Accounts Receivable, Credit and Collections Audit Report

 

RECEIVABLE,  ACCOUNTS RECEIVABLE, CREDIT AND COLLECTIONS AUDIT REPORT: SAMPLE 2

 

EXECUTIVE SUMMARY •

Internal Intern al audit audit complete completed d a review review of of Company Company X’s X’s accounts accounts receivable (AR), credit and collections processes in (Month) (Year). The

objective of this review was to obtain an understanding of the processes, evaluate the adequacy and effectiveness of the asso ass ociated •

internal controls and to identify opportunities for process improvements. improvem ents. In (Month) (Year), Corporate Company X converted from Oracle to the Lawson system. The WIN system is currently being utilized by the branch offices to capture and submit billing information. With the current systems in place, dunning statements are not being provided to customers and the use of a system s ystem feature that notifies the branch office off ice personnel of customers with aged or problematic accounts before conducting sales transactions is not in place. T hese system limitations may hamper management’s m anagement’s ability to make informed decisions related to customer accounts and has impacted im pacted Company X’s ability to collect on outstanding receivables.

•

Overall, the internal controls related to the AR, credit and collections processes are adequate. However, based upon our detailed review of the processes and limited transaction testing, internal audit noted that the policies and procedures are not clearly defined for some areas, are not consistently adhered to by employees em ployees and are not consistently enforced by Company X management.

•

The following is a summary sum mary of the issues and observations noted during this review. Each issue/observation has been prioritized prioritized based upon its business impact to Company Com pany X. For each issue, a page reference has been made m ade to the Detailed Issues & Observations section of this report, which outlines the management implementation implementation plan to address each issue/observation. issue/observation. Each management implementation plan has been agreed upon by Company X management and includes the responsible person and expected completion of each item.

Issues/Observations

Page

1. Polices on the processing and authorization of credit memos and write-offs write-offs are not clearly defined.

8

2. Credit policies are not not consistently adhered to by sales personnel or consistently enforced by management. 3. Collections efforts are not always performed in accordance with Company Company X policy. 4. Due to system limitations, the branch offices can not perform perform system adjustments. adjustments. Therefore, Corporate Company X must process a significant number of billing adjustments resulting from billing errors created during the manual billing process. 5. Credit documentation is not always always maintained in customer files.

9

Priority Rating:

2

Priority

High

Medium

Low

10 11 12

 

OBJECTIVES, SCOPE & PROCEDURES PERFORMED Objectives •

Obtain an understanding of the client acceptance, billing, accounts receivable and collections processes.

•

Evaluate the effectiveness and efficiency of the existing policies and procedures.

•

Review internal controls and operating processes and identify opportunities for improvement. im provement.

•

Evaluate the quality and integrity of information systems supporting the processes reviewed.

•

Compare Comp are Comp Company any X’s pra practic ctices es to to leading practices.

Scope •

The scope of the audit included a review of the accounts receivable, credit and collections processes for the branch offices and Corporate Company X.

Procedures Performed •

Interviewed key personnel to obtain an understanding of the accounts receivable, credit and collections processes.

• •

Reviewed drafts of policies and procedures for the accounts receivable, credit and collections processes. Performed transaction testing to evaluate the following:  – Credit memos and write-offs are properly authorized and support exists for these entries.  – Customer credit files contain adequate documentation and research with the guidelines in the draft policy.  – Cash receipts were posted timely.

3

•

Provided accounts receivable, credit and collections leading practices.

•

Evaluated the internal control environment against leading control practices.

•

Benchmarked Bench marked Company Company X’s accounts accounts receivable receivable,, credit and collection collection process process against against other companies companies.

 

KEY PROCESSING S TATISTICS (1/3) PROCESSIN G ST Credit and Collections Staffing Statistics

AR Staffing Statistics •

XX AR Manager 

•

XX Managers

•

XX AR Supervisor 

•

XX Credit Analysts

•

XX AR Processors

•

XX Credit Support

•

XX Temporary Employees

•

XX Administrative Assistant

Accounts Receivable Aging Statistics Total AR as of (Date): $XXX 121+ Days $XX 7%

91-120 Days $XX 4% 61-190 Days $XX 6%

1-30 Days $XX 60%

4

31-60 Days $XX 23%

 

