenue $4.10 $13.8 $116. $13.2 $24.6 $6.61 $4.35

Net A/R $0.24 $1.55 $13.2 $2.22 $4.32 $1.31 $0.87

A/R % ofRevenue

5.9% 11.3% 11.4% 16.8% 17.6% 19.7% 20.1%

Avg. DaysOutstanding

22 41 42 61 64 72 73

Oregon’s Assets ~ ComparisonsOregon Versus Other Western States

“Net” Receivable Ratios

Source: Western State’s Comprehensive Annual Financial Reports NASC PresentationMarch 2001


Oregon’s Assets ~ ComparisonsOregon Versus Other Western States

Tax Collection Sources

State: ID AZ CA WA OR UT NV

Property Tax

No Yes Yes Yes No No Yes

Income Tax

Yes 1.6-7.8%

Yes 2.9-5.0%

Yes 1.0-9.3%

No

Yes 5.0-9.0%

Yes 2.3-7.0%

No

Sales Tax

Yes 5.0%

Yes 5.6%

Yes 6.0%

Yes 6.5%

No Yes 4.75%

Yes 6.5%

Population 1.3m 5.3m 34.5m 6.0m 3.5m 2.3m 2.1m

Source: Federation of Tax Administrators/US Census AGA Winter Conference

February 2004


Statewide Financial ServicesSWARM Analysis

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$200

$400

$600

$800

$1,000

$1,200

2000 2001 2002 2003 2004

5 Year Cumulative Collection Summary

Agencies

OAA

PCF

Source: LFO Reports

OAA - Dept. of Revenue’s Other Agency Accounts Unit

PCF – Private Collection Firms

In ThousandsIn Thousands

BAM PresentationJanuary 2006


Statewide Financial ServicesSWARM Analysis

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004

Inventory of Accounts in Dollars

PCFs

OAA

Agencies

Source: LFO Reports

OAA - Dept. of Revenue’s Other Agency Accounts Unit

PCF – Private Collection Firms

BAM PresentationJanuary 2006



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2008 2009 2010 2011 2012

Billi

ons

of $

Revenue

A/R

Source: Oregon’s Comprehensive Annual Financial Reports

Fiscal Years 2008 - 2012



With Liquidated and Delinquent Debt Included

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$10

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2008 2009 2010 2011 2012

Billi

ons

of $

Revenue

A/R

L&D

Source: Oregon’s Comprehensive Annual Financial Reports / LFO Reports

Fiscal Years 2008 - 2012


General Funds

Federal Funds

Other Funds

Lottery Funds

Other Funds -Pass Through

Source: LFO ReportRevised August 2013

Oregon’s Assets ~ ComparisonsLiquidated & Delinquent Debt by Fund Type


Collection of the State's Liquidated and Delinquent Accounts Totals for All State Agency Actions:

Total Inventory of Accounts 2008 2009 2010 2011 2012r1 Beginning Inventory $1,575,615,079 $1,747,978,308 $1,983,318,754 $2,150,842,072 $2,449,052,3482 Additions $587,422,281 $658,144,254 712,594,874 $778,465,984 $874,978,4643 Total Available for Collection $2,163,037,360 $2,406,122,562 $2,695,913,628 $2,929,308,056 $3,324,030,812

4 Ending Inventory $1,747,633,841 $1,983,335,024 $2,150,469,669 $2,456,824,790 $2,672,257,978

5 State Agency Inventory (NET) $1,067,020,686 $1,353,363,664 $1,550,129,775 $1,508,234,897 $1,483,351,080State Agency Inventory 61.06% 68.24% 72.08% 61.39% 55.51%Total Account Collections

6 State Agency Collections (NET) $287,521,321 $291,646,457 $309,514,631 $311,131,832 $369,693,443

State Agency Collections 87.71% 89.60% 88.47% 88.32% 89.53%

7 Total State Collections $327,795,578 $325,492,893 $349,845,577 $352,271,297 $412,930,585

8 All Collection Sources 15.15% 13.53% 12.98% 12.03% 12.42%

9 State Agency Collections (NET) 23.31% 22.38% 18.13% 17.35% 20.45%

Breakdown for Other Agency Accounts - Department of RevenueOther Agency Accounts Inventory

10 Beginning Inventory $170,699,153 $209,152,125 $254,174,338 $271,355,355 $328,589,81511 Additions 143,679,040 185,428,410 184,152,839 181,076,931 106,711,91812 Total Available for Collection $314,378,193 $394,580,535 $438,327,177 $452,432,286 $435,301,733

