Debt Write-off Policy

For questions or comments, please contact us :
NC-CFOB-Financial_Policy_Questions_Politique_Financière-GD

Date Last Revised:
September 2010

Please Note: This policy/document is currently under review and is being updated to reflect new procedures and terminology associated with the implementation of myEMS (SAP)

Table of Contents

CONTEXT 

  1. POLICY OBJECTIVES
  2. POLICY STATEMENTS
  3. APPLICATION
  4. POLICY REQUIREMENTS
  5. ROLES AND RESPONSIBILITIES
  6. DELEGATIONS OF AUTHORITY
  7. MONITORING AND COMPLIANCE
  8. DEFINITIONS
  9. REFERENCES

 

 

CONTEXT

The Treasury Board Secretariat's Directive on Receivables Management requires departments to promptly record amounts owing to the Crown in departmental accounts and to vigorously pursue collection of the debts. Departments must also implement recovery policies which are fair and take into account the debtor's ability to pay. There will always be situations where a debtor is not able to repay a debt and situations where the department has taken all recovery action available to it but is still unable to collect an amount owed. The TBS Directive on Receivables Management requires departments to delete uncollectible debts from the books of account on a timely basis.

It is important to distinguish between the different methods of deleting a debt owed to the Crown from the books of account. This policy deals with the action of write-off and it applies to all amounts owed to the Department. It provides an overview of the other methods of deleting accounts for general information.

1. POLICY OBJECTIVES

To provide an accurate reflection of the accounts receivable portfolio in the departmental financial statements by removing uncollectible debts from the books of account in a timely fashion.

To ensure efficient management of accounts receivable by removing non-performing debts from the active inventory, thereby concentrating accounting and recovery processes on debts with potential for repayment.

To ensure that debts are deleted under the appropriate authority, only when it is appropriate to do so, and in a consistent and fair manner.

2. POLICY STATEMENTS

It is departmental policy to write off uncollectible debts from the active inventory of accounts receivable after all reasonable collection action has been taken.

No debt will be written off where there is a possibility of collecting part or all of it, now or in the foreseeable future and where cost-effective to do so. The potential to recover the debt through set-off will be considered before it is written off.

Debts may only be written off where there is a specific legal authority permitting the write-off.

A debt will not be written off when it is more appropriate to forgive or remit the debt.

All debts shall be recorded in the departmental accounts receivable ledger prior to being written off, even where it has been determined not to pursue recovery of a debt at the time the debt is established.

All amounts written off in a year are to be reported in the department's financial statements under the appropriate write-off authority.

All accounts submitted for write-off are to be properly documented and approved by the appropriate delegated authority.

3. APPLICATION

This policy applies to Human Resources and Skills Development Canada (HRSDC) including Service Canada hereafter referred to as the “Department” or Departmental.

4. POLICY REQUIREMENTS

4.1 Statutory Authority

Statutory authority is required to write off a debt from departmental accounts.

4.2 Financial Administration Act (FAA)

Section 25 of the FAA is the general authority for write-off but does not apply where there is other legislation providing for the write-off of a particular type of debt.

The Debt Write-off Regulations, 1994 (referred to as the FAA regulations) outline the conditions for writing off debts that are subject to section 25 of the FAA. This applies to all amounts owed to the Department unless otherwise noted below, and specifically to:

4.2.1 External Approvals Required for Write-off

Non-budgetary debts, i.e. those which have not yet been charged to an appropriation, need parliamentary approval in the form of an appropriation or other act before they can be written off, in accordance with subsection 25(2) of the FAA. This applies to:

Employment-related debts: In accordance with section 5 of the FAA regulations, debts owed by employees may not be written off without prior approval of Treasury Board. This applies to overpayments of salaries, wages, and other employment-related allowances. As these debts are to be recovered from subsequent payments to the employee, there should not be many cases of write-off. Debts established after employment has terminated and all termination benefits have been paid to the former employee do not require Treasury Board approval for write off.

Debts owed by municipal, provincial or foreign governments may require approval of other Ministers before they are written off.

