Third Session, Thirty-sixth Parliament

COLLECTION OF OVERDUE ACCOUNTS RECEIVABLE
SEVENTH REPORT

The following electronic version is for informational purposes only.
The printed version remains the official version.

Committee email: ClerkComm@leg.bc.ca

Select Standing Committee on Public Accounts

Seventh Report

Collection of Overdue Accounts Receivable

Third Session
Thirty-sixth Parliament

July 6, 1999

July 6, 1999

To the Honourable,
The Legislative Assembly of
the Province of British Columbia
Victoria, British Columbia

Honourable Members:

We have the honour to present the Seventh Report of the Select Standing Committee on Public Accounts for the Third Session of the Thirty-Sixth Parliament.

This Seventh Report covers the work of the Committee on the matter of Collection of Overdue Accounts Receivable.

Respectfully submitted on behalf of the Committee.

Table of Contents

Composition of the Committee

Terms of Reference

Introduction

Cross-Government Overview of Overdue Accounts Receivable Collection

Collection of Consumer and Real Property Taxes
(Ministry of Finance and Corporate Relations, Revenue Division)

Collection of Defaulted Student Loans
(Ministry of Finance and Corporate Relations, Loan Administration Branch)

Collection of Medical Services Plan Premiums and Ambulance Service Charges
(Ministry of Health)

Collection of Motor Vehicle-Related Fines
(Insurance Corporation of British Columbia, Motor Vehicle Branch)

Collection of Income Assistance Benefits Overpayments and Security Deposits
(Ministry of Human Resources)

Summary of Recommendations

Terms of Reference

May 7, 1998:

That the following reports of the Auditor General of British Columbia be referred to the Select Standing Committee on Public Accounts:

July 23, 1998:

That in addition to the powers previously conferred upon the Select Standing Committee on Public Accounts the Committee be empowered:

and shall report to the House as soon as possible, or following any adjournment, or at the next following Session, as the case may be; to deposit the original of its reports with the Clerk of the Legislative Assembly during a period of adjournment and upon resumption of the sittings of the House, the Chair shall present all reports to the Legislative Assembly.

July 28, 1998:

That reports of the Auditor General of British Columbia deposited with the Speaker of the Legislative Assembly during a period of adjournment during the Third Session of the Thirty-sixth Parliament be deemed referred to the Select Standing Committee on Public Accounts

January 8, 1999:

That the Public Accounts for the fiscal year ended March 31, 1998, be referred to the Select Standing Committee on Public Accounts

Introduction

In November 1998, the Office of the Auditor General issued its third report for 1998/99, entitled "Collection of Overdue Accounts Receivable". That report contained recommendations to government for improving its approach to the collection of overdue debts. The audit examined results in the collection of overdue accounts receivable for the fiscal years 1994/95 to1996/97 inclusive. The Auditor General found that as of September 30, 1997, the provincial government's accounts receivable (defined as amounts due for over 90 days) totaled almost $500 million, and that this represented an increase of almost $266 million since March 31, 1995.

The audit focused upon the success, fairness, timeliness and efficiency of collection processes, as well as on performance accountability to the Legislative Assembly. In addition to conducting a cross-governmental overview and providing a general set of recommendations to the provincial government, the Auditor General also examined the government's major programs for collection of overdue accounts receivable, as follows:

• Ministry of Finance and Corporate Relations, Revenue Division: collection of overdue consumer and real property taxes;
• Ministry of Finance and Corporate Relations, Loan Administration Branch ("LAB"): collection of overdue student loans;
• Ministry of Health: collection of overdue Medical Services Plan premiums and Ambulance Service charges;
• Insurance Corporation of British Columbia - Motor Vehicle Branch: collection of motor vehicle - related fines;
• Ministry of Human Resources: collection of income assistance overpayments and security deposits.

Your committee received submissions from representatives of the Office of the Auditor General, the Comptroller General, as well as the Ministry of Finance and Corporation Relations (Revenue Division and Loan Administration Branch), Ministry of Health, Insurance Corporation of British Columbia (Motor Vehicle Branch), and Ministry of Human Resources.

Cross-Government Overview of Overdue
Accounts Receivable Collection

Office of the Auditor General - 1998/99 Report 3: Collection of Overdue Accounts Receivable:

We believe government should take the following steps:

* Clearly define its objectives for the collection of overdue accounts;

* Determine who will be responsible and accountable for the collection of overdue accounts;

* Implement incentives to encourage effective and efficient collection of overdue accounts;

* Identify appropriate performance measures and establish data-gathering processes required to monitor performance;

* Determine and allocate the resources to do a proper job;

* Monitor actual performance, compare this with benchmarks, and evaluate variances;

* Provide timely information to the Legislative Assembly on performance goals and actual results, including appropriate contextual information.

It was drawn to your committee's attention that debt collection in the public sector differs from collection in the private sector. For example, members discussed the fact that government, unlike the private sector, cannot screen potential debtors before credit is offered. Furthermore, government, unlike the private sector, must consider public policy issues in the collection of overdue accounts receivable. As such, it must take into account factors such as hardship of debtors, and program objectives.

The Comptroller General briefed your committee on the revenue and collections components of the government's "Financial Management Operating Policy". The general policy for accounts receivable specifies actions ministries are expected to take to collect overdue debts, seeks to provide a standard collection process for the provincial government, and promotes prompt and vigorous collection efforts in order to minimize the cost of accounts receivable.

