Contact: Bevis Ingram, (01962) 84 7508; [email protected]

1 Introduction

1.1 At its meeting on 15 July, the Committee considered the County Council's Final Accounts for 2007/08. The Committee requested a briefing paper on the provision for doubtful debts included in the accounts. This note explains how the provision for doubtful debt was calculated, compares the figure with previous years, details the level of debt outstanding at 31 March 2008 and details progress with that up to the end of September.

1 Doubtful Debt Provision

1.1 As reported in the final accounts report, the County Council's policy is to make provision against a proportion of debts providing to be irrecoverable, partly assessed on the basis of the age profile of outstanding debts but partly based on assessing the risk of specific debts proving to be irrecoverable.

1.2 The provision varies from year to year. The 2006/07 provision for bad debts was approximately £1.7 million, the provision for 2007/08 was approximately £2.3 million; the exact increase, charged to the accounts, was £607,000. The figure was 2005/06 was £2.1 million, so the figure for 2007/08 was not unusually high.

1.3 There were two main reasons for the increase for 2007/08. Firstly the Cipfa accounting SORP 2007 (Statement of Recommended Practice) requires Local Authorities to comply with FRS (Financial Reporting Statement) 26 for the first time (this has been a requirement in commercial accounting since 2006). The specific requirement that impacts on the doubtful debt provision is that it requires Local Authorities to carry out an "impairment assessment" of debts, both individually and collectively. Previously the calculation had been more based on a formula. This new approach - one that should be better - meant that 100% provision was made for a large individual (disputed) debt that had been raised relatively recently that would have been missed by the formula. As it happens, following strong negotiation with the debtor having obtained Counsel's opinion, payment for this debt was received on 3 October.

2 Outstanding debt at 31 March 2008

2.1 The total debt outstanding at 31 March 2008 was £47.7 million, by
30 September 2008 £38.4 million of this had been paid to the County Council. Of the remaining £9.3 million, £3.9 million is secured against deeds of charge on properties (it relates to charges for residential care). This leaves £5.4 million outstanding as at 30 September.

2.2 Approximately £2.5 million of this relates to `large' debts, that is debts over £10,000 each (including £1.1 million for the debt referred to in paragraph 2.3 above, for which payment was received in October). A significant proportion of these are with other public bodies. All of the debts with public bodies and all bar two of the other debts remain unpaid due to an outstanding dispute with the relevant debtor, usually a dispute over the validity of the debt. The two undisputed debts are being paid by instalments. Two of the debts are now subject to legal action, but it should be noted that the courts often frown upon legal action between public bodies, so this is used very much as a last resort.

2.3 The remaining £2.9 million or so relates to approximately 5,400 invoices, raised over several years. Approximately 3,000 of these invoices (£630,000 debt) were raised by schools and are subject to local debt recovery by the school that raised them. Approximately 400 invoices (£450,000 debt) are being collected by instalment payments and approximately 900 invoices (£1 million debt) are the subject of legal action. The remaining 1,100 invoices (£800,000 debt) are being actively pursued (eg by referral to a debt recovery agency, or by trying to resolve disputes relating to the debt).

3 Scale of Debt recovery process

3.1 In outline, the debt recovery process for invoiced debt is as follows. Invoices are raised locally across the County Council. The vast majority of debts are paid without any further action. Should any further action be taken, it will be initiated by schools (in the case of school debt) or by central debtors team in the County Treasurer's department (all other debts).

3.2 All unpaid invoices are subject to automatic system generated reminders at pre determined intervals, invoices still unpaid after this go into a review process.

3.3 Action taken on outstanding debts will then depend on the individual debt's circumstances. Often the raiser of the debt will need to be involved to resolve disputes. As indicated in 3.3 above, further action will include legal action and referral to debt collection and tracing agencies. It can a take a long time before all recovery avenues are exhausted and recovery action must take account of cost factors and value for money and likelihood of success against the size of debt being pursued.

3.4 In total approximately 66,000 invoices are raised in a typical year, amounting to about £160 million of debt to be collected.

3.5 Debt write off is strictly controlled. All departments have a scheme of delegation in place to make recommendations on debts, and the formal write off scheme is subject to regular review. The current scheme was approved by full Council in May 2007 as part of the overall review of financial decision processes and associated limits. In the financial year 2007/08 850 invoices were written off with a total value of £309,000. This is less than 0.2% of debt raised in a typical year.

3.6 A detailed quarterly report on debt statistics, aged debt profile and analysis and details of large debts is reviewed by the Treasurer's Management Team. The regular budget monitoring reports presented to Cabinet include summary information from this and other debt information relevant to the County Council's financial health.

3.7 The County Treasurer's department regularly benchmarks costs of debt collection and performance with other organisations. This is, however, a difficult area as the main cost and performance driver is often the "type" of debt, so useful comparisons can be very difficult.

4 Conclusion

4.1 This report updates the Committee on the provision for doubtful debts, the debt collection process and progress that has been made on debt collection in the past six months of the year and shows that the County Council has robust debt collection processes in place.