11. Debt Management

11.1 Introduction

This Chapter contains instructions for the issue, management, payment, transfer, reporting and write-off of debts owed to the department.

Debts and amounts owing

The FMA Act uses the terms “debts” and “amounts owing”:

An amount is a “debt” or an “amount owing” when the following criteria are met:

Debts owing to the Commonwealth should be pursued to the fullest extent possible. Section 47 of the FMA Act obliges agency Chief Executives to pursue recovery of all debts for which they are responsible in relation to the operations of their agency unless the debt has been written-off as authorised by an Act, or it is considered that the debt is not legally recoverable or recovery is not economical to pursue.

Amounts owing should be paid in full immediately when they become due. However, in certain circumstances it may be appropriate to defer payment, allow payment by instalments or waive the amount owing.

Amounts receivables

If the amount in question does not meet the above criteria (eg the amount is subject to a dispute) it could still be considered to be a receivable. FMA Act section 44 obliges departmental officials to take reasonable action to recover all of the agency’s receivables, including items that are not technically debts or amounts owing.

11.2 Recording Debts and Issuing Invoices

Instructions

  1. Finance Managers are responsible for ensuring that debts are promptly and accurately recorded in the SAP debtors’ register and that Customer Invoices are raised and issued to customers. Invoices must be issued through PTWS or SAP
  2. All debts are to be recorded in the SAP Debtors’ register as soon as the debt is identified. Invoices must be issued no later than the end of the month in which the debt was recorded.
  3. Debts are payable within 30 days from the date of the invoice except:
    • In the case of an advance to an official that has been transferred to the debtors’ register, the account is due and payable from the date of issue of the customer invoice (see Chapter 10.4).
    • Where an official is to be transferred from the work area, in which case the due date must fall before their last day at the work area.
    • Where an employee has notified that they will be ceasing employment with the department, in which case the due date must fall prior to the last day of duty.
    • Where there is a due date specified in a contract, agreement or arrangement, the relevant terms and conditions take precedence.
  4. Where goods or services are supplied and Australian GST is applicable, a valid tax invoice must be issued to the customer. The tax invoice must identify:
    • Each taxable supply
    • The total amount of GST payable
    • The total amount payable
    • The department’s Australian Business Number.
  5. When recovering costs incurred in foreign currency, the SAP invoice should be issued in foreign currency in order to offset the foreign currency amount paid from the post budget.
  6. Posts should print invoices to Australian customers using SAP Correspondence Type INV17 to display the amount in foreign currency and Australian dollars (at the spot exchange rate). The invoice also includes the Canberra bank account details enabling the customer to pay in Australian dollars.
  7. Posts are responsible for ensuring invoices issued to Australian customers are paid.

Procedure

Responsibility

Frequency/Conditions

Action

11.3 Debt Management and Collection

The basic principle is that, unless otherwise allowed by law (eg under statute or contract), amounts owing to the department should be paid in full immediately they become due.

Where it is not possible or reasonable for an amount to be paid in full immediately and in the absence of any statutory right of the debtor to do otherwise, consideration may be given to contracting with the debtor to allow payment of the amount by instalments or in full at a deferred date.

The Secretary has delegated the power under FMA Act section 34(1)(c) to allow payment by instalments of an amount owing to the department to:

The Secretary has delegated the power under FMA Act section 34(1)(d) to defer the time for payment of an amount owing to the department to:

Instructions

  1. Finance Managers are responsible for ensuring that:
    • Appropriate procedures and controls exist to ensure that the SAP Debtors’ register is maintained accurately.
    • The SAP Debtors’ register is reviewed on at least a monthly basis to ensure that all necessary actions are taken to ensure prompt payment.
    • Debt offset arrangements from salary are implemented where an official has requested the facility be made available.
    • Overdue debts are pursued in accordance with Chapter 11.4.
    • Receipts from debtors are recorded in SAP promptly and accurately.
  2. Debts must be paid in the same currency as shown on the Customer Invoice.

