September 10, 2012
Agenda Item #
Information Only. No action required. The President/Superintendent will discuss a $790,000
increase to the District’s allowance for doubtful accounts/bad debts write off.
Annually as part of its closing of the books processes, the District’s allowance for doubtful
accounts is reviewed and an adjustment is made to increase or decrease the allowance based on
estimated bad debts write offs. This procedure ensures that the net accounts receivable reported
in the financial statements reflects only accounts receivable expected to actually convert to cash
over a reasonable period of time. Due to the unusually large magnitude of this expenditure,
Board approval is being requested. This write off will return the District to a more conservative
accounting position.
This action supports accreditation standard D – The institution plans and manages its financial
affairs with integrity and in a manner that ensures financial stability, and Strategic Plan Goal 3 –
Fiscal and Operational Sustainability. The Budget Planning Committee (BPC) discussed this
action at its August 29, 2012 meeting.
During 2011-12, administration discussed with Mr. Steve Pittman, the District’s lead auditor of
Matsom and Isom, certain problems related to the District’s students accounts receivable. Mr.
Pittman’s advice was that the District needed to develop a well thought out plan to evaluate and
address the issue of growing student accounts receivable balances to determine if additional
actions were needed. During 2011-12 administration researched this issue, including
Datatel/Ellucian system reporting problems, outdated disclosures and documents, and legal
issues related to delinquent accounts. Several changes have resulted. Administration has
provided both information and action items to the Board to improve student accounts receivable
In Fall 2011, the District implemented a deregistration procedure to require students to
make appropriate payment arrangements or risk being removed from class rolls.
In Fall 2011, to prevent staff from overriding registration holds and the deregistration
process, administration restricted the override authority to a limited number of
The District participated in the Chancellor’s Tax Offset Program (COTOP) as has been
done in previous years.
On advice of legal counsel, administration updated the District’s disclosures related to
delinquent accounts. New language has been added to the Catalog and other documents
with this or a similar notation, Any account balances older than 120 days may be subject
to the collections process. District account statements and collection letters have been
revised. The District’s Account Collection Process disclosure which will be provided to
delinquent account holders immediately prior to being turned over to collection, has been
updated to note that delinquent amounts will be reported on credit bureaus and that
collection costs will be added to account balances. With the Board’s approval, the District
is preparing an RFP for account collection services.
The District explored options for handling collections on delinquent accounts. As noted
in a July 10, 2012 Board information item, administration has changed the past practice
of not charging student accounts for costs of collection and developed plans to minimize
collection cost impact on 50% Law compliance.
After reviewing the District’s student accounts receivable balances, an aging of accounts and
evaluating the likelihood of collection, administration is now preparing a year-end closing entry
to write down $790,000 and thereby adjust the net student accounts receivable to a conservative
amount that can reasonably be expected to be collected.
$790,000 will be recognized as an unrestricted general fund expenditure. A portion of this write
down will likely be recorded as prior period adjustment, but these entries will reduce the ending
fund balance below the 5.0% minimum requirement.