The Comptroller General also provided your committee with a contextual analysis of the growth of overdue accounts receivable in British Columbia. He noted that, while accounts receivable represent 2.7 % of the budget, losses are not significantly out of line when viewed as a percentage of total revenue. The committee also heard that, while overdue accounts receivable did grow considerably from $234 million in March 1995 to $550 million in September 1998, a number of new items were included in that growth. For example, as a result of change of policy in the Ministry of Human Resources, $159 million is now being recorded as accounts receivable that previously was not. Furthermore, due to the Ministry of Health's decision to stop cancelling Medical Services Plan coverage when accounts are overdue by more than 90 days, $41 million in new accounts receivable has been added.

Nevertheless, the committee was informed by representatives of the Auditor General's office that the government's collections programs are generally fragmented, inconsistent and poorly resourced. Of particular concern were the collection programs administered by the Ministry of Health, Ministry of Human Resources and Motor Vehicle Branch. As such, the Auditor General's report contained 7 recommendations to the provincial government regarding how to improve its collection programs. Your committee received an overview of these recommendations from representatives of the Auditor General's office, as well as being apprised of steps taken by the government to address the Auditor General's concerns.

1. Defining objectives

It was the Auditor General's conclusion that government should clearly define its objectives for the collection of overdue accounts.

In this regard, your committee was advised by the Comptroller General that a senior financial management group has been established under the Senior Financial Officers' Council. This group will provide direction to the various revenue-collecting programs by updating policy, developing detailed objectives for key programs, developing a strategic framework for collections, and working in cooperation with ministries to develop business plans and standard collection approaches.

2. Allocating responsibility

The Auditor General also recommended that the government must determine who will be responsible and accountable for the collection of overdue accounts. In particular, the Auditor General found that the advantages to be gained by consolidating at least some of the province's existing collection programs would most likely outweigh the disadvantages. As such, he has called upon the provincial government to determine whether each ministry should be responsible for its own collection, or whether the government should incrementally consolidate its collection activities.

Your committee also notes that this issue has been considered in other jurisdictions. For example, in December 1998 the Public Accounts Committee of the Parliament of New South Wales, Australia studied the consolidation of its government's collection activities, and identified concerns similar to those discussed by the Auditor General. In particular, the following problems may arise when there is no consolidation of government's collection efforts:

• Wasted resources, as often government agencies spends money to pursue the same debtors, and do not share information that would assist in the location of debtors;
• Government agencies do not check whether or not applicants for services have overdue accounts with other government agencies;
• Lack of consistency in debt collection practices across government. For example, some charge interest on overdue amounts, while others do not. As well, policies on waiving debts vary from one agency to another, as do the nature and timing of follow-up action.

As such, the Public Accounts Committee of the Parliament of New South Wales has recommended the establishment of a Central Debt Management Agency ("CDMA") into which all government collection activities, except taxation and fine collection, are consolidated.

Your committee also takes note of the fact that a recent Australian study concluded that government agencies should examine whether or not there should be more referrals to professional financial counselling for those debtors who have demonstrated an inability to pay debts owed to government agencies on a timely basis. The study found that $1 spent on counselling yields $2 in benefits, in that it saves the costs of making repeated demands and is more likely to result in some payment being made.

In response to the Auditor General's recommendation that the government's collection activities be consolidated, the Comptroller General stated that the Loan Administration Branch of the Ministry of Finance and Corporate Relations is in fact already providing many of the services of a central debt collection agency. However, he further advised committee members that ministries will be required to conduct formal cost-benefit analyses in order to determine whether incremental consolidation of collection efforts through the LAB would be the best approach.

Debt Counselling

In British Columbia, the Debtor Assistance Division, which is positioned in the Community Justice Branch of the Ministry of Attorney General, has been providing debtor financial counselling for 24 years. The Division provides a full range of counselling and remedial programs for individuals and families (but not companies, proprietorships or corporations) experiencing financial conflict and hardship. However, your committee was made aware that currently most referrals to the Division come from private firms, and that there is no government referral program.

Representatives of the Debtor Assistance Division have made it known to your committee that integration of the Division's functions with those of government collection programs would be a positive step, particularly with respect to defaulted student loans. However, they have advised that issues including the Division's current resources and staffing (currently 16 full-time employees) would have to be considered.

3. Incentives to collect overdue accounts

The Auditor General's cross-government recommendations included a recommendation that the government implement incentives to encourage effective and efficient collection of overdue accounts. In particular, the Auditor General felt that the government must re-examine the following issues:

How collection of overdue accounts receivable is funded

Committee members were advised that the government's current financial management policies provide insufficient incentives, and often disincentives, for ministries to use the LAB in their collection processes. For example, revenues recovered by the LAB are not credited to the ministry on behalf of which the money is collected. Rather, this money goes directly into general revenue, despite the fact that all ministries must treat collection costs incurred by the LAB as an expense. On the other hand, the Comptroller General informed your committee that vote 67 in the Estimates process provides the authority for ministries to deduct the costs of private sector collection agency services from revenue, such that ministry expenditure budgets are not affected.

The Auditor General also recommended that the government review the options for funding the LAB.

In response to the Auditor General's concerns, the Comptroller General advised that he is working with Treasury Board and the LAB to determine whether the costs of the LAB should be netted against the revenue that is collected, as is done with private sector collection agencies.

The use of private sector collection agencies

The audit also indicated that the government should make use of several private sector collection agencies in order to ensure cost-effectiveness and to assist in developing benchmarks for performance. However, it was noted that private sector collection agencies must be used judiciously, and that government should develop criteria for determining when the use of private collectors is cost-effective.

The committee notes that, as part of its study of the consolidation of government collection efforts, the Public Accounts Committee of the Parliament of New South Wales conducted a survey in 1998. That survey revealed that the annual cost of one private sector collector in New South Wales was $32,000, while the annual cost of one public sector debt collector was $56,000 (Australian dollars).

