Revised Debt Write Off Regulations

OUR FILE NO.: 4865-D0001

DATE:

TO: Senior Financial Officers and Senior Full-time Financial Officers

SUBJECT: Revised Debt Write Off Regulations

The Treasury Board recently approved the attached Debt Write-Off Regulations, 1994, which replace the 1985 version immediately. These changes resulted in part from a PS 2000 recommendation which proposed that departments have the authority to write off virtually all uncollectible debts. The former regulations required Treasury Board approval for writing off debts over $25,000. Subject to certain restrictions, which are specified in the regulations and explained below, departments now have the authority to write off all uncollectible debts.

MAJOR CHANGES

While the Board has eliminated the $25,000 ceiling on departmental write-off authority, departments are nonetheless still accountable for ensuring that all write-offs are in strict accordance with the new regulations; that they make every reasonable effort to collect and exhaust all possible avenues before considering write-off; that they do not use write-off as a substitute for forgiveness; and that they write off only debts that are truly uncollectible.

In that respect, the new regulations emphasize uncollectibility and require that departments consider using set-offs before writing off a debt. Departments have several options when considering the use of set-offs, including setting off debts against other payments of a similar nature, against any other payment made by the same department, against any payment made by another department, and finally against tax refunds.

As the writing off of a debt does not forgive or extinguish it and as the scope of true forgiveness authorities, like remission under section 23 of the Financial Administration Act (FAA), have been expanded, the "forgiveness like" provisions in the previous regulations (i.e. "administrative error" and "hardship") have been eliminated. Departments must limit write-offs strictly to matters of uncollectibility, though in some cases an administrative error may render a debt unenforceable or uncollectible at reasonable cost. In this case, the debt could be written off under section 6(c) or subsection 4(2) respectively of the revised regulations.

Where a department wishes to grant relief and waive recovery action on compassionate or other grounds, it should use a "forgiveness" authority and not write-off. Departments should ensure that they use the proper forgiveness authorities -- for example, specific program legislation, regulations or remission under section 23 of the FAA.

A departmental debt write-off committee must carry out a formal review of writing off all debts over $25,000 or of lower amounts if the minister or deputy minister so decides. In addition, departments must ensure that both the process and the write-offs themselves are subject to periodic review by internal audit groups.

Departments must keep records and information about write-offs until there is no longer any probability of future set-offs; the limitation period for legal action has expired; the audit process has been completed; and other administrative requirements have been satisfied.

SPECIAL CASES

While the Debt Write-Off Regulations, 1994 are not in themselves an authority to enter into, or agree to, a compromise settlement, they do recognize and provide for write-offs flowing from arrangements negotiated under an appropriate authority like the Bankruptcy Act, the Companies' Creditors Arrangement Act, or in some cases, particularly where a debt arose through contract, a minister's power to contract. In such cases, departments do not have to satisfy the "uncollectibility" criteria of section 6 and need only keep records until they have completed the audit process and satisfied any other administrative requirements.

Occasionally, departments may be asked to accept payment of the present value of a debt which is not due until a future date. As with compromise settlements, the new regulations permit writing off any balance of the debt remaining after such payments without meeting the criterion of uncollectibility and without the formal review process mentioned above. Nevertheless, internal audit reviews are still required. In such instances, departments must keep any information or records about the debt only until completion of the write-off process and subsequent audit.

Where the cost of collection and other administrative costs are not justified in relation to the amount of the debt and the probability of collection, departments may write off the debt without meeting the criterion of uncollectibility. While larger amounts under this category require a debt write-off committee to review them, departments only have to keep information or records about the debt until completion of the write-off process and subsequent audit.

EXCEPTIONS AND RESTRICTIONS

Writing off employment-related debts, such as accountable advances and overpayments of salaries, wages and employment-related allowances, will continue to require Treasury Board approval. However, in most cases these would not qualify for write-off since, if the person is still employed, the debt should not be classified as uncollectible as it is potentially collectible from ongoing salary and other payments to the employee. If the objective is to forgive an overpayment or waive recovery, departments should then consider several options:

- to forgive an overpayment, they must use an appropriate "forgiveness authority" as mentioned previously.

- to waive recovery in appropriate circumstances, the Treasury Board as the employer may formally agree to forego recovery through a decision pursuant to paragraph 11(2)(d) of the FAA or authorize an extraordinary allowance pursuant to paragraph 11(2)(h). Before using these two authorities, departments may wish to consult the Staff Relations Division of the Human Resources Policy Branch, TBS.

Section 25(2) of the Financial Administration Act requires that the write off of any non budgetary items on the Statement of Assets and Liabilities, principally loans and investments, be approved by Parliament because the writing off of these debts results in an expenditure. Therefore, departments must continue to submit these items to the Treasury Board, regardless of the amount involved.

ENQUIRIES

Please direct any questions about the new regulations to:

The Director of Financial Authorities

Financial and Contract Management Sector,

Financial and Information Management Branch

Treasury Board Secretariat





(signed)
J.Q. McCrindell
Assistant Secretary & Deputy Comptroller General
Financial and Information Management Branch

Encls.