13 OAA Ending Inventory $208,425,479 $255,290,226 $271,370,909 $330,173,972 $256,304,011OAA % Inventory to Total State Inventory 11.93% 12.87% 12.62% 13.44% 9.59%Other Agency Accounts Collections

14 OAA Collections for the State $28,714,962 $24,526,261 $30,128,186 $33,196,037 $28,429,697OAA % of State Collections 8.76% 7.54% 8.61% 9.42% 6.88%

15 Percentage Collected 9.13% 6.22% 6.87% 7.34% 6.53%

Private Collection Firms Inventory 2008 2009 2010 2011 2012r16 Beginning Inventory $449,508,653 $472,216,933 $358,827,625 $328,968,985 $650,465,55017 Additions 165,649,937 236,280,248 191,792,120 354,589,728 430,547,36018 Total Available for Collection $615,158,590 $708,497,181 $550,619,745 $683,558,713 $1,081,012,910

19 PCF Ending Inventory $472,187,676 $374,681,134 $328,968,985 $618,415,921 $932,602,887PCF % Inventory to Total State Inventory 27.02% 18.89% 15.30% 25.17% 34.90%Private Collection Firms Collections

20 PCF Collections for the State $11,559,295 $9,320,175 $10,202,760 $7,943,428 $14,807,445PCF % of State Collections 3.53% 2.86% 2.92% 2.25% 3.59%

21 Avg Historical Cost of Collections $2,311,859 $1,864,035 $2,040,552 $1,588,686 $2,961,489



Collection ProcessesFollowing All The Laws


US Constitutional Due Process Clause: 5th Amendment ~ Directed at Federal Agencies 14th Amendment ~ Directed at State Agencies

No one shall be . . . “deprived of life, liberty, or property without due process of law.”

Same eleven words in both Constitutional Amendments.

Oregon Constitutional Clauses: Article I, § 10:

“Every man shall have remedy by due course of law for injury done him in his person, property, or reputation.”

Article I, § 19: “There shall be no imprisonment for debt, . . . “



Due Process Means: Notification ~

Notice properly contemplated to effect the attention of the person(s) affected as to the nature and gravity of the case . . . .

Opportunity to be heard ~ Remedy by due course of law – having one’s day in

court. Purpose ~

“…to prevent the arbitrary use of government power” - AmJur

Upon achieving due process, the account becomes “liquidated.”

Add procedurals statutes to Due Process and Liquidation can go from relatively easy to pretty complicated . . .



Collection ProcessesFollowing All The Laws ~ The Easy Way


Civil PenaltiesAgency hasCivil Penalty

Authority

Civil Penalty Statute

ORS 183.090

Numerous state agencies have Civil Penalty authority. Their particular authorizing statues offers limitations on penalty amounts and methods of imposition.

This statute provides basic procedures. It addresses when the penalty would be due, hearings, final orders, legally recording orders, etc.

Notification and Hearing

ORS 183.413-.415

These statutes address the notification and hearing process. The hearing is conducted as a contested case hearing. Without application within the time frame, no hearing is required.

Review?ORS 183.480-.497

This statute indicates that the finding of the contested case hearing may be appealed to the state’s Court of Appeals, and provides time limitations.

Recording LienORS 183.090ORS 205.125

These statute show the operation of recording the final order in the County Clerk Lien Record. This has the “attributes and effects” of a judgment.

InterestORS 82.010(2)

Interest may be collected on the judgment at the statutory rate of 9 percent.

Disposition of Funds Collected [Agency Statute]

Some agency statutes that authorize civil penalties also require the amounts collected to be deposited into the state’s general fund.

No

Civil_PenaltyV1.2 1/31/02

1

22

33

44

55

HearingRequested?

Contested Case HearingORS 183.413

Yes

No

Yes

Appeal?ORS 183.500

2.520

This statutes indicate that the finding of the state’s Court of Appeals may be appealed to Oregon’s Supreme Court.

77

66

88

No

Yes

Order Becomes Final

99

1010

An order becomes final when the appeal process is exhausted or the period for filing appeals has elapsed.

Renewal of County Clerk

Lien

Within 10 years of a recording in the County Clerk Lien Record, an agency has a one-time renewal of the lien. This keeps the lien valid for another 10 years.

Observe ORS 183.413 for Contested Case hearings and see the note at ORS 183.470 ~ Hearings Officer Panel. Also note ORS 183.502, the Alternative Dispute Resolution process.