In response to the Auditor General's recommendations, the Comptroller General noted that consideration is being given to increased use of private sector collectors, and the establishment of appropriate policies and procedures to ensure private collection is carried out appropriately, effectively and equitably. As well, the government is examining the utility of private sector collection agencies in establishing performance benchmarks for its own collection programs.

The collection of debts outside the province

In his report, the Auditor General observed that out-of-province debtors have presented a challenge to the government's collection efforts. As such, he recommended that inter-provincial arrangements be made to support collection of debts owed by those residing outside of British Columbia.

The Comptroller General informed your committee that the government is currently seeking opportunities for inter-jurisdictional cooperation, through reciprocal agreements and information exchanges.

4. Performance measures

In his report, the Auditor General urged the government to identify appropriate performance measures by which to judge its collection programs.

The Comptroller General advised your committee that the government intends to add goals and benchmarks to program business plans, based upon the Treasury Board Secretariat performance measurement logic model, as well as to provide better information on performance in annual reports and in the public accounts. However, your committee discussed the fact that information systems must be enhanced first. In this regard, the Comptroller General advised that his office is proceeding to implement the use of Oracle Financials software.

5. Allocating resources

The audit also revealed that the government must determine and allocate the resources required to do a proper job of collection. An important resource which was identified in the Auditor General's report is information. However, in the course of his audit the Auditor General found that information held by provincial government organizations, which would be useful in debt collection, is not being shared.

The Comptroller General advised committee members that various initiatives are being undertaken to address this issue. For example, information-sharing practices are being reviewed, and an analysis of reallocation of resources is underway. After it is determined which ministries should continue to collect their own overdue accounts receivable, staff from the LAB may be seconded to provide the necessary expertise.

6. Monitoring results

Your committee was further informed that the Auditor General believes that the government must establish appropriate data-gathering processes in order to monitor the performance of its collection programs.

The Comptroller-General told your committee that the senior financial management group established under the Senior Financial Officers' Council intends to follow up with the 5 programs which were the subject of the Auditor General's review, in order to monitor plans, results and variances.

7. Reporting information

It was the Auditor General's final cross-governmental recommendation that sufficient information be provided by ministries to the Legislative Assembly about the collection of overdue accounts, and the costs and benefits of collecting them. In particular, the Auditor General noted that all organizations with collection programs should include basic collection management performance information in their annual reports. He was of the view that this information may be best presented in the form of ratios, with trend analysis for a fiscal period, or in the form of comparisons between fiscal periods over several years.

In response to the Auditor General's recommendation, the Comptroller General informed your committee that collection management performance information will be included in the Ministry of Finance and Corporate Relations' annual report. As well, once a suitable database is established, trend analysis and other comparative information will also be included.

RECOMMENDATION #1

Collection of Consumer and Real Property Taxes

(Ministry of Finance and Corporate Relations, Revenue Division)

Office of the Auditor General, 1998/99 Report 3: Collection of Overdue Accounts Receivable:

* The ministry should determine appropriate performance measures and set clear, measurable goals for its programs for collecting overdue taxes. It should also monitor performance relative to these goals;

* The ministry should use cost-benefit analyses to determine the appropriate level of resources to apply to the collection of overdue taxes;

* The ministry should ensure it has adequate information systems that support effective and efficient tax administration processes by satisfying both operational and management information requirements;

* The ministry should work with other parts of government to ensure collectors have complete access to all sources of information that can help them to collect overdue taxes. This may require a government-wide direction to share information. * The ministry should evaluate the potential benefits and costs associated with the use of private sector collection agencies, to supplement its current programs for collecting overdue taxes;

* The ministry should include, as part of the accountability information it provides to the Legislative Assembly about tax administration, year-to-year comparisons of:

* Number and dollar value of taxpayer defaults during the year;

* Timeliness of collection;

* Costs of programs for collecting overdue taxes;

* Forfeitures and redemptions of previously forfeited property, and

* Balance of overdue accounts at yearend.

The Revenue Division of the Ministry of Finance and Corporate Relations ("the Revenue Division") collects taxes on behalf of the provincial government. The Auditor General's review of the Revenue Division's collection program focused upon the collection of consumer and real property taxes.

The audit revealed that the Revenue Division's collection of overdue taxes is generally well done. For example, over the three-year period covered by the audit, the Revenue Division averaged recovery of 92 cents for every dollar referred to them for collection. As well, the Auditor General found that the efficiency of collection within the Revenue Division was good, and that the costs of collection were only three cents per dollar collected, or approximately $4 million per year.

However, the Auditor General also found that approximately $80 million in overdue taxes remained to be collected by the Revenue Division at the end of each fiscal year for the period reviewed. Furthermore, during that same period the Revenue Division had to write off almost $18 million as uncollectable.

Representatives of the Auditor General's office provided your committee with an overview of areas in which the Revenue Division must improve its collections performance. As well, committee members received submissions from representatives of the Revenue Division regarding actions taken in response to the recommendations.

1. Development of Performance Measures

The Auditor General's report recommends that the Ministry of Finance and Corporate Relations ensure that it has performance measures in place that will provide a succinct assessment of the effectiveness and cost-effectiveness of programs for collecting overdue taxes. The report further states that these measures should include information about recoveries (amount and timing), losses and program costs.

Committee members heard that, in response to the Auditor General's recommendations, the ministry is in the process of developing goals and performance measures for its three collection areas (consumer taxes, real property taxes and income taxes). It was also noted that, while some performance indicators are already used for most of the ministry's collection activities, an information systems enhancement is currently underway which will expand the amount of information that may be measured.

2. Determination of Appropriate Level of Resources

Your committee was made aware that the ministry has not been using cost-benefit analyses to determine the level of resources required to achieve its tax collection objectives.