KEY PROCESSING PROCESSIN G ST S TATISTICS (2/3) Invoice Volume by Dollar Value 50

$XX

40

XX XX

$XX

30

$XX XX

$XX

20

XX

Dollar Value of Invoices (In Thousands)

XX 10

Number of Invoices

$XX

$XX

XX

0 $X-$XX $X-$ XX $X-$ $X-$XX XX $X-$ $X-$XX XX $X-$ $X-$XX XX $X-$ $X-$XX XX $X-$ $X-$XX XX Source: Invoice Register for the months of (Month) (Year)  – (Month) (Year)

Top To p 10 10 Cus Custo tome merr Acc Accou ount nts s by Nu Numb mber er of In Invo voic ices es Customer Name Customer 1 Customer 2 Customer 3 Customer 4 Customer 5 Customer 6 Customer 7 Customer 8 Customer 9 Customer 10 5

Amount

# of Invoices

XX XX XX XX XX XX XX XX XX XX

X X X X X X X X X X

Top To p 10 10 Cus Custo tome merr Acc Accou ount nts s by by Dol Dolla larr Val Value ue Customer Name Customer 1 Customer 2 Customer 3 Customer 4 Customer 5 Customer 6 Customer 7 Customer 8 Customer 9 Customer 10

Amount

# of Invoices

XX XX XX XX XX XX XX XX XX XX

X X X X X X X X X X

 

KEY PROCESSING S TATISTICS (3/3) PROCESSIN G ST The cost of one day of DSO is calculated below to estimate the potential savings to Company X resulting from process improvem ents. Estimated Cost of One Day DSO  Average Daily Sales (A)

$XX

 Average Cost of Funds (B)

XX%

Cost of One Day DSO

$XX

The average daily sales and the average cost of funds were calculated as follows: (A) Average Daily Sales  Average Annualized Annualized Sales License Total 365 Days Average Daily Sales

$XX $XX $XX XX $XX

Senior Notes

(B) Average Cost of Funds $XX XX%

$XX

Revolver

$XX

XX%

$XX

Average Aver age Cost of Funds Funds

$XX

XX%

$XX

The example below is intended to show the potential impact of more aggressively managing payment terms. W hile it is not necessarily realistic that the entire gap shown can be closed, the example shows the significant opportunity that exists. Annual DSO Impact

Other  

 Average Contracted Payment Payment Terms

XX

XX

 Actual Estimated Days from Invoice Data

XX

XX

Contractual/Standard vs. Ac Actual Da Days fr from Invoice Date

XX

XX

Cost of One Day of DSO

$XX

XX

($XX)

$XX

Annual DSO Impact

6

FBA

Company X’s standard payment terms for franchise

business activity (FBA) are net X days and the payment terms for non-national invoices are net X days. DSO of XX days was used for both calculations, as the DSO was not available for each type of invoices.

 

ISSUES & OBSERVATIONS The matrix below summarizes the business impact and implementation effort of the issues and observation observations s detailed in the Issues and Observations section starting on Page 8 of this report. This matrix includes all observation observations s noted through leading practices analysis and internal i nternal control assessment.

   h   g    i    H

Issues/Observations

4

   t   c   a   p   m    I   s   s   e   n    i   s   u    B

1

1. Polices on the processing processing and authorization authorization of credit credit memos

2

3

and write-offs are not clearly defined. 2. Credit policies are are not consistently consistently adhered adhered to by by sales personnel nor consistently enforced by management.

5

3. Collections efforts are not always always performed in accordance with Company X policy. 4. Due to system limitations, the branch offices can not not perform system adjustments. Therefore, Corporate Company X must process a significant number of billing adjustments resulting

  w   o    L

Low

7

Implementation Effort

High

Low Business Impact; Difficult to Implement

High Business Impact; Difficult to Implement

High Business Impact; Easy to Implement

Low Business Impact; Easy to Implement

from billing errors created during the manual billing process. 5. Credit documentation documentation is not always maintained maintained in customer customer files.