4.2.2 Exceptions to FAA Write-off Authority

Debts owed by Crown corporations are excluded under paragraph 3(c) of the FAA regulations from the FAA write-off authority. The only authority for deleting these debts is forgiveness under section 24.1 of the FAA (see 4.2.3 below).

Debt deletion is not applicable to debts owed by other government departments. These claims are internal transactions to the government and not legal debts. Where the claim can be substantiated, it must be paid. Otherwise, the entry to establish the debt is reversed.

4.2.3 Other Methods of Debt Deletion under the FAA

Where it is appropriate to release the debtor from the obligation to repay a debt, the debt may be forgiven under the following FAA authorities.

Forgiveness - Section 24.1 of the FAA permits non-budgetary debts, i.e. debts not yet charged to an appropriation such as loans and advances, and debts owed by Crown corporations to be forgiven provided the forgiveness is approved by Parliament by means of an appropriation or other Act (and the debt becomes a budgetary expenditure).

Remission - For debts not covered by section 24.1, i.e. where the debt has been charged to an appropriation and is not a debt owed by a Crown corporation, the FAA permits forgiveness by remission of the debt under sections 23 and 24. Remission may only be granted if the criteria in subsection 23(2.1) are met: collection of the debt is deemed unreasonable or unjust or not in the public interest. A remission may result in an amount being refunded to the debtor from the Consolidated Revenue Fund where the debt, or part of the debt, has already been recovered. Remission under the FAA requires a submission to Treasury Board and approval by the Governor-in-Council.

4.3 Employment Insurance Act

Debts under the Employment insurance (EI) Program, both Part I and Part II, are written off under the authority of paragraph 54(k) of the Employment Insurance Act and section 56 of the Employment Insurance Regulations. EI debts may not be written off under the FAA regulations.

Overpayments related to a benefit period before June 30, 1996, are written off in a similar manner but under section 60 of the former Unemployment Insurance Regulations. Interest on misrepresentative UI debts is written off under the FAA.

Where it is more appropriate to forgive the debt than to write it off, the FAA remission process may be used for EI debts. It is expected that this will occur only in rare situations and mainly in relation to a class of debtors rather than to individual debtors.

4.4 Canada Pension Plan and Old Age Security Act

Income Security Programs (ISP) include the Canada Pension Plan (CPP) and Old Age Security (OAS) and related programs.

ISP debts are generally recovered through set-off from future payments as most ISP benefits are recurring. ISP legislation allows the set-off between ISP programs for debt recovery. In recognition of the fact that some debts will not be collectible, ISP legislation also provides for the deletion of debts through remission. All reasonable efforts to recover the debt must be attempted before remission is considered. A remission under ISP legislation serves to forgive a debt, similar to the effect of a remission under the FAA, so that the debt cannot be reinstated later for collection. The ISP remission process, however, is less onerous than the FAA remission process.

There is no provision in the ISP legislation for writing off a debt. ISP debts may be written off under the FAA write-off authority rather than being remitted under the ISP remission authority, if appropriate, although this is not expected to occur frequently.

Subsections 66(3) of the Canada Pension Plan (CPP) and 37(4) of the Old Age Security Act provide for remission of CPP and OAS debts under the specific conditions outlined below in section 6.4.4. These conditions are similar to the conditions for write-off under the FAA and the EI Act.