Ministry representatives advised that the need for additional resources will be reviewed in the annual budget cycle, but that the information systems that are currently in place constrain the level of cost-benefit analysis that can be done. However, your committee was informed that for the fiscal year 1998/99, the Revenue Division has hired one additional employee for consumer tax collection program.

3. Information Systems

The audit revealed that most of the major information systems used by ministry were developed approximately 20 years ago. As a result, these systems do not have the capacity to compile performance management information, and information which would be helpful in monitoring and evaluating the performance of tax collection programs is not available to the ministry.

In this regard, your committee was briefed on the ministry's "CTB21" project to replace its consumer tax information systems with an integrated tax database. This project is currently in its third and final phase, and is expected to cost approximately $25 million by the time it is completed. Furthermore, the committee heard that, although the "Year 2000" project is a large draw on the ministry's systems resources at the moment, projects are also being planned for the real property tax and the property transfer tax information systems.

4. Information-Sharing

In his report, the Auditor General took note of the fact that the more information tax collectors have at their disposal, the greater the probability of recovering overdue taxes. However, the report also stated that the custodians of some government databases have been reluctant to share information with other government organizations due to privacy concerns.

Ministry representatives advised that, in response to the concerns raised by the Auditor General, discussions with other areas of government and with Revenue Canada have been held. As a result, the property transfer tax branch is considering the use of Revenue Canada's set-off program for first-time home buyers. As well, the Revenue Division plans to pursue access to additional available information, within legislative limits. Finally, your committee heard that the ministry has encountered barriers to accessing some government systems, and therefore would welcome a government-wide direction for more information-sharing.

5. Use of Private Sector Collection Agencies

In the course of his audit, the Auditor General found that the Revenue Division of the Ministry of Finance and Corporate Relations, unlike several other government debt collection programs, does not currently use private sector collection agencies. The Auditor General is of the view that the use of private sector agencies would be effective in supplementing the ministry's resources, and would encourage the ministry to evaluate the costs and benefits associated with using such agencies.

Your committee was informed that, in response to the Auditor General's recommendation, the Consumer Tax Branch has commenced analysis of the potential use of private sector collection agencies, and is also examining the feasibility of a pilot project to evaluate costs and benefits of private agency use. This analysis is expected to be complete in June 1999. However, it was noted that the use of private sector collection agencies would have to be considered in the context of ensuring that taxpayers' information remains confidential.

6. Reporting to the Legislative Assembly

Lastly, in his report the Auditor General recommended that the ministry include more year-to-year comparison information regarding collection programs in its annual reports to the Legislative Assembly.

Your committee was made aware that the ministry is reviewing the extent of information that is available from existing information management systems, and will be determining what additional information may be included in the ministry's annual report.

RECOMMENDATION #2

Collection of Defaulted Student Loans

(Ministry of Finance and Corporate Relations, Loan Administration Branch)

Office of the Auditor General - 1998/99 Report 3: Collection of Overdue Accounts Receivable:

The branch should be provided with the necessary legal tools and information to collect money owed to the government by provincial government employees;

* The ministry should establish specific measurable goals for the branch, along with performance benchmarks and targets for cost-effectiveness of collection;

* The ministry should ensure collectors have complete access to all sources of information that can help them to collect overdue loans. This may require a government-wide direction to share information;

* The government should review the method of funding the Loan Administration Branch, as well as the method for accounting for commissions paid to collection agencies, to ensure that decisions about how (or by whom) collection of overdue accounts are managed reflect the best interests of government as a whole, not just the best interests of one ministry;

* The ministry should include, as part of the accountability information it provides to the Legislative Assembly about the branch's activities, year-to-year comparisons of:

* New debt referred for collection during the year;

* Recoveries and write-offs;

* Timeliness of collection;

* Costs of collection programs, and;

* Balance of overdue accounts at yearend.

The Loan Administration Branch ("LAB") collects defaulted loans on behalf of provincial ministries, but its most significant portfolio is the collection of defaulted student loans that the government has guaranteed. Student loans collected by the LAB are those which banks have been unable to recover, and as such are extremely difficult to collect.

Representatives of the Auditor General's office informed committee members that, at March 31, 1997, the LAB had a portfolio of $99 million in student loans under collection. Your committee also heard that in the fiscal year 1996/97, the LAB collected $13 million, but had to write off $7 million as uncollectable.

Your committee was briefed by representatives of the Auditor General's office regarding recommendations for improvementto the LAB's collection program. As well, the committee received submissions from LAB representatives regarding progress made to date in implementing the Auditor General's recommendations.

1. Collection from Provincial Government Employee Debtors

The Auditor General's review indicated that there is currently some inequity in the LAB's collection processes. Your committee was made aware that the Employment Standards Act, R.S.B.C. 1996, c. 113 prohibits all employers from collecting debts owed to them by their own employees by a set-off of wages. Furthermore, the LAB is unable to use the third-party demand provision contained in section 83 of the Financial Administration Act, R.S.B.C. 1996, c. 138 to collect debts owed by provincial government employees. In particular, section 83(1) of the Act provides that:

"If a person ("the debtor") owes money to the government, and the Minister of Finance and Corporate Relations receives information that another person ("the third party") is or is about to become indebted to the debtor, the Minister of Finance and Corporate Relations may demand of the third party that all or part of the money payable by the third party to the debtor be paid to the Minister of Finance and Corporate Relations on account of the debtor's liability to the government."

The combined effect of these provisions is that the provincial government cannot collect debts owed to it by its own employees. This includes not only student loan defaults, but also many other accounts receivables streams, such as motor vehicle fines.

Also, because officials in the Ministry of Finance and Corporate Relations are unwilling to provide the LAB with personal information about provincial government employees, the branch is unable to direct third-party demands to banks and credit unions in order to recover money owed by employees.

