3.5 Accounts and Loans Receivable in Government

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1 Introduction Figure 1 Our review of Government departments indicated that a significant portion of their accounts receivable are in arrears. Figure 1 provides information on amounts owed to Government for each of the eight years to 31 March 2000 along with the amount that Government considers to be uncollectible and amounts written off. These amounts owed include accounts and taxes receivable, as well as loans, advances and mortgages receivable. Accounts, Taxes, Loans, Advances and Mortgages Receivable Years Ended 31 March Total Total Receivables 531, , , , , , , ,539 Less: s Considered to be Uncollectible 242, , , , , , , ,799 Net Receivables 288, , , , , , , ,740 Accounts WrittenOff 80,022 14,242 5,398 20,790 69,877 7,972 1,855 12, ,133 Source: Financial Statements Scope and Objective We reviewed the amounts owed to Government as at 31 March 2000 to determine whether they are collected on a timely basis. Conclusion In addition to not collecting amounts owed to it on a timely basis, Government has written off significant amounts owed to it. Findings and Recommendations Figure 2 provides details on the $449.5 million owed to Government as at 31 March 2000: 54 Auditor General of Newfoundland

2 Figure 2 s owed to Government 31 March 2000 Type of Receivable Balance outstanding in excess of one year considered doubtful of collection Crown Agencies (Note 1) 213,930 26, ,172 Taxes receivable 118,138 51,592 46,514 Commercial loans 32,293 26,311 29,728 Miscellaneous receivables 37,858 4,842 12,495 Court fines 18,309 14,723 11,224 Social Assistance overpayments 26,996 23,073 15,332 Other 2, Total 449, , ,799 Note 1: Of the $213.9 million relating to Crown Agencies, $126.6 million relates to Enterprise Newfoundland and Labrador Corporation, the Fisheries Loan Board of Newfoundland and the Farm Development Loan Board. The amount due to these entities for loans made is $43.6 million in arrears. Also, of the $213.9 million, $31.0 million is due from the Newfoundland Industrial Development Corporation on a long-term basis with no specific repayment date. Our review disclosed that Government s average cost of borrowing in the capital market for the year ended 31 March 2000 was 6.6%. If Government had collected the $146.9 million outstanding for more than one year and the $43.6 million in arrears with the lending entities and used these funds to retire debt or to reduce current borrowing, annualized savings on debt servicing could have exceeded $12.6 million. During the last eight years Government has written off $213.1 million in accounts receivable owed to it. Details of these amounts written off are presented in Figure 3. Auditor General of Newfoundland 55

3 Figure 3 Accounts and Loans Receivable Written Off 1993 to 2000 Entity Baie Verte Mines Inc. 47,551 Newfoundland Industrial Development Corporation 29,229 Newfoundland Enviroponics Limited 15,252 Newco Corporations 15,361 Integrated Poultry Group of Companies 11,527 Enterprise Newfoundland and Labrador 10,894 Newfoundland Dockyard 8,065 Ocean Harvesters Limited 6,649 Cape Pine Fisheries Ltd. 6,466 Miscellaneous amounts which are less than $300,000 individually 4,509 Fisheries Loan Board of Newfoundland 4,421 Court fines 3,938 St. Lawrence Fluorspar Limited 3,919 Fisheries Loans 3,849 Social Assistance Overpayments 3,802 NotreDameBayFisheries 3,762 UniversalGroup of Companies 3,504 Department of Health 3,339 Harbour Grace Fishing Company Limited 2,368 Oceana Seafood Processors Limited 2,175 St. Clares Mercy Hospital 1,993 Other government departments - accounts written off 1,645 Superior Seafoods Limited 1, Auditor General of Newfoundland

4 Figure 3 (cont d) Entity St. John s Metropolitan Area Board 1,475 Governor s Park Limited 1,428 Great Northern Seafoods Limited 1,414 Petty Harbour Fishermen s Producer s Co-operative Society Limited 1,316 Blue Ocean Products Limited 1,314 Gander Masonic Memorial Complex 1,240 Salvation Army Grace General Hospital 1,038 Reid s Products Limited 931 Petty Harbour Fisheries Ltd. 926 Belle Isle Seafoods Ltd. 799 S. T. Jones and Son Limited 795 White s Fisheries Limited 770 Department of Natural Resources 667 Island Tile and Slate 513 Nordco Limited 478 Department of Fisheries 469 Reg Petten 465 Sop s Arm Fisheries (1988) Limited 341 Ocean Kist Products (1970) Ltd. 338 Department of Works, Services and Transportation 316 Trouty Seafoods Limited 315 Total 213,133 Auditor General of Newfoundland 57

5 In addition to the amounts written off totalling $213.1 million, during the years 1993 to 2000 the Province wrote off $14.1 million in tax forgiveness and $20.3 million in tax remissions. As at 31 March 2000, Government anticipated that $247.8 million or 55.1% of the $449.5 million amount owed to it will likely not be collected. In May 1999 Government introduced the accounts receivable function of its accounting system. Government anticipates that this system will improve its recording, controlling and monitoring of accounts receivable. Our work during the current year disclosed that as at 31 March 2000 the accounts receivable system had not been fully implemented in the following departments: Executive Council, Health and Community Services, and Works, Services and Transportation. Recommendations Accounts receivable should be collected on a timely basis. Government should complete full implementation of its new accounts receivable system in all departments. Treasury Board Secretariat s Response I agree with your recommendations. The departments are responsible for the timely collection of accounts receivable and the management of their accounts. The Treasury Board Secretariat continues to be active in encouraging improvements in collections and related activities of the departments through information sessions, analysis and feedback with respect to write-off requests, routine interaction with departments and provision of advice when requested. The committee reviewing collection policies continues to focus on government-wide matters related to collections. A number of possible revisions to the current collection policies have been drafted by a working committee for further consideration. There are procedures in place to ensure that accounts are written-off only if this is the appropriate course of action. These procedures include a review to determine that collection options have been exhausted. Implementation of the government-wide Oracle accounts receivable module in the remaining three departments is already in progress. 58 Auditor General of Newfoundland