 

ISSUES & OBSERVATIONS Issue 1: Credit Memos/Write-off Procedures Owner/ Issues/Observations 1. Polices Polices on the processing processing and authorization authorization of credit credit memos and write-offs are not clearly defined. Internal audit reviewed a sample of credit memos and write-offs and noted that appropriate authorizations and supporting documentation did not exist for these transactions. Although the accounts receivable department has draft policies and procedures that are in the process of being finalized, f inalized, the policies and procedures do not include the following credit memo mem o and write-off guidelines: •

Proper signature and approval level structure

•

Copies of required supporting information for each transaction

•

Summarized explanation and reasons for the credit memo or write-off 

•

Copies of collections call logs, documenting customer follow-up and correspondence related to the issue

Business Impact: Undocumented polices and procedures increase the risk that sales will be inappropriately reversed.

8

Managementt Implementation Plan Managemen

Timing

•

Document the policies and procedures related to the credit memo and write-off process, including the guidelines identified at left.

(Name) (Date)

•

Distribute policies and procedures to all departmental employees and other appropriate personnel; consider posting all policies on Company X’s intranet for easy

(Name) (Date)

accessibility for all employees.

 

ISSUES & OBSERVATIONS Issue 2: Credit Policies Owner/ Managementt Implementation Plan Managemen

Timing

2. Credit policies policies are not consistent consistently ly adhered adhered to by sales personnel or consistently enforced by management.

Issues/Observations •

Document the credit approval process and distribute these guidelines to all personnel.

(Name) (Date)

Based upon interviews of credit and collections personnel and testing a sample of customer orders placed by the sales operations team, internal audit noted the following: f ollowing:

•

Educate sales employees on the importance of adhering to the credit approval procedures.

(Name) (Date)

•

Hold sales personnel and managers accountable for violating the established

•

Sales personnel can place orders without an established credit limit into the system.

•

Sales personnel canbalance place an into the system when a customer’s existing is order delinquent.

•

Sales personnel have the ability to enter a sales order into the system that exceeds the customer's existing credit limit. Based upon our testing, XX% of the customer orders placed exceeded the customer’s approved credit limit.

See Appendix F, page 28 for a summary of testing results. Business Impact: Undocumented unapproved policies and procedures increase the risk that the and AR department’s goals are not aligned with Company X’s strategies; sales personnel may places orders to customers that lead to outstanding/delinque outstanding/delinquent nt accounts.

•

credit limits. Implement a system feature (along with appropriate corporate management overrides) that will enable Corporate Company X to notify the sales operations team of the following situations before they enter sales orders into the system: −  Account balance is over the existing

credit limit. −  A significant portion of the balance balance

exceeds X days beyond approved payment terms, regardless of available credit.

−  Any existing commitment plan is

violated. − Credit limit is not entered into the

system.

9

(Name) (Date) (Name) (Date)

 

ISSUES & OBSERVATIONS Issue 3: Collection Procedures Owner/ Issues/Observations 3. Collections Collections efforts efforts by the branch offices offices and corporate corporate collections personnel are not always performed in accordance with Company X’s policies.

Invoice statements and dunning letters are not being mailed to notify customers of aged accounts. Collections personnel at the branch offices and corporate are responsible for ensuring that other methods (e.g., phone calls) are being utilized to work aged accounts.

•

Managementt Implementation Plan Managemen

Timing

Require collection personnel to document the follow-up efforts (e.g., collection calls, dunning letters) in the comments field of Lawson.

(Name) (Date)

•  Automate the collections process to

include the following: delinquent −  Automatic identification of delinquent accounts.

Based on internal audit’s testing of the collections procedures in

−  Automatic prioritization of accounts for

place, we noted that collection efforts were not performed on two of the 10 customer accounts reviewed (XX% compliance). In addition, XX% of the aged customer custom er accounts that had been researched and followed up on by collection c ollection personnel were not documented in the comments field of Lawson.

collection activity. dunning −  Automatic preparation of dunning letters. −  Automatic queuing queuing of accounts for

calls.

See Appendix F, Page 28 for a summary of testing results.

− Immediate notice of changes in

Business Impact:

account status to sales, credit and

Lack of documentation may cause inefficiencies to arise if current personnel leave and new personnel have to recreate the credit and collection process; write-offs to bad debt may occur when documentation of the collection efforts are missing or inadequate.

customer service.

10

(Name) (Date)

•

Re-evaluate the benefits of automatically mailing invoice statements on a regular basis to notify customers of aged accounts.