“Procedural due process is not intended to promote efficiency or accommodate all possible interests; instead, it is intended to protect the particular interests of the person whose possessions are about to be taken.” Fuentes v. Shevin407 U.S. 67, 92 S.Ct. 1983

Collection Processes

Following All The Laws ~ The Hard Way ~



The Oregon Accounting Manual OAM Policy 35.30.50

101. Agency management must ensure that agency personnel employ appropriate and lawful practices in the collection of accounts receivable.

102. State agencies must comply with the Oregon Unlawful Debt Collection Practices statute, ORS 646.639, related to consumer debt. Agency staff undertaking letter collections must read, understand, and comply with the provisions of ORS 646.639.

103. State employees who collect debt during the performance of their official duties are specifically exempt from coverage under the Federal Debt Collections Practices law (15 U.S.C. §§1692a (6)(C)). This law does not bind state employees whose specific job entails collecting debt; however, the State of Oregon sees the value of the Federal Debt Collections Practices law and recommends that all agencies voluntarily comply. Many provisions of the state and federal laws overlap.


Dealing with the Debts - Terminology; Adjustments – resolution of an improper billing –

I.e. you billed the wrong amount, adjust the dollar amount.

Compromise / Settlement – I.e. resolution of a liability through an amicable

agreement. Cancel, Release, Discharge –

I.e. the extinguishments of all legal liability. Bankruptcy –

When concluded by the court, “[s]uch debts are not ‘uncollectible;’ rather, such debts are nonexistent.”

Write-Off – A bookkeeping removal of debt, not a removal of legal

liability.

Collection ProcessesFollowing All The Laws & Definitions


Action Accounting Legal

Write-Off Yes

Adjust-Off

Cancel

NoRemove from books. Remains a legal liability

Yes YesLiability is adjusted.Books are adjusted.

Yes Yes*Liability is extinguished.Remove from books.

* The cancellation or forgiveness of debt can have tax consequences.

Collection ProcessesFollowing All The Laws & Definitions


Collection ProcessesObstacles & Opportunities

Cost of Due Process Collections Staffing – having the knowledge, skills, & abilities to

follow the law and deal with debtors in a sometimes hostile environment

Credit & Collection Manager Salary: $68,250 - $99,000 (PEMF – R35)*

Credit & Collection Clerk Salary: $34,250 – $45,750 (RA2 – R19)*

Processing – IT systems that track debtor transactions, account balances, contact information, interactions, monitors payment plans, generates letters, etc.

Administrative – consider the costs of overhead. Collect penalties and interest when imposed as opposed to manually adjusting away them to promote a concession for payment.

Cost of hearings – in some cases, the costs associated with the due process hearings born by the agency can exceed the civil penalty action that generated the hearing.

Establishing and enforcing adequate internal controls to protect the payment path from the debtor to the bank.

*Source : Robert Half 2013 Salary

Guide



Accepting & Banking the Funds: Take payments in all forms:

Credit & Debit Cards Cash & Checks

Process payments using multiple methods: On-line & In-line payments

Establish an e-Commerce presence Check conversion

At the counter ~ ACH (e-checks) Payments In the back-office ~ thru OED – Online Electronic Deposit

Pay by Phone M-Commerce (Mobile Commerce) IVR – Interactive Voice Response

Third party processing Lockbox Kiosks

If you have not “updated” your agency banking for the 21st century, you need to contact the Oregon State Treasury.


@ @ @ ‘An Event

Goods/ServicesBilling Method(Creates A/R)

Questions & Disputes& Appeals

Payment orResolution

Billing/Payment Cycle:

Past DuePoint

@

Area of LFO ReportingConsequence...

...Point of Sale...


To reduce the number and amount of accounts receivable owed to the state, it is important to look at the way the state does business and when payment for services or goods is required. To improve the collection process, the state must consider what options are offered to pay for a service. If the customer is given options regarding payment for services such as cash, credit card, check, ACH, or online, it enhances the agency’s ability to obtain a payment. Delinquent debt issues would not exist if funds were collected at the point of sale. It is also important to note that most often, state agencies do not have the option to deny services or to perform pre-debt credit checks on customers.

Source: ARCC Strategic Plan



Debtor Demographics State agencies don’t perform credit checks, and some

cannot deny services – how do people pay? Unbanked and Underbanked – 2011 Survey1 Results:

8.2% of the US households were unbanked – this number has increased since 2009.