Committee members were advised that the LAB is currently seeking an equitable process by which to resolve this issue. In particular, options such as legislative amendment and more information-sharing are currently being discussed with the Public Sector Employee Relations Commission.

2. Establishing Measurable Goals

Your committee was advised by representatives of the LAB that the branch's business plan provides specific, measurable goals for collection, and that performance is routinely measured. However, it was the view of representatives of the Auditor General's office that the branch's development of specific measurable goals with performance benchmarks and targets was incomplete at the time of the audit. In this regard, representatives of the LAB noted that they would welcome input from the Ministry of Finance and Corporate Relations regarding performance expectations. 3. Access to Information, and Information-Sharing In his report, the Auditor General stated that there is a need for better cooperation across government in order to facilitate improved collection of overdue accounts receivable. In particular, he found that to assist the LAB in its location of debtors, there is a need for better information-sharing across government. However, the Auditor General's report also noted that such information-sharing should take place within the limits of the Freedom of Information and Protection of Privacy Act, R.S.B.C. 1996, c. 165.

Committee members were advised that the LAB is in agreement with the Auditor General's recommendation, and would like to see a government-wide direction to share information to assist in effort to locate debtors and determine their ability to pay.

4. Funding the Loan Administration Branch and Accounting
for Commissions Paid to Collection Agencies:

The Comptroller General advised your committee that the LAB now provides collection services for thirteen programs in seven different ministries, as well as for the B.C. Securities Commission. This represents 66,000 different accounts, totaling approximately $145 million.

However, as discussed above in this report in "Cross-Government Overview", your committee was made aware that there is currently a disincentive for ministries to use the LAB's collection services. Ministries using the LAB's services must pay from their budgets for services provided by the LAB, whether collection is successful or not. However, when private sector collection agencies are used, ministries budgets are unaffected because the costs are charged to vote 67, and amounts recovered go into the government's general revenue.

Your committee was informed that the Office of the Comptroller General and Treasury Board staff are currently reviewing the issue to find a solution which will provide the recommended incentives to ministries to use the LAB's collection services.

5. Reporting to the Legislative Assembly

The Auditor General expressed some concern in his report that neither the Ministry of Finance and Corporate Relations' annual report, nor the Public Accounts report, contains information about the value of accounts written off or extinguished, the revenues and costs associated with the collection of overdue accounts, or the costs associated with using collection agencies for the collection of some defaulted loans. As such, he recommended that the ministry should include more year-to-year comparative information regarding collection programs as part of the accountability information it provides to the Legislative Assembly.

Committee members were advised that the LAB is now able to provide the Legislative Assembly with information regarding year-to year comparisons of its collection program's performance in the Ministry of Finance and Corporate Relations' annual report. For example, the ministry is able to provide a five-year comparison of the LAB's operations, which will include information regarding overdue accounts receivable collected, the costs of collection programs and the balance of overdue accounts at year-end.

6. Other Initiatives

The Comptroller General advised your committee that British Columbia is the first jurisdiction in Canada to work with Revenue Canada's income tax set-off program for student loans. As a result of this work, $330,000 in overdue student loans was collected between July and December 1998. Due to the success of this program, federal tax set-offs may be used to collect other overdue accounts receivable owed to the provincial government, such as Medical Services Plan premiums, income assistance overpayments and property transfer taxes.

RECOMMENDATION #3

Collection of Medical Services Plan Premiums
and Ambulance Service Charges

(Ministry of Health)

Office of the Auditor General - 1998/99 Report 3: Collection of Overdue Accounts Receivable:

* The ministry should review program alternatives, including options of consolidating the ministry's requirements with other government collection programs or expanding the use of private sector collection agencies;

* The ministry should determine appropriate performance measures and set clear, measurable goals for its collection program. It should also monitor performance relative to these goals;

* The ministry should use cost-benefit analyses to determine the appropriate level of resources to apply to the collection of overdue health care premiums and service charges;

* The ministry should include, as part of the accountability information it provides to the Legislative Assembly, year-to-year comparisons of:

* Number and dollar value of health care premium and service charge payment defaults during the year;

* Recoveries and write-offs;

* Timeliness of collection;

* Costs of collection programs, and

* Balance of overdue accounts at yearend.

The Ministry of Health collects payments for both Medical Services Plan premiums, and for Ambulance Service charges.

Your committee was told that, at March 31, 1997, the ministry was owed approximately $8 million in overdue Ambulance Services, and $30 million in overdue Medical Services Plan premiums. It was noted that the increase in overdue Medical Services Plan premiums is a significant increase over the previous fiscal year, and is attributable to a policy change effective May 1996, whereby failure to pay premiums no longer results in lapse of coverage. Prior to this policy change, coverage was cancelled if premiums remained outstanding for more than 90 days and there was no application for premium assistance. The Auditor General also advised committee members that most of the debt owed to the ministry for Ambulance Services charges is 90 days or older, and in fact almost 50% of such debt is over one year old.

Representatives from the Auditor General's office provided your committee with an overview of the recommendations made as a result of the audit. As well, representatives of the Ministry of Health appeared before the committee in order to report on its response to the recommendations.

1. Alternative collection approaches

Your committee was made aware that the ministry's collection program is inefficient, and historically has lacked adequate legal tools, information systems, and staff numbers.

Moreover, the audit revealed an element of unfairness in the way interest is charged on overdue Medical Services Plan premiums. In particular, the Auditor General noted that while interest is charged on overdue premiums owed by employers' group plans, the Medical Services Plan registration and billing system is unable to charge interest to individuals for overdue premiums. As such, the Auditor General recommended that the ministry review program alternatives, including options of consolidating the ministry's requirements with other government collection programs or expanding the use of private sector collection agencies.