(Name) (Date)

 

ISSUES & OBSERVATIONS Issue 4: Billing Adjustments Adjustments Owner/ Issues/Observations 4. Due to system system limitations, limitations, the branch branch offices offices can not perform system adjustments. Therefore, Corporate Company X must process a significant number of billing adjustments resulting from billing errors created during the manual billing process. The process for entering pay rates into the WIN system s ystem is highly manual. The branch offices must manually input hours and rates, which is subject to error. Consequently, a significant amount of daily adjustments are processed by the AR department to correct billing errors (e.g., incorrect rates). Since the implementation of Lawson in (Month) (Year), the branch offices have been temporarily unable to perform system adjustments. Thus, corporate has hired X additional temporary employees to perform daily adjustments. Based upon interviews with various personnel and our review of the collections efforts for outstanding receivables, internal audit noted that several customers cited that the reason they had not submitted payment was attributed to aby billing dispute. satisfaction can be severely threatened sending evenCustomer one uncorrected bill or reminder after a customer has disputed a bill. Business Impact: Incorrect billings result in delayed collections; Efforts required to correct billing errors are an inefficient use of time; Billing errors can increase the risk of customer dissatisfaction.

11

Managementt Implementation Plan Managemen

Timing

•

Track the types of adjustments resulting from billing errors and use this information for training purposes.

(Name) (Date)

•

Research the cost benefit of automating the system by implementing a feature at the local offices that enables personnel to perform adjustments at the branch offices; corporate should obtain reports of adjustments booked by branches for review.

(Name) (Date)

 

ISSUES & OBSERVATIONS Issue 4: Billing Adjustments Adjustments Owner/ Issues/Observations 5. Credit documenta documentation tion is not maintained maintained in customer customer files.

Managementt Implementation Plan Managemen •  Analyze customer credit information for

the following reasons:

XX% of the customer files reviewed did not contain documentation of the credit analysis process. In addition, an analysis of the customer’s credit worthiness was not performed on any of the X accounts tested.

Timing (Name) (Date)

− To asse assess ss a new cust customer omer’s ’s

creditworthiness before establishing a creditworthiness line of credit for that customer  − To assess an existing customer's credit

Business Impact:

worthiness in the event of additional sales orders

Inaccurate and/or incomplete credit information on customers cust omers can increase time and money on collection efforts in the future.

− To continually monitor a customer's

paying habit, financial data and externally reported information, thus ensuring that the company is employing the appropriate collections approach with each customer  •

Require Company X personnel at the corporate and branch level to utilize a checklist to ensure that they have the

(Name) (Date)

appropriate support and documentation (e.g., credit agency report, past payment history, appropriate authorization, etc.) when establishing a credit limit for a new customer or increasing an existing customer’s credit limit. •

12

Conduct a XX% audit on all high-risk or delinquent customer account files to ensure that each file contains the appropriate support for the credit line.

(Name) (Date)

 

 APPENDIX IX A: INTERNAL INTERNAL CONTROL CONTROL ASSESS ASSESSMENT MENT (1/2)  APPEND The following matrix lists process controls present within the accounts receivable, credit and collections process. An evaluation of Company X’s process is noted in each instance. Where possible improvement can be made, a reference has been made to the Detailed Issues and Observations where management’s change implementation plan is described, along with the responsible

party and estimated implementation timing. Controls were evaluated as follows: Good/World Class Leading practice currently in use

Moderate Use Improvement possible in order to achieve leading practice status

Limited/Some Use Improvement recommended to improve process efficiency/effectiveness

13

 

 APPENDIX IX A: INTERNAL INTERNAL CONTROL CONTROL ASSESS ASSESSMENT MENT (2/2)  APPEND Accounts Receivable, Credit & Collections

1. Policies and procedures are documented, communicated and followed. followed.

Rating

Issue Reference #1, #2, #3

2. Prope Properr segregation segregation of duties duties exists. 3. Cash receipts, credit memos and bad bad debt write-offs are properly properly authorized, accurately recorded and posted in a timely manner and in the proper period.

4. A/R, credit and and collections records, records, and cash receipts receipts are adequately adequately maintained maintained and safeguarded. 5. Accounts receivable aging aging reports are prepared prepared and used used to manage follow-up of overdue accounts.