Debt Write-off Regulations


Regulations Respecting the Writing Off of any Debt or Obligation Due to Her Majesty or any Claim by Her Majesty

Pursuant to section 25 of the Financial

Administration Act [SOR/85-257]

Short Title

1. These Regulations may be cited as the Debt Write off Regulations, 1994.

Interpretation

2. In these Regulations,

"Act" means the Financial Administration Act; (Loi)

"debt" means a debt or an obligation due to Her Majesty or a claim by Her Majesty; (créance)

"in writing" includes any electronic form that is capable of being reproduced in intelligent, written form within a reasonable time. (par écrit)

Application

3. These Regulations do not apply to

(a) the determination of, or resolution of disputes over, what amount of a debt is owing;

(b) the process of negotiating and settling claims by Her Majesty; and

(c) debts owing to Crown corporations.

Authority to Write Off Debts

4.(1) Subject to subsection 25(2) of the Act and sections 5 and 6 of these Regulations, the appropriate Minister of a department, or an officer authorized by that Minister in writing, may write off from the accounts of the department a debt, or a part of a debt, that has been determined to be uncollectible.

(2) Subject to subsection 25(2) of the Act and section 5 of these Regulations, the appropriate Minister of a department, or an officer authorized by that Minister in writing, may write off from the accounts of the department a debt for which further administrative expense or other costs of collecting the debt are not justifiable in relation to the amount of the debt or the probability of collection.

(3) Subject to subsection 25(2) of the Act, the appropriate Minister of a department, or an officer authorized by that Minister in writing, may write off from the accounts of the department


(a) the balance of a future debt or a debt not due that remains after payment of the present value of the debt has been accepted as full settlement of the debt; or

(b) the balance of a debt that remains after a compromise settlement has been effected pursuant to an applicable authority.

5. (1) No accountable advances or other debts arising from the overpayment by Her Majesty of salaries, wages or employment related allowances, or any part of any of them, shall be written off without the approval of the Treasury Board.

(2) Subsection (1) does not apply to debts owing by former employees that are discovered after their employment has terminated and all termination benefits have been paid.

Criteria

6. No debt, or any part of a debt, shall be written off from the accounts of a department under subsection 4(1) unless


(a) all reasonable collection action has been taken and all possible means of collection have been exhausted;

(b) there is no possibility now or in the foreseeable future of collection through set off; and

(c) the appropriate Minister, or the officer referred to in section 4, is satisfied on reasonable grounds that

(i) the debtor is not resident in Canada, there are no apparent means of collecting the debt and there is no evidence that the debtor has a family or business concerns in Canada that could lead the debtor to return to Canada,

(ii) the debtor cannot be located,

(iii) evidence of the debt has been lost or destroyed and the debtor denies that a debt exists,

(iv) legal proceedings are statute barred or the debt is otherwise legally unenforceable, the debtor has refused to pay and there are no apparent alternative means of enforcing payment or collecting the debt,

(v) the debtor is a corporation and the corporation is inoperative and without assets,

(vi) the debtor is an undischarged bankrupt corporation and

(A) the corporation is without assets and the trustee has been discharged, or

(B) the trustee has confirmed in writing that the trustee does not foresee any further payments to Her Majesty,

(vii) the debtor is an undischarged bankrupt individual and
(A) the trustee has been discharged, or

(B) the trustee has confirmed in writing that the trustee does not foresee any further payments to Her Majesty,

(viii) the debtor is deceased and there is no known estate, or

(ix) the debtor

(A) is incapable of repaying the debt, in whole or in part, as evidenced, among other things, by the debtor's family income level being below the net monthly income level requiring payments from income toward debts, as stated in the guidelines on payments required from income issued periodically by the Superintendent of Bankruptcy,

(B) is not reasonably expected to have the capacity to repay the debt in the foreseeable future, and

(C) does not own or have an interest in mortgageable real or personal property, has not entered into a contract to purchase property under the Veterans' Land Act and does not own financial assets that could be applied toward discharging the debt, in whole or in part.

Procedures for the Control and Writing off of a Debt

7. All debts shall be controlled within the appropriate department's accounts until they are either collected or written off.

8. (1) The appropriate Minister of each department or the deputy head on behalf of the Minister shall establish a formal review process for the writing off of debts, in whole or in part, under subsections 4(1) and (2).

(2) Where an amount exceeding $25,000, or such lower amount as may be fixed by the appropriate Minister or the deputy head, is proposed to be written off, the matter shall be referred to a review committee established pursuant to subsection (1), which committee shall make recommendations on the proposed write off to the appropriate Minister or the officer referred to in section 4.

(3) A review committee shall consist of at least three public officers, at least one of whom shall not have been involved in the creation or establishment of the debt that is proposed to be written off or in any action taken to collect it.

Retention of Information and Records

9. Any information or records concerning a debt that is written off pursuant to these Regulations shall be retained until

(a) all audit procedures are completed and other administrative requirements with respect to the debt and its write off are satisfied; and

(b) in addition, in the case of a debt referred to in subsection 4(1),

(i) there is no longer any probability of future set off, and

(ii) the limitation period for initiating any legal action with respect to the determination of the amount or recovery of the debt has expired.

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