INCOME RECEIVABLE AND RECEIPTS
Segregation of Duties
Monitoring and Management
Recoveries from the SCF
1. This section gives guidance on the identification and recovery of income receivable and the treatment of receipts within the Scottish Administration (i.e. the core Scottish Government (SG), the Crown Office and Procurator Fiscal Service, SG Executive Agencies and non-ministerial departments). Other organisations to which the Scottish Public Finance Manual (SPFM) is directly applicable - including bodies sponsored by the SG - should ensure that, where appropriate, procedures consistent with this guidance are put in place.
2. Responsibility for the identification and recovery of income receivable lies principally with business areas. Business areas should maintain debtors' accounts and raise debtors' invoices via the Accounts Receivable module of the Scottish Government accounting system or record debts due on an acceptable local system.
3. If the debtor does not pay on time or makes an underpayment it is the responsibility of the business area to monitor the income receivable and to identify and resolve problems. If a debtor makes an overpayment the business area, in consultation with the debtor and specialist finance staff, should decide between retaining the balance to offset future invoices from the debtor and repaying the balance to the debtor.
4. The use of receipts to fund expenditure should, as a rule, be subject to separate authorisation by the Scottish Parliament in the annual Budget Act or subsequent Amendment Orders.
5. Responsibility for the identification and recovery of income receivable lies principally with business areas. That responsibility includes ensuring compliance with any relevant statutory authority (see the SPFM section on Fees & Charges) and the determination of VAT. As a general rule, it is appropriate to raise sales invoices for the recovery of income receivable if it represents a legally enforceable debt. Business areas should maintain debtors' accounts and raise debtors' invoices via the Accounts Receivable module of the SG's accounting system (SEAS) or record debts due on an acceptable local system i.e. one that has been agreed with the Treasury and Banking Branch (T&B) and the Financial Reporting Unit. Transactions processed using a local system must be recorded in summary form on SEAS on a regular basis. Receipts are credited either to the appropriate debtors' accounts or to appropriate account codes within SEAS, as advised by business areas and/or specialist finance staff. More detailed guidance on the procedures to be followed in relation to income receivable and receipts is available from T&B.
Segregation of Duties
6. To be effective any accounting system must build in a strict segregation of duties. For example people who handle receipts should not have authority to raise invoices or to take any action in respect of credit control. And people who have the authority to raise invoices should not have authority to raise credit notes. Where resources are limited and separation of duties is not possible, alternative management controls should be agreed with specialist finance staff and in consultation with T&B.
7. Business areas, in consultation with specialist finance staff, are responsible for determining policy on credit control for each business area that issues Accounts Receivable invoices. The policy should distinguish between different categories of debt, the manner in which the business area is to pursue outstanding debt, and the time that should elapse between each stage of the debt recovery process. The policy should also cover the action to be taken when it becomes clear that a debt will not be paid. The policy should be evidenced in writing and be signed off by both the business area and specialist finance staff.
Monitoring and Management
8. If the debtor does not pay on time or makes an underpayment it is the responsibility of the business area to monitor the position and to identify and resolve problems. In circumstances where there has been an error in the calculation of the invoice value, or if it has become clear that it was inappropriate to charge all or some of the proposed sum this might involve the raising of a credit note in order to clear the accounting system. If a debtor makes an overpayment the business area, in consultation with the debtor and specialist finance staff, should decide between retaining the balance to offset future invoices from the debtor and repaying the balance to the debtor. Specialist finance staff are responsible for monitoring the overall position and should ensure that business areas are taking all possible steps to recover outstanding debt and resolve any other problems.
9. As a general rule the first stage in debt recovery is to issue reminder letters at appropriate intervals. Another option is set-off. Set-off is a right of common law which, in appropriate circumstances, provides a means of settling mutual debts between two parties. When the reminder letter / set-off options are exhausted business areas, in consultation with specialist finance staff, should consider referring the matter to the SG Legal Directorate or writing off the debt. Write-off is subject to relevant guidance on Losses and Special Payments and, it must be borne in mind, scores against the resource DEL budget. Where it appears that a debt may go bad (e.g. notification of bankruptcy etc, no satisfactory response to reminder letters) business areas should ensure so far as possible that no further debt arises with the debtor in question.
10. In most cases where income is receivable it should be possible to raise and issue an invoice via SEAS. However, there are circumstances that may give rise to uninvoiced receipts e.g. cash sales, payments received with application forms and pension contributions. Indelible records of all such receipts must be maintained and receipts which are not directed to T&B in the first instance should be passed to T&B timeously and securely under arrangements agreed with specialist finance staff. In cases where it is known that uninvoiced receipts are being submitted the business area should give advance notification to T&B. T&B will advise on the separate arrangements necessary to record any VAT element on SEAS.