#3

6. Credit limits are properly properly approved prior to entry entry of a sale. sale.

#2

7. Performance measures used to control the credit credit and collection process process are reliable. reliable.

Rating:

14

Good/Wo Worrld Class

Moderate Use

Limi mitted/S /So ome Use

 

 APPENDIX IX B: LEADING PRACTICES PRACTICES SCORECARD SCORECARD (1/2)  APPEND Good/World Class Leading practice currently in use

Moderate Use Improvement possible in order to achieve leading practice status

Limited/Some Use Improvement recommended to improve process efficiency/effectiveness

15

 

 APPENDIX IX B: LEADING PRACTICES PRACTICES SCORECARD SCORECARD (2/2)  APPEND Accounts Receivable

Rating

Issue Reference

1. Identify and act on distressed and delinquent accounts.

#3, #5

2. Assign and and update update customer customer credit credit rating. rating.

#2, #5

3. Automa Automate te the remittance remittance processing processing function. function. 4. Use the credit and collections process to enhance enhance customer satisfaction.

#2

5. Devel Develop, op, motivate and monitor monitor collections collections specialists. specialists. See Pages 17-21 for detailed information on Company X’s current practices.

#2

Rating:

16

Good/Wo Worrld Class

Moderate Use

Limi mitted/S /So ome Use

 

 APPENDIX IX C: LEADING PRACTICES PRACTICES DETAIL DETAIL  APPEND KEY INTERNAL CONTROL OBJECTIVE Leading Practice 1. Identify Identify and act on distres distressed sed and delinquent delinquent accounts. •

Track signs of financial distress.

•

Develop a treatment timeline for delinquent accounts and identify the risk category and total account exposure of the customer.

•

Initiate corrective action for persistently delinquent

•

accounts. Give collectors authority to settle delinquent accounts at their discretion.

Benefits •

Minimized collection costs

•

Improved collection efforts

•

Reduced risk from persistently delinquent accounts

Rating:

17

Good/Wo Worrld Class

Moderate Use

Company X Practice

Evaluation/ Reference

In accordance with Company X’s draft

policies and procedures in place, corporate credit and collections and branch offices personnel are supposed to perform follow-up on all delinquent accounts. Corporate credit and collection personnel utilize a weekly aging report divided by geographic regions to perform their collection efforts; however, follow-up was not performed on XX% of the customer accounts reviewed. In addition, documentation of collection efforts did not exist in the Lawson system for 3 of 10 delinquent accounts researched by collection personnel.

Limi mitted/S /So ome Use

#3, #5

 

 APPENDIX IX C: LEADING PRACTICES PRACTICES DETAIL DETAIL  APPEND KEY INTERNAL CONTROL OBJECTIVE Leading Practice 2. Assi Assign gn and update customer customer credit credit rating. rating. •

Create cost-effective procedures for credit investigation.

•

Use credit and behavioral scoring models to grant credit, assign credit limits and monitor m onitor payment behavior.

•

Process credit applications promptly using online

•

credit reference services. Segment the accounts receivable portfolio by high, medium and low-risk to better focus on the high-risk portion of the portfolio.

Benefits •

Mitigated risk

•  A decline in bad debt • •

18

Good/Wo Worrld Class

To establish a customer service rating, the branch offices can either obtain bank information and two trade references or utilize the Company X Voice credit evaluation system. Company X Voice is a telephone credit reference service that provides customers with credit information from Dun and Bradstreet within a matter of minutes. Branch offices do not currently utilize or encourage the use of this service due to the $XX charge for services.  At Corporate Company X, credit limits are assigned based on research from the credit and collections personnel, including the use of Dun and Bradstreet’s customer credit rating book. The current policy is for customer credit ratings to be reviewed at least annually, with higher-risk customers reviewed even more frequently; however, our review of XX customer files revealed that analysis of credit limits were not being performed and updated on an annual basis or more frequently for high-risk customers.

Reduced collection costs Increased cash flow

Rating:

Company X Practice

Moderate Use

Limi mitted/S /So ome Use

Evaluation/ Reference

#2, #5

 

 APPENDIX IX C: LEADING PRACTICES PRACTICES DETAIL DETAIL  APPEND KEY INTERNAL CONTROL OBJECTIVE Leading Practice 3. Autom Automate ate the remittance remittance processi processing ng function. •

Use lockboxes to reduce processing float.

•

Have a lockbox provider submit payment information or the company electronically in order to expedite the positing of payments on receipt.