Payment by instalment and deferral

  1. Where the debtor claims hardship, the delegate must:
    • Require the debtor to provide evidence (by a statutory declaration and/or other means) sufficient to satisfy the delegate that it would be unreasonable to require the debtor to discharge the debt other than in instalments or to defer payment; and
    • Have regard to the Commonwealth’s interests not being subordinate to other creditors of the same ranking.
  2. When allowing payment by instalments or deferral of payment, the delegate must:
    • Impose conditions to ensure the department recovers the amount as soon as is reasonably practicable, having regard to the debtor’s ability to repay;
    • Ordinarily impose interest at the 90 day bank-accepted bill rate (available from the RBA-Central Bank) less 10 basis points;
    • Record the reasons in writing where they decide to impose a lesser rate of interest, or no interest. A valid reason would be that in the particular case, the imposition of interest would cause undue financial hardship.
  3. If the delegate decides to accept payment by instalments or to allow deferral of payment the debtor must be informed in writing of the following:
    • The amount owing to the department;
    • The date or dates when payment is due;
    • The interest rate (if any);
    • Any other matter the delegate considers relevant, taking into account the evidence of hardship;
    • The conditions of acceptance (see below).
  4. The conditions of acceptance of payment of a debt by instalments or to defer the payment of an amount owing are:
    • The delegate may, at any time, review and, if necessary, revise the arrangements to determine whether different conditions should be imposed, taking into account the debtor’s ability to pay; and
    • If the debtor is an official, upon termination of employment, or other engagement, with the Commonwealth, the amount outstanding must be set off against any final moneys due; and
    • Any default of the conditions may result in legal action being commenced to recover the amount owing; and
    • If legal action is commenced, the Commonwealth may seek to recover its costs from the debtor.
  5. Where the debtor does not confirm in writing acceptance of the conditions, the amounts owing should be paid in full when they become due.

Procedure

Responsibility

Frequency/Conditions

Action

11.4 Overdue Debts

Instructions

  1. Departmental officials should be directed in writing to settle their debts by the due date. For all other debtors, efforts should be made to ensure the debtor pays the amount owed to the department within the period stated. A record of all calls made to the debtor should be kept along with notes on any negotiations. Debts owed by other entities should be escalated within the entity to progress the negotiations.
  2. If a debtor does not pay, or refuses to pay the debt by the due date and instalment or deferment is not appropriate or feasible, other actions for recovery should be considered. For example, where a debt arose as a result of an overpayment to a supplier, consider deducting the amount from the next payment due to the supplier. As a last resort, and contingent upon the amount of the debt, the Finance Manager may consider legal action. Legal action cannot be taken against another Commonwealth agency. If legal action is considered appropriate, approval to proceed must be obtained from the Finance Manager, AS FSB. To seek approval, report the circumstances to the Finance Manager, AS FSB with a recommendation on the feasibility of recovery by legal action.
  3. Departmental officials with an outstanding debt beyond the due date must be directed in writing to pay the debt. The advice must refer to the requirement of the official under the departmental Code of Conduct to maintain a high ethical standard.
  4. A departmental official who fails to comply with the above direction may have the matter brought to the attention of their supervisor or the Conduct and Ethics Unit who will be obliged to take further action.
  5. Attached agency officials are to be given timely advice of deadlines for the payment of debts. Responsibility for recovery of overdue debts, exceptional circumstances apart, must be transferred to the agency in accordance with FMM Chapter 11.5.
  6. An official with an overdue debt should not receive further payments, with the exception of salary until such time as the debt is repaid.

Procedure

Responsibility

Frequency/Conditions

Action

11.5 Transfer of Employee Debts

Instructions

To another location within the department

  1. Finance Managers must ensure that procedures are in place so officials pay all outstanding debts prior to departure from a work area. For example, at a post, airline tickets for RTA may be withheld until the employee has paid all existing debts.
  2. An official must pay all existing debts recorded against their SAP customer account before their departure.
  3. An employee should make arrangements with the post’s administration to cover anticipated debts that may occur after their departure from the post.
  4. Where recovery is not possible before an official’s departure or debts are raised after their departure, the debt must be promptly transferred to the official’s next place of duty.