11. Transactions between constituent parts of the Scottish Administration should, where possible, be effected by journal debiting the business area incurring the cost and crediting the business area providing the goods or services. The exceptions are transactions between areas that are on SEAS and those that are not on SEAS. In such cases the creditor must raise an invoice in the normal way.
12. Most receipts score as negative expenditure in terms of Scotland's Delegated Expenditure Limit (DEL) and Annually Managed Expenditure (AME). Receipts that score as negative capital DEL can only be used to fund capital DEL expenditure and receipts that score as negative AME can only be used to fund AME expenditure. Receipts that score as negative resource (current) DEL can be used to fund resource DEL expenditure or the headroom created in resource DEL can be transferred to capital DEL to fund capital DEL expenditure.
13. Sums received by bodies funded direct from the Scottish Consolidated Fund (SCF) - including the constituent parts of the Scottish Administration - must be paid into the SCF unless provision has been made for the disposal of or accounting for such sums by or under an Act of the Scottish Parliament. The use of receipts to fund expenditure should therefore, as a rule, be subject to separate authorisation by the Parliament in the annual Budget Act or subsequent Amendment Orders - but see paragraph 17. The annual Budget Act authorises the use of accruing resources for specified purposes up to specified amounts. The term "accruing resources" covers all receipts from the disposal of assets (capital) and from operational activities (current). However, it also includes any resources "received" that do not involve a cash-equivalent receipt e.g. where the net book value of an asset was more than the sum received on disposal - see following paragraph.
14. The accruing resources and associated limits specified in Schedule 1 of the Budget Act provides authorisation for the use of "capital" and "current" receipts. In terms of the Budget Act, from 1 April 2010, there is only one combined limit for "capital" and "current" receipts. The rules set out in paragraph 12 still apply however. The terms presently used in the Budget Documents are "Capital Receipts Applied" (capital) and "Retained Income" (current). Projected breaches of the limit specified in Schedules 1 of the Budget Act should be addressed in the context of Budget Revision exercises.
15. Income is recognised in the accounts on the basis of when it is earned or when ownership of an asset is legally transferred - not when money is actually paid or received. The raising of an invoice in accounts receivable records the income and a debtor in respect of that income. Subsequent events - the receipt of payment, the issue of a credit note, or a write off of a bad debt - are then recorded as they take place. (Where recovery is effected by way of set-off the transactions should nonetheless be accounted for on a gross basis.) Uninvoiced income shall be accounted for by T&B in the financial year in which the income is received. Relevant finance staff should be advised where uninvoiced income relates to a different financial year so that it can be accrued as appropriate.
16. Where there is doubt over the recoverability of debt, provision is made in the resource accounts e.g. if it appears that there is a 50% chance that a debt might not be paid, then the Financial Reporting Unit will arrange for the accounts to carry a provision representing 50% of the debt.
17. Receipts resulting from the SG acting as an agent on behalf of a third party or recoveries of overpayments / payments made in error or time expired orders need not, for operational purposes, be regarded as "sums received by the Scottish Administration" and payable into the SCF (see paragraph 13). Such receipts may therefore be accounted for on a net basis i.e. credited to the relevant expenditure account code. Contributions from third parties towards the cost of jointly funded projects - this excludes sponsorship - may be accounted for as creditors until such time as the costs have been incurred. However, if the receipts relate to expenditure accounted for in a previous financial year, and are considered material in terms of the authorised budget headings, business areas should consult relevant finance staff on whether, in the interests of openness and transparency, specific Parliamentary approval for the use of such receipts should be sought via the Budget Act / Amendment Orders. Where acting as an agent on behalf of a third party generates a significant number of transactions the operation of a suspense account should be considered in consultation with relevant finance staff.
18. Receipts from the European Community (EC) are subject to specific requirements as set out in the section of the SPFM on EU Funding.
19. Excess receipts are receipts over and above the relevant limits authorised by Budget Act and must be surrendered to the SCF accompanied by a completed SCF1 form. Any such receipts that cannot be taken into account under carry forward of provision arrangements are in due course netted off the Funding Requirement.
20. Under section 64(5) and (6) of the Scotland Act 1998 HM Treasury may designate by order any receipts as payable to the Secretary of State for Scotland - effectively for onward transmission to the UK Consolidated Fund. The relevant categories of receipts are specified in The Scotland Act 1998 (Designation of Receipts) Order 2009. T&B will arrange for the paying over of designated receipts to the Secretary of State for Scotland.
21. Receipts related to the repayments of pre-devolution loans from the NLF must be surrendered to the SCF and paid over to the Secretary of State for Scotland. Relevant business areas should arrange for repayments (both principal and interest) to be lodged in the SCF as advised by T&B. T&B will thereafter arrange for the paying over to the Secretary of State for Scotland.
Recoveries from the SCF
22. Under section 6 of the Public Finance and Accountability (Scotland) Act 2000 a sum paid into the SCF where there is no obligation to do so may, with the agreement of the Auditor General for Scotland, be recovered.
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Page Published/ Updated: July 2010