•

Reconcile mismatched payments and deductions as quickly as possible by using automated remittance

•

processing. Ensure employee access to real-time remittance information through the use of an automated remittance processing system and imaging technology.

Benefits •  Accelerated cash flow •

Minimi Min imized zed “floa “float” t” throu through gh exped expedite ited d processing

•

More efficient use of staff time on actual collections

Rating:

19

Good/Wo Worrld Class

Moderate Use

Company X Practice Company X utilizes two lockboxes for the remittance processing function. These lockboxes are located at (Bank) in (Location) and (Bank) in (Location). These lockboxes have been strategically placed in these locations in order to expedite the mail delivery of remittances.  A remittance report from the bank is faxed daily to the accounts receivable department. The report lists remittances that were misapplied. The accounts receivable department has X people that work to reconcile remittance errors. After adequate research, the error is corrected and the customer account is updated in the system the following morning. These accounts are listed in the Post-Batch Execution Report with matching verification.

Limi mitted/S /So ome Use

Evaluation/ Reference

19  

 APPENDIX IX C: LEADING PRACTICES PRACTICES DETAIL DETAIL  APPEND KEY INTERNAL CONTROL OBJECTIVE Leading Practice 4. Use the credit credit and collections collections process process to enhance enhance customer satisfaction. •

Document, communicate and evaluate the credit policy message.

•

Discuss and document credit terms with customers at the beginning of the business relationship.

•

Identify and eliminate sources of customer

Company X Practice The credit and collection policy is not adhered to by employees or enforced by management. As a result, credit procedures are not always appropriately communicated to customers.

dissatisfaction. Benefits •

Clear communication of credit policies to customers

•

Strong customer relationships

•

Faster turnaround of receivables

Rating:

Good/Wo Worrld Class

Moderate Use

Limi mitted/S /So ome Use

Evaluation/ Reference

#2

20  

 APPENDIX IX C: LEADING PRACTICES PRACTICES DETAIL DETAIL  APPEND KEY INTERNAL CONTROL OBJECTIVE Leading Practice 5. Develop, motivate motivate and and monitor collectio collections ns specialists. •

Empower and train credit and collections staff.

•  Assign responsibility for servicing all aspects of a

major account to a cross-functional account team. •  Automate the collection process where possible. possible. •

Establish realistic performance goals.

Benefits •

Enhanced collections performance

•

Improved retention of seasoned collectors

•

Reduced amount of aged receivables

Rating:

Good/Wo Worrld Class

Moderate Use

Company X Practice Performance measures exist for collectors that focus on credit limit criteria, percentage of bad debt write-off, AR over X days and greater than $XX, DSO averages and training requirements. Several aspects of the follow-up process are highly manual. For example, Lawson does not have the functionality to alert collectors to make a phone call or automatically send a dunning letter to customers with overdue accounts. Consequently, collections must exert additional time following up on aged accounts.

Limi mitted/S /So ome Use

Evaluation/ Reference

#3

21  

 APPEND  APPENDIX IX D: ACCOUNTS RECEIV RECEIVABLE ABLE BENCHMARKING ANALYSIS ANALYSIS (1/2) Indicates Above-Median Performance

Indicates Slightly Below or Above-Medium Performance

Indicates Below-Median Performance (Opportunity for Improvement)

22  

 APPEND  APPENDIX IX D: ACCOUNTS RECEIV RECEIVABLE ABLE BENCHMARKING ANALYSIS ANALYSIS (2/2) Benchmark Group: Commercial Services Group, 8 Companies Quantitative Performance Measures Cost Statistics Total Accounts Receivable Cost as a % of Revenue Staff per $X million in Revenue Total Accounts Receivable Cost per FTE Total Remittance Processing Cost per Remittance Processed C & C Cost per Account Requiring Credit Activity C & C Cost per Account Requiring Collections Activity Receivable Statistics Bad Debt as a Percentage of Sales Percentage of W rite-Offs to Total Receivables  Average Write-Off Bill  Accounts Receivable Turnover Staff to management Remittance Processing Staff to management Credit and Collections Days Sales Outstanding Workload Statistics  Annual Volume of Remittances per FTE Number of Active Accounts per FTE Credit Application Turnaround % of Customers Requiring Credit Activity % of Customers Requiring Collection Activity % of Customers Referred to OCAs Remittance Processing Statistics  Average Remittances Processed per Day % of Remittances that are a First Time Match % of Remittances with Errors % of Remittances Received on or Before Due Date Employee Statistics % of Same Day Credit to Customer Account

