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Accounting error

B.C. Transportation Minister Todd Stone says he is “angry” after learning that an ICBC (British Columbia Insurance Corporation) computer mistake led to billing errors totalling an estimated $110 million in optional insurance coverage.

The Crown corporation estimates it owes its customers $36 million and an additional $3 million in interest for overcharging them.

At the same time, it lost an estimated $71 million when the same computer error led to some customers underpaying their premiums.

CBC says the mistake occurred as part of its move to a new computer system that caused incorrect vehicle descriptions to be applied to some optional insurance coverage for at least the last six years.

Six years is as far back as its computer records can “accurately recalculate historical premiums,” it said.

 System Errors

ICBC says the error affects the optional insurance coverage of 40,000 drivers in each of six years for a total of 240,000 motorists over the six year period, resulting in an average yearly overcharge of $21.

ICBC says that’s less than two per cent of its customer base is affected by the overcharges.

It said the same error caused another three per cent of its drivers to underpay an average $34 per year.

Stone said ICBC will not be able to claim the estimated $71 million it lost.

 

ICBC will be audited

Stone said he is also ordering an outside audit of ICBC’s numbers, as well as an examination of its handling of the issue.

 The Crown corporation said updates to vehicle descriptions will be made in the coming months. As well, it’s implementing new technology that will use vehicle identification numbers (VINs) provided by manufacturers to automatically capture each vehicle’s make and model.

The vast majority, or 95 per cent, of ICBC’s three million customers are not affected.

Discussion Questions

1.      How should the accounting error be accounted for?

2.      Should revenue be accrued for the under billing of $71 million.

3.      Should the expense to refund the  $36 million and $3 million in interest be accrued in the current period or prior period?

To read  the complete article , click CBC news

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