Sample Audit Program Sales and Accounts Receivable

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Description

Accounts receivable/credit & collections audit program

Revision Info

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I.

Objectives of the Review 1.

Evaluation of compliance with corporate policies and procedures.

2.

Evaluation of overall efficiency and effectiveness of process internal controls and procedures.

3.

Evaluation of processes and practices against known best practices.

II.

Work Program Steps Planning:

a) Review known best practices and research the internet.

b) Set up binder.

c) Develop project plan and determine scope. d) Prepare budget.

e) Plan a coordination meeting with Process Owner. f) Obtain Accounts Receivable process/functional

overview and expense allocation. 4.

Obtain a copy of Accounts Receivable and Credit & Collections policies and procedures. Review procedures prior to beginning fieldwork. Draft any questions that may be asked during interviews and while process mapping.

Review the following known best practices:

 Eliminate barriers to payment by offering customers multiple payment options, flexible billing cycles, and incentives to pay early.  Create a single point of contact for all incoming

customer calls regarding payments and use technology to route the calls to the appropriate service representative or automated activities

 Electronically receive and post customer payments to the billing system in real-time to

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reduce processing costs and expedite cash flow.  Ensure that all employees with customer contact work together to deliver a consistent message to the customer regarding company’s credit policies and goals.

 Use credit scoring to assign the customer a credit rating that will trigger appropriate sales and collections treatment.

 Continuously update customers credit ratings using a behavioural scoring system which monitors customer payment behavior, usage activity, and total customer account exposure versus assigned credit limits.

 Use the credit and collections process to enhance customer satisfaction.

 Develop, monitor, and motivate collections specialists using individual and team performance measures.

 Use performance measures to select and monitor outside collection agents, if it is cost-justified to employ them.

 Automatically initiate all treatment actions based on a pre-programmed, “customized” treatment timeline that details specific action steps for the initial identification of delinquent account

customers based on customer credit rating/class.  Prioritize delinquent accounts for collections

follow-up, allocate appropriate collections resources, and provide real-time access to customer information.

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5.

Benchmark company accounts receivable process and statistics to other similar companies (if applicable). 6.

Based upon the interviews, gain an understanding of the following areas:

 Overall accounts receivable process

 Customer credit rating system/scoring process

 Order entry process (High level review of A/R’s

role in the order entry process –i.e. credit classification, etc.)

 Process for monitoring of credit standings

 Reconciliation of shipped items to invoices; G/L reconciliation

 Invoicing process

 A/R cash application process

 Process for collection of overdue amounts

 Process for writing off over due receivables

 Management reporting (including process performance metrics)

 Reserve process – (Coordinate with external

auditors to determine their process for review the company’s reserve values to ensure that there is no duplication of effort).

Compare all processes to known best practices (if applicable) to determine any suggestions for process improvements.

7.

Obtain an understanding and evidence of the accounts receivable/credit & collection process by performing the following transaction testing:

 Review the company's A/R trial balance for unusual and/or large items and investigate, if necessary. Items should be > 60 days and > 5% of total A/R balance.

 Review detail of significant past due balances and discuss with management. Obtain and document the probability of collectability and plans for collection.

 Verify compliance with existing policies and procedures.

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 Ensure completeness of recording.

 Verify customer payments made.

 Verify accuracy of recording.

 Review credit due dates – aged amount.

 Verify proper authorizations (if necessary).

 Select 10 – 20 cash receipts. Ensure that all receipts are posted in a timely manner and procedures are in compliance with established policies and procedures.

 Select 10 – 20 invoiced transactions. Ensure that invoicing procedures occur in a timely manner are in compliance with established policies and procedures.

 Review credit ratings for 10 customers. Ensure that credit classifications are in alignment with scoring policies. Document all discrepancies.

 Obtain the list of credit memos issued for the Q49X and Q19Y. Select 10 items and trace to supporting documentation. Ensure that they were issued and approved in line with corporate policy and procedures.

 Obtain an analysis of Allowance for Doubtful Accounts. Verify that the allowance is adequate and has been calculated in line with corporate policy.

 Review A/R reconciliation to G/L – verify timeliness.

 Review A/R reserved amounts – determine

method of calculations and verify reasonableness. Review/evaluate management reporting

reports/reconciliations (including budget to actual commission expense, target earnings, quotas, etc.) 8.

Obtain the following background information:

 Number and dollar value (absolute) of invoices for the last six months – obtain soft copy of information

 Current aging of the receivables – identify high value invoices, credit notes, etc.

 Numeric sequence (search for duplicates & missing invoices)

 Receivables by location (i.e. U.S., Europe, Asia, etc.) – obtain soft copy of the information

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 Percentage of debit/credit memos by location (i.e. U.S., Europe, Asia, etc.) – obtain soft copy of the information

Match billings to shipping reports for quantities shipped but not billed; matching billing date to shipping date – determine the time gap