Company X XX% XX $XX $XX $XX $XX

Evaluation

Benchmark Group Median

World Class/ Leading in Class

XX% XX $XX $XX $XX $XX

XX% XX $XX $XX $XX $XX

XX% XX% $XX XX XX XX XX

XX% XX% $XX XX XX XX XX

XX% XX% $XX XX XX XX XX

XX XX X Days XX% XX% XX%

XX XX X Days XX% XX% XX%

XX XX X Days XX% XX% XX%

XX XX% XX% XX%

XX XX% XX% XX%

XX XX% XX% XX%

XX%

XX%

XX%

X

X

See Issue #4

See Issue #2, #3, #4 & #5

23  

 APPEND  APPENDIX IX E: ACCOUNTS RECEIV RECEIVABLE ABLE PROCESS PROCESS MAP (1/2) The timecard is KEYSales INTERNAL CONTROL OBJECTIVE are submitted and conducted at the the local office level invoice is created •  A customer will

contact one of the over X local Company X offices and request temporary employee services for a specified period.

•  A timecard is



invoice is mailed to the customer daily •

utilized by the temporary employee to track hours worked. The local offices enter the bill hours and rates information into the WIN system (billing and payroll system).

  Approximately

X

adjustments resulting from billing errors are performed by the Corporate AR Department daily. See Issue #5.

The customer remits payment of the invoice to a lockbox number 

The printed

Standard invoices are folded by automated machinery, enveloped and metered with

•

appropriate postage and mailed directly to customers each day. 

The invoice is scanned into the LASERARC system.

An error report is generated daily

Two lockbox •  A daily report is processing and generated that remittance contains a listing of application remittance errors vendors, (Bank) in and the reasons for (Location) and the errors. (Bank) in are (Location), utilized to minimize the amount of time for mail delivery of remittances.

•

The customer sends payment to the appropriate lockbox number.

•

Payments that are received at the local office are forwarded to the lockbox.

•

Payments that are received at corporate are processed inhouse.

Transaction errors are researched and reconciled by the AR department   A

“cash form” is completed for every account exception by the cash application team and

forwarded to the customer service team.

Company X Control Points In Place:  Internal control point (manual)  Internal control point (system-based) Company X Control Weaknesses: 

Internal control weakness

24  

 APPEND  APPENDIX IX E: ACCOUNTS RECEIV RECEIVABLE ABLE PROCESS PROCESS MAP (1/2) The timecard is KEYSales INTERNAL CONTROL OBJECTIVE are submitted and conducted at the the local office level invoice is created 

The customer remits payment of the invoice to a lockbox number 

The printed invoice is mailed to the customer daily

•  A second copy of There is no process in place to the invoice is sent track billing errors to the local office by purpose and for filing. individual. See Issue #5.



The remittance house opens the lockboxes and processes the payments daily.

•

Payments are



 An invoice is generated from the information in the WIN system and support information services prints all invoices for mailing.  The special handling department is responsible for printing invoices for customers with special billing instructions (e.g., manual re-typing, timecard attachment to invoices).





An error report is generated daily

Transaction errors are researched and reconciled by the AR department

deposited into Company X’s bank account. The remittance house reconciles all payments and send the payment information to Company X. If the bank is the unable to apply payment to a specific invoice, the bank will send the payment information to Company X to research.

Company X Control Points In Place:  Internal control point (manual)  Internal control point (system-based) Company X Control Weaknesses: 

Internal control weakness

25  

 APPEND  APPENDIX IX E: CREDIT AND COLLECTIONS COLLECTIONS PROCESS MAP (1/2) Credit rating is established for new customers

•

Credit limit and approval checks are performed on most new applicants.

•

Multiple methods (Company X Voice, D&S rating, ABI rating, etc.) are used to perform a customer’s credit

check.

> 



Sales operations team places customers order 

>

Sales personnel can initiate a sales order without an established credit limit in the system. See Issue #2.  A system control is not in place that prevents sales personnel from entering an order that exceeds the customer's existing credit limit. See Issue #2.

Customer sends payment and credit memo is issued (if necessary)

>

Overdue accounts are reviewed and the collection process is initiated

>

•

See previous page for process of invoicing, remittance and posting of account payments.

