Report To: From: President and Members of the Board of Directors Janice Sheehy, Treasurer Date: March 25, 2008 Report No. - Re: HC-04-08 - Write-Off of Arrears for the 2006 Operating Year RECOMMENDATION 1. THAT the Treasurer be authorized to write-off rents receivable as set out in Report No. HC-04-08 re: Write-Off of Arrears for the 2006 Operating Year in the total amount of $114,878.14. 2. THAT the Treasurer be authorized to write-off RGI Assistance Overpayments as set out in Report No. HC-04-08. 3. THAT the Treasurer be authorized to write-off individual bad debts relating to RGI Assistance Overpayments, to a maximum of $250.00 per tenant as per Report No. HC-04-08. REPORT The purpose of this report is to recommend that rents and other charges owing from former tenants of the Corporation be written off the accounting records as bad debts. Although the accounts in question are being actively pursued for further collection efforts, recovery is considered unlikely. It is generally accepted accounting practice to remove the amounts from the reported assets of the Corporation and expense them in the year s operations. Further, the practice is to write-off accounts after they have been outstanding for a fiscal year. 2006 Write-offs Rent Arrears The amount to be written off is $114,878.14, representing 1.08% of rental revenue for 2006. Staff has collected $17,769.75 from previous years write-offs resulting in a net 2006 write-off of $97,108.39 or 0.91%. 2006 write-offs are 0.66% higher than 2005 amounts. The following chart summarizes the 2006 write-offs by rent arrears and chargeback amounts: 1
2006 Rent Arrears Chargeback No. Of Units RGI Assistance Overpayments Market RGI Market RGI Market RGI < $250 > $250 $48,243.42 $38,853.93 $6,635.64 $21,145.15 31/200 63/1616 $646.00 $24,691.28 $87,097.35 $27,780.79 $25,337.28 $114,878.14 The following chart summarizes the write-offs for the past 4 years: Write-Offs - HCHC $180,000 $160,000 $140,000 $120,000 128,235 167,713 132,075 Rent Chargebacks RGI Assistance Overpayments (effective 2006) $100,000 $80,000 80,856 87,097 $60,000 $40,000 $20,000 15,211 25,190 34,556 33,268 27,781 25,337 $- 2002 2003 2004 2005 2006 Year The tenant chargeback of $27,780.79 reflects tenant damages, unpaid utilities and Ontario Rental Housing Tribunal (ORHT) charges. Many RGI tenants cannot afford the high energy costs in winter months. Rather than having the utilities disconnected, HCHC has opted to have the invoices charged to the corporation to prevent possible damage to the units (e.g. burst pipes) and to provide the family with basic utilities. The tenants are then invoiced for the costs that were paid on their behalf. Similarly, HCHC will invoice tenants for all applications fees ($150.00 per application) to the ORHT and any sheriff s fees ($335.00 per eviction), NSF fees, and for deliberate damage done to the units. 2
2006 Write-Offs - RGI Assistance Overpayments As of December 31, 2007, further to the process that was approved by Report No. HC-29-02 re: Accounting for Rent-Geared-to-Income Assistance Overpayments, an allowance for RGI Assistance Overpayments of $154,975.23 has been set up for tenants who did not report changes to their tenancy information, leading them to be ineligible for subsidy. RGI Assistance Overpayments are not included with bad debts. These overpayments are due to tenants not reporting their income accurately or on a timely basis as required under the Social Housing Reform Act (SHRA). Staff, during a follow-up assessment, find these omissions and then pursue recovery of the overpaid assistance. These amounts are tracked separately on the financial statements from arrears and are returned to the Service Manager (Halton Region) when collected. In 2007, staff collected $89,975.79 of RGI Assistance Overpayments from tenants. The RGI Assistance Overpayments are reported as receivables, which stay on the financial statements indefinitely. Directive No. 07-03 re: Treatment of Unrecoverable Former Tenant Receivables, implemented by the Service Manager in 2007, recognizes there are situations where outstanding debt can be of a small amount, or there may be circumstances where collection activity would be of little value as there is no possibility of recovering any of the receivable outstanding (i.e. individual declares bankruptcy, unsuccessful small claims action or upon death of a tenant). Amounts of small dollar value must be at or below a level approved by the Board of Directors. Staff, in collaboration with the Service Manager, is recommending that the Treasurer be authorized to write off outstanding debt relating to overpaid subsidies up to $250.00. Recommendations for write-offs above $250.00 will be reported annually to the Board for approval. Industry Comparisons The Social Housing Services Corporation has defined the Bad Debt Rate as Arrears of rents or housing charges that were written off in the year minus bad debts from previous years that are actually recovered in the year, divided by rental or housing charge revenue for the year, expressed as a percentage. By this definition, the bad debt rate for HCHC for 2006 is 0.91% compared with a 2005 rate of 0.85%. Staff continues to work towards reducing bad debt write-offs in future years. The accepted industry standard is 1.5% - 2%. Managing Rent Arrears The rental policies of the Corporation provide for a formal course of action if a resident goes into rental arrears. The Operations Manager and Property Managers review monthly arrears reports and action is taken as appropriate, which could include the issuance of eviction notices. The implementation of the Yardi Ontario Module (arrears management software) in September 2005 enabled the automation of Notice of Early Termination Forms, which was previously done manually, thereby streamlining the process. Property management staff conduct physical inspections of all units annually. Any damages to a unit caused by the tenants are identified on a timely basis. Tenants are then required to make the repairs (to HCHC standards) or they will be charged for the cost of staff or a contractor performing the repairs. 3
Arrears As of Dec 31, 2007 * # of tenants Past tenants with whom payment plans have been established 3 11,966 Current tenants with whom payment plans have been established 17 2,170 Past tenants - RGI Assistance Overpayments 31 106,864 Current tenants - RGI Assistance Overpayments 44 28,766 Past tenants arrears 63 124,914 * 2006 write-offs have been excluded from data Data collected effective March 19, 2008 Past tenant have terminated tenancy $ In Report No. HC-15-05 re: Eviction Prevention Policy, the Board approved the Eviction Prevention Policy. Staff is diligently working with tenants to avoid evictions due to non-payment of rent. This may include a simple phone call or more in-depth service coordination. Staff is continuing to explore options that help ensure bad debts are minimized. In 2007, staff filed 148 applications for evictions with the Ontario Rental Housing Tribunal, which resulted in 17 evictions. The Board should be aware that the collection process continues even if arrears are written off. A list of these arrears is kept and checked against new tenant applications. Collection agencies are engaged and former resident arrears are registered with the Credit Bureau. The Manager of Housing Operations, Property Managers, the Manager of Resident Services and the Collections Officer review reports of arrears and collection status on an ongoing basis. Additionally, it is a requirement of the Social Housing Reform Act that former tenants with outstanding arrears are not eligible for subsidized housing unless the arrears are repaid or a payment plan is in place. FINANCIAL/PROGRAM IMPLICATIONS This report authorizes the Treasurer to write-off rents receivable for the 2006 operating year in the amount of $114,878.14 which was included in the 2007 budget. An additional, $25,337.28 will be a write-off for the RGI Assistance Overpayments. As an allowance was set up for this purpose there will be no financial impact on the operating statement. 4
CONCLUSION It is the standard practice of HCHC to write off accounts after they have been outstanding for a fiscal year. Although the accounts in question are being pursued for further collection efforts, recovery is considered unlikely. Respectfully submitted, Janice Sheehy Treasurer Approved by Adelina Urbanski Chief Administrative Officer If you have any questions on the content of this report, please contact: Janice Sheehy Tel. # 7041 Rob Cressman Tel. # 4445 5