Revenue estimates often drive expenditures in a local government’s budget. We recognize these revenues using different bases of accounting depending on the type of transaction. Some revenues are recorded when cash is received (cash basis). Other revenues are billed to a customer or taxpayer and should be recorded as accounts (or taxes) receivable in the local government’s accounting records and are accounted for using the accrual or modified accrual basis of accounting.
Accounts and taxes receivable represent an asset to the government. However, accounts receivable can’t be used to pay the bills! It is important to convert those receivables into cash payments. Below are some strategies for ensuring your government actually collects what is owed.
- Tax Bills - Make sure your bill is properly designed. Among other things, the bill should include the amount due, basis for determining tax liability, and penalties and interest for late payment. Include a return envelope with the statement. Consider including a sample tax statement on your government’s website to assist citizens in understanding their tax bill.
Tax bills may be undeliverable due to the taxpayer moving or an incorrect address. One strategy to assist with this issue is to cross reference your taxpayer database with customers in your utility billing system, if you have one, to ensure the addresses agree.
Make paying taxes convenient by offering convenient collection points and office hours. In addition, consider allowing taxpayers to pay taxes in two installments.
- Types of Collections – Consider using night boxes to allow customers or tax payers to make payments after hours. Make sure the locations are secure, conveniently located, and well lit. Often a night box is used for utility customers to make tax payments.
Another option is the use of a lockbox. Banks and other third party processors receive and deposit payments using lockboxes. This method is especially effective when dealing with high volume transactions such as utility billing payments. Lockboxes allow governments to deposit payments into their bank account more quickly and should result in increasing the availability of cash.
Automated Clearing House (ACH) payments allow customers to move money directly from their bank accounts to the local government’s account. Make sure you review the cost of accepting ACH payments with your financial institution.
Allowing payment by credit or debit cards increases convenience to your customers. Be sure to determine fees associated with this method of payment.
- Collection of Licenses, Fees, and Other Charges – You want to make sure you collect those amounts owed to the government. Monitor these collections using prior year revenue, budgeted amounts, and analytics. Analytics include volume of transactions with a fixed fee cost associated with it. Often governments will perform an audit of business licenses by comparing yellow page business listings with a list of business licenses issued. Look at the total building permits issued and compare to the revenues collected to determine the amount is reasonable. Compare visits to the swimming pool with the revenue collected to ensure the government has collected the appropriate amount.
All governments must have effective revenue collection strategies in place to ensure sufficient cash is available to pay operational costs. Reviewing all points of revenue collection as well as policies and ordinances in place annually is a best practice.
By Tracy Arner, M.Ed., CPA
Carl Vinson Institute of Government, Financial Training Program Manager