•

Invoices that are 030 days overdue are considered current and collection efforts are not performed.



Current documented policies and procedures (e.g., authorization limits, reason for refunds, etc.) are not in place for the process for issuing customer refunds. See Issue #1.



Due to system limitations, computeremitted collection letters have not been mailed to the customer since Lawson was implemented in (Month) (Year) See Issue #3.

Credit rating is suppose to be reviewed annually or more frequently for accounts that are over 30 days outstanding 

>

Credit ratings are not being reviewed each year or more frequently for highrisk accounts. See

Payment is received or account is written off  

Issue #5.

Current documented policies and procedures are not in place on the process for posting bad debt write-offs. See Issue #1.



Unpaid accounts over X days and less than $XX are written off as bad debt and forwarded to a collection agency.

•  After 30 days, the

local offices are responsible for contacting the customer with delinquent accounts under $XX.

Company X Control Points In Place:  Internal control point (manual)  Internal control point (system-based) Company X Control Weaknesses: 

Internal control weakness

26  

 APPEND  APPENDIX IX E: CREDIT AND COLLECTIONS COLLECTIONS PROCESS MAP (1/2) Credit rating is established for new customers

•

Local offices can establish credit checks for lines of credit up to $XX; the corporate credit and collections department(C&C) will perform all other credit checks.



The credit analysis and supporting documentation for establishing credit ratings and corresponding credit limits is not always contained in the

customer’s file. See

Issue #3.

>

Sales operations team places customers order 

>

•  As of (Date), the



Customer sends payment and credit memo is issued (if necessary)

>

Overdue accounts are reviewed and the collection process is initiated

>

bonus structure for sales department personnel will be impacted by

The corporate C&C department utilizes a weekly aging report for all overdue accounts with

customer that are writtenorders off to bad debt.

balances of $XX or more to perform follow-up.



Oracle does not have a system control in place that prevents sales personnel from entering an order into the system when a customer has an existing overdue



Follow-up efforts performed by the corporate C&C department are not always documented in the comments field of Lawson. See Issue #3.

account. See Issue #2.



When an account balance is overdue, there is no system control that places a credit hold on the customer's account until payment is received. See Issue #2.

Credit rating is suppose to be reviewed annually or more frequently for accounts that are over 30 days outstanding

Payment is received or account is written off 

>



•

The legal department is responsible for the collection efforts of unpaid accounts over X days that are greater than $XX. The collections agency collects on approximately XX% of accounts that are written-off to bad debt.

Company X Control Points In Place:  Internal control point (manual)  Internal control point (system-based) Company X Control Weaknesses: 

Internal control weakness

27  

 APPENDIX IX F: SUMMARY SUMMARY OF TESTING RESUL RESULTS TS  APPEND The following matrix documents the audit tests performed (relating to the accounts receivable, credit and collection process review) and the results of these tests. Overall, opportunities exist to improve im prove the process. These improvements will ensure that internal controls are operating effectively and efficiently in order to mitigate risks associated with the process. Test

Attribute

Items Tested

% In Compliance

Comments/Detail

Issue Ref.

Customer Credit

Customer credit analysis was documented in file

XX

XX%

Credit limits were were assigned for all XX accounts tested; tested; however,, only X customer however customers s had supporting documentation in their files.

#5

Customer Credit

Current balance does not exceed credit limit

XX

XX%

The current credit limits of the customer account was not evaluated annually or once the account was aged.

#2

Customer Credit

Customers’ credit worthiness is

XX

XX%

Collection efforts were performed on the XX accounts; however, they were not documented in the Lawson system.

#5

Collection Process

Collection efforts were performed on aged accounts

XX

X X% XX

#3

Collection Process

Collection efforts were documented in the system

XX

X X% XX

#3

Credit Memos

Reason for credit memo is properly documented

XX

XX%

Credit Memos

Credit memo is properly authorized

XX

XX%

Credit Memos

Credit memo is properly linked to corresponding invoice

XX

XX%

Cash Application

Invoice amount agrees with remittance amount

XX

XX%

Cash Application

Cash is applied in a timely manner

XX

XX%

Write-Offs

W rite-offs are properly approved

XX

XX%

Write-Offs

W rite-offs are properly documented

XX

XX%

reviewed periodically

28