Your committee was made aware that in response to the Auditor General's recommendations, the ministry has entered into an agreement with the LAB for the collection of overdue premiums, which will include the issuance of third party demands pursuant to the Financial Administration Act, R.S.B.C. 1996, c. 138. Moreover. the ministry has facilitated amendments to the Medicare Protection Amendment Act, R.S.B.C 1996, c. 286, by providing the Medical Services Commission with stronger authority to recover premiums by requiring third parties to collect and remit arrears, including interest (Section 32), and by granting MSP-certified debt the weight of a court judgement (Section 8). Finally, the ministry is considering the feasibility of using the Revenue Canada set-off program to collect overdue premiums.

Committee members were further informed that the ministry is in the process of working with the Loan Administration Branch to implement a progressive collection strategy for both individual and group premium payers under the Medical Services Plan. As well, the ministry has commenced a province-wide pilot project involving the assignment of collection of overdue premiums to a private sector collection agency. The collection agency which has been chosen will be paid a commission of 23%, based upon the success of its recovery efforts. The project is scheduled for completion by December 1999, and the committee has requested that ministry representatives re-attend at that time in order to provide a report regarding its success.

2. Performance Measures, Goals and Monitoring

Your committee discussed the fact that the ministry has not established measurable outcomes and reliable measurement processes for the collection of overdue accounts receivable. Committee members were advised by representatives of the Auditor General's office that, while the ministry does have a performance goal relating to bad debt write-offs for Ambulance Service fees, this goal had never been formally documented. Moreover, some concerns were expressed in the Auditor General's report regarding the timeliness of Ambulance Service billing.

Ministry representatives informed your committee that a formalized and documented goal for Ambulance Services accounts has been established, whereby bad debt write-offs are not to exceed 10% of billed revenue. As well, to improve the timeliness of collection for ambulance bills, the time frame for sending out initial bills has been reduced by 18 days.

However, committee members were made aware that, because British Columbia is the only province which bills for ambulance services, it is difficult to determine whether the 10% bad debt write-off benchmark is a reasonable target. As such, the ministry plans to monitor this target over a number of years, and conduct appropriate cost-benefit analyses, in order to determine its feasibility.

3. Cost-Benefit Analyses to Determine Level of Resources

In his report, the Auditor General also recommended that the ministry must conduct cost-benefit analyses in order to determine the appropriate level of resources to apply to the collection of overdue accounts receivable.

With respect to Ambulance Services fees, your committee heard that the ministry plans to examine how much additional collection activity would be justified, in light of the relatively low cost of such services (the basic fee for Ambulance Services is $54 for the first 40 kilometres, plus $0.50 per kilometre thereafter up to a maximum of $274). However, it was brought to the committee's attention that the current costs of collecting Ambulance Services fees are relatively low in relation to the amounts collected.

As well, the ministry has undertaken analyses to determine the appropriate level of resources to be applied to the collection of overdue Medical Services Plan premiums. As a result, the ministry is strengthening the wording in its collection letters to identify measures which will be taken if payment is not made. The ministry is also working with the LAB to use the third party demand provision of the Financial Administration Act for collection, and now has more effective legal tools in place to facilitate collection. However, your committee notes, as discussed above regarding collection of overdue student loans by the LAB, that this provision may not be used to collect overdue premiums or Ambulance Services fees from provincial government employees, unless the branch is provided with information that allows it to contact the banks and credit unions used by government employees.

Your committee also heard that a new unit has been established to manage the de-enrolment of those who may no longer be eligible for coverage (due to moving out of the province), or who may be eligible for premium assistance or group coverage. This initiative is expected to reduce the amount of premium arrears and accounts receivable, which the Auditor General felt may be overstated. However, it was brought to your committee's attention that identifying those who may be eligible to receive premium assistance is a challenge, because currently the ministry is unable to gain access to income information without individuals' consent and social insurance numbers.

Your committee also discussed the costs and benefits of more actively pursuing the settlement of overdue accounts, in order to avoid incurring the costs associated with referring collection to private agencies or to the LAB. In this regard, committee members heard that there were concerns that this may create a disincentive to timely payment. However, the Comptroller General did advise committee members that a cost-benefit analyses of alternative collection measures is currently in progress, and that options for promoting settlement will be examined.

4. Reporting to the Legislative Assembly

Finally, representatives of the Auditor General's office advised committee members that there is insufficient program information provided by the Ministry of Health to the Legislative Assembly, and noted that at the time of the audit the most recent annual report tabled by the ministry was three years old.

Ministry representatives advised that the ministry will be providing additional accountability information, including year-to-year comparisons of its collection programs, in its annual reports to the Legislative Assembly. As well, the committee was pleased to hear that the ministry is now current in its annual reports.

RECOMMENDATION #4

Collection of Motor Vehicle-Related Fines

(Insurance Corporation of British Columbia, Motor Vehicle Branch)

Office of the Auditor General - 1998/99 Report 3: Collection of Overdue Accounts Receivable:

* The corporation should develop a strategy for collecting unpaid fines in order to establish confidence in the effectiveness of the motor vehicle-related fines system.

* The corporation should prepare a business plan that identifies the cost-effectiveness of collection alternatives. This plan should be used to obtain the necessary resources to provide cost-effective collection of unpaid fines.

* In the short term, the corporation should develop strategies, including specific objectives, to eliminate the backlog of long-outstanding fines.

* The corporation should refer accounts to collection agencies based on cost-effectiveness.

* The corporation should include, as part of the accountability information it provides to Members of the Legislative Assembly, year-to-year comparisons of:

* The number and dollar value of unpaid fines referred for collection during the year;

* The results of its efforts to collect unpaid fines;

* The costs it incurs collecting those fines, and

* The balance of unpaid fines at yearend.

