Internal Audit Program
ACCOUNTS RECEIVABLE/CREDIT & COLLECTIONS REVIEW
Project Phases Date Comments
Planning
Fieldwork
Report Issuance
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.
Work Program Steps
Time Audit Step Initial Index
1. Planning:
Review known best practices and research the Internet.
Set up binder.
Develop project plan and determine scope.
Prepare budget.
Plan a coordination meeting with Process Owner.
Obtain Accounts Receivable process/ functional
overview and expense allocation.
2. 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.
1
Time Audit Step Initial Index
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 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.
3. Benchmark company accounts receivable process and
statistics to other similar companies (if applicable).
2
Time Audit Step Initial Index
4. 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.
5. 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.
3
Time Audit Step Initial Index
Verify compliance with existing policies and
procedures.
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.
Obtainthe 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.)
6. Obtain the following background information; display
graphically: (Utilize IT auditors if necessary).
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 &
4
Time Audit Step Initial Index
missing invoices)
Receivables by location (i.e. U.S., Europe, Asia,
etc.) – obtain soft copy of the information
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
7. Discuss findings with management prior to drafting
audit report.
8. Draft final report in conjunction with process owner.
9. Distribute final report as prescribed by internal audit
distribution list.
10. Schedule follow-up as appropriate.
