Department of Internal Audit and Compliance

Finance and Accounting - Accounts Receivable

Effectiveness and efficiency of operations 

A. Cash collections are facilitated and expedited.

1. Are sophisticated collections procedures employed, such as lockboxes, depository accounts for customer remittances, EFT, and EDI or web-enabled billing, to improve the timeliness of receipts and accuracy of processing?
2. Are varied accounts receivable methods employed to improve timeliness of cash receipts, such as factoring, discounts for timely remittances, multiple payment options, and outsourcing to collection agencies?

B. Cash receipts are safeguarded.

1. Are physical controls over cash receipts adequate (for example, prelist receipts, restrictive endorsements, daily deposits, reconciliation of book receipts with prelisted deposits, comparison of cash records with deposit slips and bank statements)?

C. Accounts receivable transactions are processed efficiently.

1. Have performance measures been designed to monitor accounts receivable transaction processing (measures such as number of reconciling items between subsidiary and general ledgers, time to reconcile ledgers, time to reconcile prelisted receipts with bank deposits, and amount of unapplied cash outstanding)?

D. Credit risk is managed to preserve margins and maximize cash flow while supporting business growth.

1. Is credit policy focused on the following items: terms of sale (credit period, any cash discounts for early payment); account quality policy (determining how much credit to grant); and collections policy (collections methods, frequency, sample request letters, phone calls)?
2. Is the credit policy administered to be clear and consistent, cost-effective, respectful of long-term business relationships, and mindful of the need for business development? 

Reliability of financial reporting 

A. Accounts receivable, cash receipts, and credit memos are properly authorized.

1. Are employees responsible for receipt and deposit of checks not responsible for posting to ledgers, collecting delinquent receivables, authorizing write-offs or credit memos, or preparing billing documents?
2. Does the electronic filing of receipts into the lockbox interface with the accounts receivable sub-ledger and apply cash receipts to the customer accounts based on a matching of customer name, customer number, and invoice number?
3. Are cash posting personnel required to reconcile control totals of the cash receipts received for the day (from lockbox files/reports) with the total of cash receipts applied to customer accounts?
4. Are cash posting personnel required to reconcile the control totals from the cash receipts received for the day (from lockbox files/reports) with the total of cash receipts that are applied to customer accounts?
5. Are accounting systems built which create journal entries that summarize transaction activity in accounts receivable subsidiary ledgers and update these entries to the general ledger master files?

B. Recorded accounts receivable and revenue balances are substantiated.

1. Is the accounts receivable subsidiary ledger function segregated from the preparation of accounts receivable documentation, maintenance of the control account, and handling of cash receipts?

C. Recorded accounts receivable and revenue balances are evaluated.

1. Are provisions, write-offs, and credit memos compared with budgets and historical information and with economic and industry conditions periodically to ensure the reserves are adequate?
   
   

   Back