The Motor Vehicle Branch was merged with the Insurance Corporation of British Columbia ("ICBC") in November 1996. As such, responsibility for the collection of overdue motor vehicle-related fines was transferred from the Ministry of Transportation and Highways to ICBC at that time.

Representatives from the Auditor General's office briefed your committee on the results of the audit, and the recommendations made to ICBC. As well, the committee received submissions addressing ICBC's response to the Auditor General's recommendations.

Committee members were made aware that, at March 31, 1997, the government was owed more than $136 million in fines for various minor offences, most of which were motor vehicle-related.

1. Completeness and Timeliness of Collection

Your committee learned that, although the government started imposing fines for motor vehicle-related fines in 1990, between 1990 and 1994 there was no active collection program. Therefore, during that period of time, the balance of unpaid fines was increasing by approximately $1 million per month. In particular, the Auditor General found that a significant number of debtors owe more than $2,000, while a few owe between $10,000 and $14,000. The age of overdue accounts receivable was also found to be problematic: more than 50% of the fines owing are more than two years old, while more than 20% are over five years old. However, pursuant to the Limitations Act, R.S.B.C. 1996, c. 266, fines over ten years old cannot be pursued by legal action.

Representatives of the Auditor General's office informed your committee that, although collection of fines has improved since ICBC assumed responsibility for the Motor Vehicle Branch in November 1996, ICBC will require additional resources if it is to improve its collection program. The Auditor General was of the view that the corporation should develop a business plan identifying the cost-effectiveness of collection alternatives, including strategies to address the backlog of unpaid fines.

In this regard, ICBC representatives advised your committee that its short-term strategy to address debt collection has been to implement a Customer Account Management system ("CAM") to link fine payment to motor vehicle insurance renewal. It is expected that this will address the problem of debtors waiting until renewal of drivers' licences (generally every 5 years) to pay fines. In May 1998 the second phase of the system was implemented, such that ICBC's motor vehicle insurance database was partially connected with the accounts receivable database. This has given ICBC the ability to establish a "refuse to issue" policy where those seeking insurance have outstanding fines. Committee members heard that, as of January 31, 1999 an additional $15 million in outstanding fines was collected as a result of this blended database. Implementation of the third and final phase of the CAM system is expected for July 1999. It is the hope of ICBC that this initiative will effect long-term behavioural changes in the timeliness with which fines are paid.

2. Efficiency of Collection

The Auditor General's report also pointed to the fact that ICBC's use of private sector collection agencies has been limited to one particular agency, and that matters have been referred to that agency without the use of standard criteria, such as age of accounts receivable, or likelihood of collection. As such, the Auditor General was of the view that ICBC should use cost-benefit analyses to evaluate resourcing alternatives, and should refer accounts to collection agencies based upon cost-effectiveness.

In their submissions to the committee, ICBC representatives advised that criteria have been identified for referral of matters to the collection agency. In particular, the corporation is referring to the agency the overdue accounts of all debtors for whom the CAM system will be ineffective (those debtors who are not registered owners of motor vehicles, or who do not have drivers' licences), along with all out-of-province debt, aged debts and debts which are approaching the end of the 10-year limitation period.

3. Fairness

The Auditor General's report raised concerns about the fairness with which ICBC treats debtors. Of particular concern is the fact that some debtors have been able to ignore fines, due to ICBC's inability to issue notification and demand letters in a timely manner. For example, the audit revealed that ICBC was sending out 6,000 "dunning letters" each week, informing debtors of amounts owed and the consequences of non-payment. However, given the backlog of unpaid fines, ICBC representatives were of the view that they should have been issuing 25,000 letters per week.

ICBC representatives told your committee that, in response to the Auditor General's concerns, the collections program is now sending out 15,000 dunning letters per week. While there is currently a high rate of returned mail, it is expected that once the CAM system is fully implemented ICBC collectors will be able to cross-reference addresses in the ICBC and Motor Vehicle Branch databases. Moreover, since May 1998 fines owing have been displayed on notice-to-renew insurance documents. Currently, 12,000 such notices are sent out each week. These initiatives have resulted in an additional $15 million fine revenue since their implementation.

4. Management goal-setting and monitoring

Representatives of the Auditor General's office informed committee members that ICBC must develop performance measures, set goals and monitor progress. In particular, the Auditor General's report noted that the accuracy, reliability and timeliness of information from ICBC's accounting system is questionable.

ICBC representatives submitted to your committee their view that the new CAM system, once fully implemented, addresses this concern by allowing ICBC to generate reports with more detailed information, to integrate collection and reporting capabilities, and to identify the true number of fine accounts.

5. Collection Processes

In response to the Auditor General's conclusion that ICBC's collection program is not adequately resourced, your committee was advised by ICBC representatives that over 900 Autoplan agents in the province serve as resources for fine collection. When customers attend at agents' offices to purchase motor vehicle insurance, agents are unable to proceed with the transactions if there are outstanding fines. If such fines are then collected by the agents, the block on the computer system is lifted and transactions can then be processed.

However, the committee takes note of the Auditor General's observations that this is only effective for registered owners of motor vehicles. Currently, vehicle owners registered in British Columbia represent only 35% of debtors, and only 51% of debtors have valid drivers' licences.

6. Reporting to the Legislative Assembly

The Auditor General informed was of the view that the corporation must provide more accountability information, including year-to-year comparative information regarding the performance of its collection program, to the Legislative Assembly. In this regard, your committee heard that ICBC's new CAM system will enable it to amalgamate information more effectively and report such information.

