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Scope

This policy provides guidance for management of and accounting for uncollectible receivables and applies to the University’s portfolio of student accounts, student loans and to non-student miscellaneous receivables.  Grant and patient receivables are not addressed in this policy.

Reason for Policy

Generally Accepted Accounting Principles (GAAP) require the University to make every effort to collect receivable balances, to evaluate and write off receivables determined to be uncollectible and to estimate and record receivable amounts that will become uncollectible in the future. This policy provides guidance on evaluating and accounting for the uncollectible portion of accounts receivable including writing off of uncollectible receivables and calculating an uncollectible receivable estimate.

Policy Statement

Collections
A receivable becomes past due if payment is not received by the payment due date.  A concerted effort should be made to collect accounts, including the current amount due applicable to installment payments.  Each campus is responsible for establishing written collection procedures for the accounts receivable.  Collection procedures for Federal loans must follow Federal guidelines and collection procedures for University loans must follow restrictions placed on the individual loan funds by the grantor or donor.

Collection actions may include but are not limited to: sending additional notices, making phone calls, reporting the account to the credit bureau, or referring the account to an outside collection agency.  Any efforts to collect overdue accounts receivable performed by University employees must be documented. These efforts must be conducted according to the provisions of the 

Write-Offs of Uncollectible Accounts
While routinely executing collection procedures some receivables will be determined to be uncollectible. Accounts should be written off the University’s financial accounting records when all collection actions have been completed and management determines the receivable to be uncollectible.  Each campus maintains criteria and guidelines establishing the point when receivables become uncollectible and is responsible for consistently performing write off of receivables.  This ensures a stable and reasonable receivable balance, is an important element in reporting accurate financials, achieving reporting consistency and usefulness during the year, and reflecting the true net realizable value of the University’s accounts receivable.  Amounts written off are no longer reflected in the University financials and are no longer used in calculating the Allowance for Uncollectible Accounts.

Allowance for Uncollectible Accounts
The process of calculating the estimate for uncollectible balances requires a rational estimate that follows GAAP.  The University will use the allowance method in which estimates of the uncollectible accounts are applied as a percentage to the revenues earned.  This allows for the allowance of uncollectible accounts to match with the revenue, which adheres to the matching principle in GAAP.

The estimate the University will use is based on historical data on collections for each type of receivable.   The goal in recording the Allowance for Uncollectible Accounts is to show, as accurately as possible, the net realizable value of accounts receivable on the University’s financial statements.   The UM System Controller’s Office is responsible for establishi