To another agency

  1. If an attached agency official does not pay a debt by the due date, or prior to transferring from the location, responsibility for recovery of the debt should be transferred to the other agency. Advice by cable/letter to the agency Central Office is sufficient to consider the debt transferred. A copy of the advice must be provided to the senior representative of the agency at the office or post. See the FMM Forms folder for a sample cable.

Procedure

Responsibility

Frequency/Conditions

Action

Transfer to another location within the department.
Transfer to another agency

11.6 Dishonoured Cheques and Electronic Payments

Instructions

  1. Attempt to recover the amount of the dishonoured cheque or electronic payment from the payer and, if applicable, any bank charges involved.

Procedure

Responsibility

Frequency/Conditions

Action

11.7 Write-off of receivables and debts

A debt is written-off when the Secretary (or their delegate) decides that there is justification to not pursue recovery of a debt. When written-off a debt becomes dormant, but it can be pursued again at a later date if circumstances change.

The Secretary has delegated the power to approve the write-off of an outstanding debt under FMA Act section 47 to:

Instructions

Receivables

  1. A request to write-off a receivable (ie the amount in question does not meet the criteria of a debt or amount owing) must be referred to the CFO for consideration under FMA Act section 44. Refer to FMM Chapter 11.1 for more information.
Debts
  1. Officials delegated by the Secretary under FMA Act section 47 must pursue the recovery of each debt for which the Secretary is responsible for except where:
    • The debt has been written off as authorised by an Act (including the FMA Act); or
    • The delegate is satisfied that the debt is not legally recoverable; or
    • The delegate considers that it is not economical to pursue the debt.
  2. An official must ensure that all reasonable steps have been taken to recover an outstanding debt before seeking a write-off.
  3. A request to approve a debt write-off must be submitted in writing and provide substantive and fully supported arguments to write-off the debt. The submission should include:
    • The amount and age of the debt to be written-off.
    • Information on the reason for the debt.
    • Action taken to recover the debt.
    • To support a claim that the debt is not legally recoverable legal advice should be provided.
    • To support a claim that the debt is not economical to pursue the estimated cost in both quantitative and qualitative terms (eg legal costs, direct costs, staff costs, etc) for the department to recover the debt should be provided.
    • Any other issues that will assist the delegate.
  4. Delegates must only approve debt write-offs within the financial limits of their delegation under FMA Act section 47.
  5. Delegates must ensure that:
    • All approvals are recorded in writing.
    • The CFO is provided with a copy of the write-off submission and their approval within 30 days of exercising their delegation.
    • The write-off is recorded promptly and accurately in the SAP Debtors’ Register in accordance with SAP Instructions and Help Cards.
    • The write-off is expensed to the work area budget responsible for the debt unless the CFO agrees otherwise.

11.8 Debt waiver

FMA Act section 34(1)(a) allows the Finance Minister (or their delegate) to waive amounts owing to the Commonwealth in cases where there is no other viable mechanism to extinguish the debt. A waiver usually applies to cases where there’s a moral obligation, rather than legal obligation, on the Commonwealth to extinguish the debt.

A moral obligation may be established after consideration of whether repayment of the debt in a person’s circumstances would be inequitable, or whether it would cause undue ongoing financial hardship.

Instructions

  1. An official must not enter into an arrangement to forgo the department’s right to recover part of a debt as part of a proposed settlement unless a delegate has approved the waiving of the debt.
  2. The work area seeking the waiver must provide supporting documentation setting out the case for a waiver to the CFO.
  3. If it is considered the waiver request has merit the CFO will forward the request to Finance.
  4. The Director FPS must ensure that debts waived in the financial year are recorded in the Debtors’ Register and reported in the annual financial statements.

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