4.5 Summary Chart

Summary of Debt Deletion Actions

Action Authority Application
Release debtor from obligation to pay
Forgiveness FAA section 24.1
Requires appropriation or other parliamentary approval.		 Debts that were non-budgetary
Remission - FAA FAA section 23
Requires TB submission and Governor-in-Council approval.		 Budgetary debts, except ISP. Must meet criteria (collection unreasonable or unjust or not in public interest).
Remission – ISP CPP subsection 66(3)
OAS Act subsection 37(4)
Authority delegated by Minister. Review Committee if over $25,000.		 All CPP & OAS debts. Must meet specific criteria.
Remove debt from books of account without affecting debtor's obligation to pay
Write-off FAA FAA section 25 & Debt Write-off Regulations
Non-budgetary debts (loans, annuities, advances) need appropriation or other parliamentary approval.
TB approval if debtor is employee.
Authority delegated by Minister for budgetary debts, Review Committee if over $25,000.		 All debts except EI, including:
  • interest portion of UI debts
  • CRF-funded G&C overpayments
  • Canada Student Loans
  • O&M, salary receivables
Must meet specific criteria.
Write-off EI EI Act paragraph 54(k) & EI Regulations section 56 Authority delegated by Minister. Debts under EI Part I & II. Must meet specific criteria.

 

4.6 Timely Basis

In accordance with paragraph 6.1.9 of the Treasury Board Secretariat Directive on Receivables Management, action to delete a debt from the accounts by write off or other methods must be taken on a timely basis.

4.7 Interest Charges

4.8 Reinstatement of Debt

Provided a debt is legally enforceable, it may be reinstated for recovery after it has been written off if the debtor's circumstances have significantly changed and there is a high probability of recovery. Debts may be reinstated when the write-off action was in error. Any interest charges which had accrued on the debt and which were previously written off must be reinstated. Interest charges apply retroactively to the date interest charges stopped accruing.

An EI debt which has been written off in error may be reinstated and interest charges, if applicable, may also be reinstated without interruption. However, an EI debt is not normally reinstated after it is written off as uncollectible. In the rare situation where such a debt is to be reinstated, the application of interest charges should be discussed with Legal Services as paragraph 56.1(7)(c) of the Employment Insurance Regulations provides for interest to stop accruing when a debt is written off and there is no explicit provision for interest charges to start again. An EI debt that has been written off may be reinstated when benefits become payable for the same period.

Debts remitted under the CPP or OAS Act may not be reinstated. Debts remitted or forgiven under the FAA may not be reinstated.

4.9 Write-off Criteria

Each write-off case must be evaluated separately, except where the amount owed is under the minimum balance. It must be clearly established that the conditions for write-off have been met. Sufficient supporting documentation must be maintained, including records of correspondence with clients, analysis of case information and rationale for the action taken.

A debt cannot be considered uncollectible until all reasonable collection action has been taken, all possible means of collection have been exhausted, and there is no possibility now or in the foreseeable future of collection through set-off. Write-off, therefore, should be a last resort after all other cost-effective options have been pursued fully.

It is not mandatory to write off a debt simply because it meets one or more of the conditions for write-off. Where there is potential for recovery in the foreseeable future, the debt should not be written off, or remitted, in the case of ISP debts.

The write-off criteria under the FAA and EI regulations and the ISP remission criteria are listed below. These different legislative authorities should be applied consistently, where possible.

4.9.1 FAA Write-off Criteria

The FAA regulations permit the following debts to be written off:

The FAA regulations permit the write-off of the amount remaining following a compromise settlement but the authority to enter into a compromise settlement is found in the Justice Act. A compromise settlement can only be entered into on the approval of legal counsel. It is intended for cases where legal action has started or is being considered or it is considered impractical to pursue collection of the full amount payable for other reasons such as an impending bankruptcy. A lesser amount is accepted in full settlement of the debt.

4.9.2 Uncollectible Debt

As noted in 4.9.1, uncollectible debts may be written off. A debt cannot be considered uncollectible under the FAA regulations unless there is reasonable evidence of one of the following conditions:

*Note that a discharge will not cancel a debt that was due to misrepresentation, court fines, or student loans within 10 years of leaving school.

A financial assessment must be completed when a debtor has indicated difficulty in paying a debt or has offered a reduced amount in settlement of the full debt (see the Hardship Policy for more information). Care must be taken to ensure there is no future potential for repayment of the debt before a debt is recommended for write-off. Where there is future potential but the debtor is unable to make payments at the present time, recovery may be suspended for a period of time.

