Improving Revenue Collections through Debt Management

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• Improving Revenue Collections through Debt
  Management
• SARS Case Study

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SARS BACKGROUND

• SARS Key mandate
• The South African Revenue Service Act No 34 of
  1997 gives the entity the mandate to perform the
  following tasks
• Collect all revenues that are due
• Ensure maximum compliance to the legislation
• Provide a customer service that will maximize
  revenue collection, protect the countrys borders
  as well as facilitate trade in the country.

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SARS AT A GLANCE
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Case Study Debt Management

• SARS battles daily with an enormous debt burden
  due to the failure of certain taxpayers to meet
  their fiscal obligation

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Role of Debt Management

• The role of debt management is defined as the day
  to day management of the total debt function of
  SARS (Customs and Revenue) debtors book as well
  as all outstanding returns

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Debt Management Actions

• Debt management actions can be defined as
• All credit risk management functions as well as
  appropriate action per case whether friendly
  notice or legal action.
• Constant evaluation of SARS processes with
  international best practices to ensure an optimal
  approach to credit risk management.
• Credit risk management is highly dependent on
  intelligence
• Intelligence and related information therefore is
  the cornerstone of the debt function.

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SARS Debt Book
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Debt Management Achievements
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Debt Book

• What SARS has done over the years in response to
  the growing debt book

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Debt Management Prior to 2000

• No specialisation with regards to different
  categories of debt
• Followed separate tax type approach
• No strategy
• Administrative method
• Manual driven
• No target setting
• No Call Centre intervention
• No legal assistance
• Poor management
• No reconciliations of accounts
• No segregation of duties
• No emphasis on finalisation of cases,
• Emphasis on easy collections

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Debt Management 2000 to 2005

• Negatives
• Admin focused staff with poor collections skills
• No case management and tracking system
• Limited focus on debt management and write off of
  bad debt
• The emphasis was on cherry picking of cases and
  collections of easy money

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Debt Management 2000 to 2005

• Positive
• Establishment of the Enforcement Division
• Targets and KPI setting
• Introduction of an online debt management system
  which is partially manual driven
• Dedicated teams to focus on different categories
  of debt
• Different focus areas according to the age of the
  debt
• Integrated tax type approach
• Introduction of a collections manual to
  assist/guide collectors
• Introduction of collections training

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Debt Management 2000 to 2005

• Positives
• Legal assistance to collectors at all branches
• Dedicated tracing and prosecution departments to
  assist collections
• Split in collections and account maintenance
• Introduction of a the new debt management process
• Introduction of an internal call centre
• Introduction of three debt management projects to
  reduce the debt book
• Debt above R1 million
• Coded Debt
• Debt older than 24 months

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Debt Management 2006 to present

• Utilisation on write offs to manage bad debt
• Shift in focus from collection of easy money to
  debt management
• Refining the internal call centre
• Refining different focus areas and debt
  categories
• Refining the three debt management projects

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Debt Management Categories

• The manner in which debt arises informs the
  manner in which SARS responds to collecting the
  debt. Collections activities are categorised as
  follows
• Assessment Debt Debt arising as a result of
  activities undertaken by Assessing typically an
  assessment that remains unpaid past the due date
• Enforcement Debt Debt arising as a result of
  activities undertaken by Enforcement i.e. audit
  conducted

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Debt Management Categories

• Customs Debt Debt arising as a result of
  activities undertaken by Customs enforcement
  activity i.e. a demand for payment with
  attached schedule
• Current Debt Debt inevitably arises within a
  current financial year as a result of SARS
  activities
• Old Debt Debt not collected within the current
  year is carried over to the next financial year
• Collectors are allocated to various focus areas
  based on skills and experience

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What we aimed for New Debt Management Process

• Significant improvement in both efficiency and
  revenue collection via the debt collections
  process
• Objectives
• Efficient billing and accounting systems
• Ensure correctness of taxpayer data
• Recognize debt earlier
• Emphasis on telephone contact with taxpayers via
  the use of the outbound call centre
• Tracing taxpayers upfront
• Partnering with other stakeholders to improve
  contact ability e.g. ITC, NATIS, Deeds, Mapnet
  and others
• Eliminate waste in core and support processes
• Profile cases and skills for enhanced collections
  performance
• Streamline end-to-end processes

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Current Debt Management Process
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Current Debt Collections System (Online Debt)

• Online system introduced to manage outstanding
  payments
• Roll-out piloted in Cape Town before being rolled
  out nationwide
• System customised for SARS accounts
• System responsible for
• Debt holding
• Case allocation and management
• Case tracking
• Reporting on debt
• KPI reports

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Where we come from other systems (Policies and
Procedures)

• Debt Collections or recoveries was governed by
  Treasury Regulations
• Regulations were rigid and not relevant to the
  new debt management environment
• Other guidelines were contained in regulations
  for various acts e.g. prescription period
• Difficult for ease of reference because they were
  scattered all over

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Current Debt Management Policies and Procedures

• Debt Collections Manual finalised in 2002 with
  the aim of
• Creating a uniform collections policy
• Getting the debt into SARS bank account as
  quickly as possible
• Minimise deferred payments
• To encourage staff to initiate legal action
• These policies and procedures were updated to
  make it relevant to the current debt management
  environment in 2004

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Other instruments that SARS have at its disposal

• Garnishee orders/Appointment of Agents
• Employers
• Banks
• Vendors
• Representative taxpayer
• Individuals
• Exclusive litigation process

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Credit Assessment Policy in granting deferred
payment arrangement

• Credit Risk Profiling is not done upfront because
  of forced debtors
• In between credit assessment/vetting is done on
• Customs deferments
• Customs accreditation
• Deferment of outstanding payments

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Policy in granting deferred payment arrangement

• No deferment granted on certain taxes if
  taxpayers have defaulted on trust money unless in
  exceptional cases
• All deferment applications from the taxpayer
  should be in writing with reasons why a once off
  payment can not be made
• No telephonic deferments granted above a certain
  threshold and certain taxes
• Deferments may only be granted by Debt Management
  departments

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Policy in granting deferred payment arrangement

• For a deferment to be considered, information
  statement should be provided by the taxpayer in
  the prescribed template (Cash flow, Income and
  Expenditure, Assets and Liabilities statements)
• A bank statement for the last three consecutive
  months must accompany the application
• In certain circumstances security against the
  debt may be demanded as a condition of deferment

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Future Consideration

• Distinguish between pre-debt/revenue management
  and delinquent Management
• Integration of the call centre into the debt
  management process
• Automatic prioritization of debt according to
  pre-defined allocation rules without human
  intervention
• Pull instead of push approach to allocating cases
  - capacity based instead of allocation of ALL
  cases
• Improving the technical and management skill of
  staff
• SARS to do correct billing and accounts
  management

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Future Consideration

• Introduce quality systems
• Credit Risk Profiling
• Introduce and optimize workflow and electronic
  authorizations to minimize human dependent
  handovers and time traps
• Reduce the paper load (Admin work) through
  scanning and imaging
• Manage liquidations

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THANK YOU

• QUESTIONS???