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Posted December 10, 2013 | comments Leave a comment

Town writes off $850,000 in bad debt

By Alex Bridges

Front Royal leaders erased nearly $850,000 in unpaid utilities and other "bad debt" owed to the town.

Town Council on Monday approved a motion to remove $848,191 in outstanding debt from unpaid bills in the water, sewer, electric, solid waste and general fund liability accounts. Councilman Thomas Sayre said he voted "reluctantly" to support the motion.

The move is the first such action the town has taken in decades to clear its books of bills officials say probably won't ever be paid.

Finance Director Kim Gilkey-Breeden explained Tuesday that more than 30 years of uncollectible debt remained on the town's books. Some unpaid accounts owed the town as little as $50 or less. But the town had more than 3,000 unpaid accounts still sitting on the books. Gilkey-Breeden said the town had unpaid debts from prior to when she began working for Front Royal in 1981.

The town's auditing firm, Mitchell & Co., requested that council put a policy in place to let the finance department review outstanding, uncollectible debt and to remove the unpaid amounts from the agency's ledgers.

The town implemented a policy in 2012 that calls for the finance department to write off "bad debt" from the books.

A statute of limitations keeps the town from attempting to collect unpaid debt newer than seven years, Gilkey-Breeden explained. The department has done its "due diligence" to go after and collect outstanding debt using various tools at its disposal. The director said the department holds the unpaid amounts on the books in case a person moves back to town. The department also sends the amounts to the Virginia Department of Taxation's debt set-off program. The town also has used collections agencies in the past, she said.

The finance department looked at debt still on the books that dates from 2006 and prior years. The bulk of the debt in the first write-off comes from 2000 and earlier, Gilkey-Breeden said.

"So we're just bringing it all full circle," Gilkey-Breeden said. "It's in the town's best interest to remove it."

The existing debt on the books factors into how the town calculates and sets utility rates. But as the director explained, the process accounts for bad debt and uncollectible, unpaid bills.

"How does the town compensate for that?" Gilkey-Breeden asked. "We're not going to forgive it right away because, within seven years they may come back in town and we're going to get that money."

The director also explained the write-off policy and procedures to Town Council on Monday.

"So if they really wanted to fight us on something that was older than that, it would be hard for us to collect," Gilkey-Breeden told council.

The town will write off the account, flag it and notify the person, Gilkey-Breeden said.

"If they happen to move back in, we will continue to do all of our due diligence in trying to collect anything that is outstanding," Gilkey-Breeden said. "If there happens to be a customer that does move back in after all this time they will be very well aware that we had written off that bad debt."

The town also benefits from the write-off when it tries to borrow money, Gilkey-Breeden said. The director indicated the write-off effort can also have a beneficial effect on the overall utility rates for each service.

Councilman Bret Hrbek noted that more than a third of the debt the town wrote off has been on the books since before 2001.

"It's not all just in the past couple of years either," Hrbek said. "It's a lot of debt that's been sitting out there."

The town labels debt uncollectible when a closed account shows no activity for at least seven years, or five years if entered into bankruptcy. Gilkey-Breeden advised her department would provide the annual write-off amounts around the same time each year. The first year for the write-off is high, Gilkey-Breeden said.

The director noted that when her department went through the accounts those with any activity in the past seven years stay on the books.

Contact staff writer Alex Bridges at 540-465-5137 ext. 125, or abridges@nvdaily.com

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