4.9.3 EI Write-off Criteria

Section 56 of the Employment Insurance Regulations permits amounts owing under Parts I and II of the EI Act to be written off under the following conditions:

For purposes of the EI regulations, debts are considered uncollectible or eligible for write-off due to hardship under the same criteria as outlined under the FAA regulations.

Generally, overpayments that are caused by an administrative error are to be recovered if the error is discovered and the debtor notified within a year of the date that the debt was created. However, subsection 56(2) of the EI regulations outlines certain overpayments which will be written off if the debtor was not notified within twelve months and was not at fault. The Insurance Program is responsible for these write-offs. More information is available in the Insurance Benefit Manual, chapter 10A.2, Recovery of an Overpayment.

4.9.4 ISP Remission and Write-off Criteria

The Canada Pension Plan and the Old Age Security Act allow for the remission of debts, except in cases of fraud, under the following circumstances:

Recovery may be the first course of action in some cases of administrative error or erroneous advice. Remission should only be considered where the department is the sole cause of the overpayment and the debtor could not have been aware of the error or where there was a delay of more than a year in either correcting the error or notifying the debtor about the debt. The Income Security Program is responsible for ISP remissions. More detailed information is available in the ISP Policy Directive on Overpayments.

4.10 Summary of FAA and EI Write-off and ISP Remission Criteria with Legislative Authority

 
FAA RegsEI RegsCPP & OAS Act
FAA Reg 4(2)

Recovery cost not justified		 EI Reg 56(1)(a)

Minimum balance ($20)

EI Reg 56(1)(f)(i)

Cost not justifed written off per CEIC Minute 71-122 as uncollectible		 CPP 66(3)(b) OAS 37(4)(b)

Recovery cost not justified
FAA Reg 4(3)(a)

Present value settlement		    
FAA Reg 4(3)(b)

Compromise settlement		    
FAA Reg 4(1)

Uncollectible		 EI Reg 56(1)(f)(i)

Debt uncollectible		 CPP 66(3)(b) OAS 37(4)(a)

Not recoverable inforeseeable future
FAA Reg 6(1)(c)(i)

Non-resident, no potential		    
FAA Reg 6(1)(c)(ii)

Untraceable		    
FAA Reg 6(1)(c)(iii)

Debt unsupportable		    
FAA Reg 6(1)(c)(iv)

Legally unenforceable		    
FAA Reg 6(1)(c)(v)

Inoperative corporation, no assets		    
FAA Reg 6(1)(c)(vi)

Undischarged bankrupt corporation, no more payments		    
FAA Reg 6(1)(c)(vii)

Undischarged bankrupt, no more payments		 EI Reg 56(1)(d)

Undischarged bankrupt, no more payments		  
FAA Reg 6(1)(c)(viii)

Deceased, no estate		 EI Reg 56(1)(b)

Deceased		  
FAA Reg 6(1)(c)(ix)

Hardship, no assets		 EI Reg 56(1)(f)(ii)

Hardship		 CPP 66(3)(c) OAS 37(4)(c)

Hardship
  EI Reg 56(1)(c) Discharged bankrupt

  
  EI Reg 56(1)(e) Retrospective decision, debtor not at fault

  
  EI Reg 56(2) Debt over 12 months, administrative delay or error

 CPP 66(3)(d) OAS 37(4)(d) Administrative error or erroneous advice

 

Note that these criteria are applicable to both individual and corporate debtors, EI included.

4.11 Review Committee

In compliance with section 8 of the FAA regulations, debts over $25,000 which are subject to the FAA must be reviewed by a formal review committee before they are written off. The committee will recommend write-off of the debt, if appropriate, to the delegated write-off authority. The committee must include at least three members, one of whom has not been involved in the establishment or recovery of the debt. The committee should meet at least twice a year.

An amount proposed for write off following a compromise settlement must be referred to the committee if it is over $25,000.

Nationally-managed debts over $25,000 and those requiring Treasury Board approval, i.e. annuities, TAGS, and integrated loans, are to be referred to the National Write-off Review Committee for review prior to write off.