20.1% of US households were underbanked. 29.3% of US households have no savings account. 10.0% of US households do not have a checking account. 67% of US households have both a savings account and

checking account. 25% of US households have used AFS products (non-bank

check cashing, payday loans, etc.) in the past year. 10% of US Households have used two or more AFS products. 12% of US households have used an AFS in the past 30 days.

(1) 2011 FDIC National SurveyAFS – Alternative Financial Services



Unemployment Rate vs. Collection Dollars Note that the dashed line represents what the FY 2008 collections would have been without the $42 million in Kicker offsets. The chart only reflects a history with the annual unemployment rate as high as 8.1%, as of February 2009 Oregon’s unemployment rate was already 10.8% (preliminary) and expected to go higher. The impact of a potential double digit annual unemployment rate on collections is unknown.

Source: ARCC Strategic Plan March 2009

This is what OAA can do for you – how about the Federal offset?



I.T.

Fiscal Program

Improving agency collection numbers will take a holistic , agency-wide approach.

• I.T. will need to deliver secure technology that may also include telephony solutions (VOIP),

• Fiscal will need to provide guidance on accounting, payment processing, and internal controls,

• Program personnel will need to evaluate their customer needs and requirements to improve agency collection processes.


Collection of the State's Liquidated and Delinquent Accounts Totals for All State Agency Actions:

Total Inventory of Accounts 2008 2009 2010 2011 2012r1 Beginning Inventory $1,575,615,079 $1,747,978,308 $1,983,318,754 $2,150,842,072 $2,449,052,3482 Additions $587,422,281 $658,144,254 712,594,874 $778,465,984 $874,978,4643 Total Available for Collection $2,163,037,360 $2,406,122,562 $2,695,913,628 $2,929,308,056 $3,324,030,812

4 Ending Inventory $1,747,633,841 $1,983,335,024 $2,150,469,669 $2,456,824,790 $2,672,257,978

5 State Agency Inventory (NET) $1,067,020,686 $1,353,363,664 $1,550,129,775 $1,508,234,897 $1,483,351,080State Agency Inventory 61.06% 68.24% 72.08% 61.39% 55.51%Total Account Collections

6 State Agency Collections (NET) $287,521,321 $291,646,457 $309,514,631 $311,131,832 $369,693,443

State Agency Collections 87.71% 89.60% 88.47% 88.32% 89.53%

7 Total State Collections $327,795,578 $325,492,893 $349,845,577 $352,271,297 $412,930,585

8 All Collection Sources 15.15% 13.53% 12.98% 12.03% 12.42%

9 State Agency Collections (NET) 23.31% 22.38% 18.13% 17.35% 20.45%

Breakdown for Other Agency Accounts - Department of RevenueOther Agency Accounts Inventory

10 Beginning Inventory $170,699,153 $209,152,125 $254,174,338 $271,355,355 $328,589,81511 Additions 143,679,040 185,428,410 184,152,839 181,076,931 106,711,91812 Total Available for Collection $314,378,193 $394,580,535 $438,327,177 $452,432,286 $435,301,733

13 OAA Ending Inventory $208,425,479 $255,290,226 $271,370,909 $330,173,972 $256,304,011OAA % Inventory to Total State Inventory 11.93% 12.87% 12.62% 13.44% 9.59%Other Agency Accounts Collections

14 OAA Collections for the State $28,714,962 $24,526,261 $30,128,186 $33,196,037 $28,429,697OAA % of State Collections 8.76% 7.54% 8.61% 9.42% 6.88%


Private Collection Firms Inventory 2008 2009 2010 2011 2012r16 Beginning Inventory $449,508,653 $472,216,933 $358,827,625 $328,968,985 $650,465,55017 Additions 165,649,937 236,280,248 191,792,120 354,589,728 430,547,36018 Total Available for Collection $615,158,590 $708,497,181 $550,619,745 $683,558,713 $1,081,012,910

19 PCF Ending Inventory $472,187,676 $374,681,134 $328,968,985 $618,415,921 $932,602,887PCF % Inventory to Total State Inventory 27.02% 18.89% 15.30% 25.17% 34.90%Private Collection Firms Collections

20 PCF Collections for the State $11,559,295 $9,320,175 $10,202,760 $7,943,428 $14,807,445PCF % of State Collections 3.53% 2.86% 2.92% 2.25% 3.59%

21 Avg Historical Cost of Collections $2,311,859 $1,864,035 $2,040,552 $1,588,686 $2,961,489



Jon DuFrene

Jon DuFrene

Modernizing Government Debt Collection Symposium

Modernizing Government Debt Collection Symposium

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Transcript of Modernizing Government Debt Collection Symposium