Debt recovery and outstanding debt

Report: 07
Date: 20 January 2005
By: Commissioner

Summary

The Accounts Receivable section of Exchequer Services aims to collect all income that is due to the MPA by raising invoices for services provided. This report briefly sets out recent initiatives implemented to recover outstanding debt, provides an examination of the level of debt outstanding and seeks approval from this Committee to write off categories of debt not considered recoverable. The procedure for write off approval is set out in MPA Financial Regulations Section 8 Income Debts and approval from the MPA is part of that process. Sums approved for write off will be set against the provision for bad debt.

A. Recommendation

Members are asked to:

1. Note the reduction in the level of outstanding debt
2. Approve write off of the irrecoverable debt set out in this report

B. Supporting information

1. Invoices raised by Accounts Receivable have business standard 30 day terms. Invoices not settled within these terms become overdue. The value of this outstanding debt is monitored and is a key performance indicator within Resources Directorate.

2. Many invoices, particularly those of high value, are raised against other public organisations and due to scrutiny by the debtor can remain unpaid beyond 30 days. These high value invoices can add disproportionately to the level of debt outstanding.

3. Recognising the need to reduce the level of core and ageing debt, a review was carried out to secure payment or reassess the likelihood of recovery. Included in this process is debt raised prior to the existence of the MPA.

Debt recovery performance

4. Targeted and proactive liaison with key debtors by the accounts receivable credit controllers during the last year has secured a reduction to the level of outstanding debt. This reduction is set against an increasing value of invoices raised.

5. The quarterly value of invoices raised and the value of outstanding debt from April 2002 are set out at Appendix 1. The underlying trend of the value of invoices raised is an increase of 30% annually. The trend for outstanding debt is downward by 23% annually, with a three year low of £3.25 million in October 2004.

Irrecoverable debt

6. A further output from seeking settlement of outstanding invoices is the identification of categories of debt that can be considered irrecoverable. In these cases, where every attempt to secure recovery has been taken, the debt can be approved for write off against the bad debt provision. This provision is currently £1.565 m.

7. Appendix 1 also summarises items identified as irrecoverable or uneconomical to pursue. All items are over one year old and in excess of £10,000.

8. The background and circumstances giving rise to each of the outstanding items are set out below. Members are asked to consider the circumstances of each individual case and grant approval for each of them to be written off.

Government of Antigua and Barbuda

9. The £24,806 due from the Government of Antigua and Barbuda concerns one invoice for enquiries undertaken by officers seconded to Antigua and Barbuda in 1996. Repeated approaches have been made to recover this amount but have not secured payment although the invoice remains undisputed. During the intervening period it has not been considered appropriate for the MPS to instigate legal action against a foreign sovereign government and now legal action would not be possible due to the age of the debt. No other avenues remain open to the MPS to recover a debt, which is now 8 years old.

10. The Metropolitan Police Service has since changed its policy in dealing with overseas bodies and police forces to ensure such problems do not re-occur. Services are now channelled through the Foreign and Commonwealth Office, which pays the MPS directly for any work carried out on behalf of foreign governments.

Harvey Goldsmiths Entertainment

11. The £15,262 debt from Harvey Goldsmiths Entertainment relates to services provided by the MPS at the Mardi-Gras Festival in July 1999. Harvey Goldsmiths subsequently went into liquidation in February 2000. The company is still in administration, but the administrators have indicated that unsecured, non-preferential creditors, such as the MPS are very unlikely to receive any significant funds at the conclusion of the liquidation process. Write off action is therefore recommended for this sum.

Wimbledon Football Club

12. The £29,753 debt from Wimbledon Football Club consists of invoices raised in relation to services provided by the MPS at football matches between November 2002 and May 2003. The company went into administration in September 2003, and an agreement was reached with creditors (in a majority decision opposed by the MPS) in April 2004 that did not provide for any monies due for non-preferential, unsecured creditors and this sum is not now recoverable.

Crystal Palace Football Club (1986) Ltd

13. The £90,155 debt from Crystal Palace Football Club (1986) Ltd, which went into liquidation in March 1999, relates to services provided at football matches prior to March 1999. The liquidation process is still ongoing but creditor meetings with the liquidators have indicated that unsecured, non-preferential creditors are very unlikely to receive any significant value upon the distribution of the companies remaining assets. The £90,155 outstanding is therefore recommended for write-off action.

HM Customs and Excise

14. The figure of £95,516.76 is the aggregation of VAT mistakenly charged on invoices raised for services provided to the Home Office Crime Reduction Team during 2001. This output VAT was paid to HM Customs and Excise (HMCE) as invoices were raised. The Home Office settled the invoices net of VAT. Recovery from HMCE is not possible because the invoices are now over three and half years old and consequently write off action is now required.

15. A designated VAT section has been developed and is now located within Exchequer Services. Invoices raised are now subject to regular VAT checks reducing significantly the likelihood of a similar future recurrence.

Summary

16. All reasonable steps to ensure recovery have been taken in each case and in those cases where companies are in liquidation the write off action will not diminish the Authorities ability to claim for a proportion of any funds that may be obtained for distribution to unsecured creditors at the conclusion of the liquidation process.

C. Equality and diversity implications

There are no new equality or diversity implications associated with this report.

D. Financial implications

The financial implications of this report are that a sum of £255,493.17 will be written off against the Metropolitan Police Service’s Provision for Bad Debt. All the amounts to be written off have been provided for in full in the current provision of £1.565 million. This will reduce the current provision for bad debt to £1.31 million..

E. Background papers

None

F. Contact details

Report author: Paul Daly, Director of Exchequer Services

For more information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

Appendix 1: Analysis of accounts receivable activity and summary of irrecoverable debt recommended for write off

Analysis of invoices raised each quarter and total overdue debt by value at the end of each quarter since April 2002 (£m)

Summary of irrecoverable debt. Identified by debtor with cross reference to report sections.

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