The ISP National Remission Review Committee performs a similar review function for proposed remissions under ISP legislation where the debt is over $25,000. Although not a legislative requirement, this review helps to ensure consistency in the application of debt deletion criteria. A member of the National Write-off Review Committee sits on the ISP Remission Review Committee.

4.12 Retention of Records

Detailed financial records are required to be maintained for a minimum period of six fiscal years, following the end of the fiscal year in which they were posted. Please refer to Financial Records Retention Policy.

Privacy and access to information legislation requires that personal information that is used for an administrative purpose must be retained for a minimum of two years from the last administrative action.

In addition to the above general requirements, information about a debt that has been written off has to be maintained as long as the debt is legally enforceable or there is any potential for set-off.

5. ROLES AND RESPONSIBILITIES

National Collection Services is responsible for recommending debts for write-off and for maintaining appropriate documentation in relation to the write-off of most debts owed to the Department.

Exceptions are:

The appropriate delegated authority must approve the write-off or other debt deletion action, on the recommendation of the applicable review committee or after Treasury Board authorization is received, where required.

National Collection Services performs the secretariat function for the National Write-off Review Committee. ISP performs the secretariat function for the ISP National Remission Review Committee.

Debts approved for write-off by the delegated authority are submitted to the appropriate accounting office for completion of the write-off transaction.

Corporate Accounting is responsible for reporting all debt deletions in the departmental financial statements and for inclusion of these amounts in the Public Accounts of Canada.

National Collection Services will monitor the write-off process and the actual amounts written-off for consistency and to recommend changes, where necessary.

6. DELEGATIONS OF AUTHORITY

All debt write-offs must be approved in accordance with the delegation of authority.

7. MONITORING AND COMPLIANCE

The CFO will monitor the implementation of this policy in the department. Any significant deviations resulting from non-compliance with this policy will be investigated and corrective steps recommended. Major cases of non-compliance, and corrective steps taken, will be reported to the Office of the Comptroller General of Canada.

This policy must be applied in conjunction with the Treasury Board Directive on Receivables Management and the Debt Write-off Regulations (1994).

8. DEFINITIONS - DEBT DELETION ACTIONS

Debts may be deleted from the books of account by remission or other forgiveness, waiver or write-off.

Forgiveness extinguishes a debt. Forgiveness releases the debtor from all liability, waives the Crown's right to reinstate the debt, and permits both the Crown and the debtor to remove the debt from their accounts. Forgiveness is authorized under section 24.1 of the Financial Administration Act (FAA) and requires parliamentary approval through means of an appropriation.

Remission is similar to forgiveness in that it releases the debtor from all liability, waives the Crown's right to reinstate the debt, and permits both the Crown and the debtor to remove the debt from their accounts. Conceptually, remission deems the debt to be paid. Amounts already paid by the debtor towards the debt may need to be reimbursed or amounts may need to be paid from the CRF in payment of the debt. Remission is authorized under Section 23 of the FAA in specific circumstances and applies to budgetary expenditures only. Program legislation may also authorize remission as in the Canada Pension Plan and the Old Age Security Act.

Waiver is the action of relinquishing the Crown's right to charge an amount. Legislative authorities which permit waivers usually apply to penalties, interest or other ancillary charges. When an amount is waived, it is considered never to have existed so there is no debt to write off. Any revenue foregone through a waiver must be reported in the Public Accounts.

Write-off is an accounting action which removes primarily uncollectible debts owed to the Crown from the accounts receivable records but which does not release the debtor from the obligation to pay and does not affect the right of the Crown to collect the debt in the future.

Any of the above debt deletion actions may be applied to the entire debt or to a portion of the debt. Forgiveness or remission may be conditional so that the debtor's obligation towards the debt is not cancelled until a specified condition has been met.

From time to time, a debt may be established in error and the entry may need to be reversed. As the debt was not valid, the reversal is not considered a debt deletion and does not need to be reported in the Public Accounts. An example is rescinding a decision which establishes a debt under the Insurance Program.

9. REFERENCES

9.1 Legislation

9.2 Treasury Board Publications

9.3 Departmental Policies