RECOMMENDATION #5

Collection of Income Assistance Benefits
Overpayments and Security Deposits

(Ministry of Human Resources)

Office of the Auditor General - 1998/99 Report 3: Collection of Overdue Accounts Receivable:

* The ministry should continue development of programs that will ensure that, to the extent reasonably possible, debts related to social assistance are collected. We recognize the difficulties involved in doing so, but believe that if there is a perception the ministry will not pursue debts, then avoidance may become widespread;

* The ministry should review program alternatives, including options for consolidating the ministry's requirements with other government collection programs or expanding the use of private sector collection agencies;

* The ministry should determine appropriate performance measures and set clear, measurable goals for its programs for collecting overdue accounts. It should also monitor performance relative to these goals.

* The ministry should use cost-benefit analyses to determine the appropriate level of resources to apply to the collection of overdue accounts;

* The ministry should include, as part of the accountability information it provides to the Legislative Assembly about social assistance programs, year-to-year comparisons of:

* Number and dollar value of overpayments and other accounts referred for collection during the year;

* Recoveries and write-offs;

* Timeliness of collection;

* Costs of collection programs, and

* Balance of overdue accounts at yearend.

As part of the income assistance offered to British Columbians by the Ministry of Human Resources, debts owing to the province may arise as a result of assistance overpayments. As well, the ministry provides security deposits to landlords on behalf of income assistance recipients, and there are considerable debts owed to the province resulting from failure to return these deposits following the termination of tenancies.

Your committee was advised by representatives of the ministry that its clients are required to sign assignment and repayment agreements to ensure that they are accountable for funds received from the ministry, and to maximize recovery of money owed to the ministry. Assignment agreements ensure that money due from third party sources, such as Canada Pension and Workers Compensation, are received by the ministry and applied to client debt. Repayment agreements ensure that clients repay prescribed benefits such as security deposits, hardship assistance or overpayments. The Auditor General's review focused upon this latter category of accounts receivable.

Representatives of the Auditor General's office provided your committee with an overview of the audit results and recommendations made to the Ministry of Human Resources regarding the collection of income assistance overpayments and security deposits. As well, committee members heard from representatives of the ministry regarding steps taken to address the concerns identified in the Auditor General's report.

In particular, committee members heard that, at March 31, 1997, the Ministry of Human Resources was owed about $134 million for income assistance overpayments and security deposits, $101 million of which is considered to be uncollectable.

However, your committee recognizes that the collection of overdue accounts receivable in the Ministry of Human Resources differs from collection in other program areas, due to the fact that the ministry is the payer of last resort for individuals lacking in income or assets. As such, the ministry must balance the necessity of collection with the need to maintain clients' income levels.

1. Development of Collection Programs and Collection Alternatives

Security Deposits on Terminated Tenancies

The Auditor General's report notes that, at March 31, 1997, the balance of security deposit receivables, before the allowance for doubtful accounts, was approximately $34.4 million.

Committee members were informed that, prior to August 1997, the ministry attempted to collect security deposits directly from landlords by obtaining assignments of debts. However, security deposits must now be collected from landlords by clients, and repaid to the ministry pursuant to repayment agreements. Representatives from the ministry advised your committee that this new collection approach is expected to enhance clients' accountability.

Income Assistance Receivables

The Auditor General's report noted that receivables for income assistance overpayments, before the allowance for doubtful accounts, were $89.5 million at March 31, 1997. Furthermore, although a pilot project was commenced in September 1996 to refer accounts closed as of that date to a private collection agency, there had been no collection activity for files closed after September 1996. These files represent approximately $15.6 million.

In response to concerns identified in the Auditor General's report, committee members heard that the ministry has developed a new collection strategy for the 1999/2000 fiscal year which will address the collection of both security deposits and income assistance overpayments. The new strategy has three elements:

An in-house call centre will be established this year;

Former clients will be notified by mail of their debt, and will be asked to call the centre to arrange re-payment. If there is no response after two letters, the file will be assigned to a private sector collection agency;

Legal action will be taken if required.

2. Performance Measurement, Goal-setting and Cost-Benefit Analyses

In response to the Auditor General's concern that the ministry must develop clear objectives and benchmarks for its collection program, ministry representatives advised your committee that they are currently working with the Internal Audit Branch of the Office of the Comptroller General in order to develop goals and monitor performance of the new collection program.

3. Cost-Benefit Analysis to Make Accounts Receivable Resourcing Decisions

Committee members were made aware that the Auditor General is of the view that the ministry must conduct cost-benefit analyses to determine and provide appropriate resources to achieve its goals, and to evaluate alternatives for service delivery. The audit revealed that collecting debts in this environment is difficult and expensive in relation to returns For example, the audit revealed that a pilot project commenced by the ministry in September 1996, whereby files closed at that date were referred to a private collection agency, had cost the ministry $186,232. However, the amount recovered by the agency was only $345,158 - a disappointing result when viewed in light of the collection costs.

In this regard, committee members heard that an ongoing cost-benefit analysis will be part of the ministry's new collection program, and that the ministry is working with the Internal Audit Branch of the Office of the Comptroller General to determine minimum collectable debt levels.

4. Reporting to the Legislative Assembly

Although the ministry, in its annual reports, does identify amounts of security deposits which are collectable, and amounts of income assistance overpayments and security deposits actually collected for the year, the Auditor General was of the view that the ministry needs to provide more year-to-year comparative information to the Legislative Assembly regarding its collection program. Ministry representatives told the committee that, in response to the Auditor General's concerns, details regarding receivables, recoveries and write-offs will be provided in the ministry's future annual reports.

RECOMMENDATION #6

Summary of Recommendations

RECOMMENDATION #1

RECOMMENDATION #2

RECOMMENDATION #3

RECOMMENDATION #4

RECOMMENDATION #5

RECOMMENDATION #6

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