ACCOUNTS RECEIVABLE,

CREDIT AND
COLLECTIONS AUDIT
REPORT: SAMPLE 2
EXECUTIVE SUMMARY
• Internal audit completed a review of Company X’s 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 associated
internal controls and to identify opportunities for process improvements.
• 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 feature that notifies the branch office personnel of customers with aged or problematic accounts
before conducting sales transactions is not in place. These system limitations may hamper management’s ability to make informed
decisions related to customer accounts and has impacted 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 and are not consistently enforced by Company X management.
• The following is a summary of the issues and observations noted during this review. Each issue/observation has been prioritized based
upon its business impact to Company X. For each issue, a page reference has been made to the Detailed Issues & Observations section
of this report, which outlines the management implementation plan to address each 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 Priority Page

1. Polices on the processing and authorization of credit memos and write-offs are not 8
clearly defined.
2. Credit policies are not consistently adhered to by sales personnel or consistently 9
enforced by management.
3. Collections efforts are not always performed in accordance with Company X policy. 10
4. Due to system limitations, the branch offices can not perform system adjustments.
Therefore, Corporate Company X must process a significant number of billing 11
adjustments resulting from billing errors created during the manual billing process.
5. Credit documentation is not always maintained in customer files. 12

Priority Rating: High Medium Low

2
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.
• Evaluate the quality and integrity of information systems supporting the processes reviewed.
• Compare Company X’s practices 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.
• Provided accounts receivable, credit and collections leading practices.
• Evaluated the internal control environment against leading control practices.
• Benchmarked Company X’s accounts receivable, credit and collection process against other companies.

3
KEY PROCESSING STATISTICS (1/3)

AR Staffing Statistics Credit and Collections 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 91-120 Days

$XX $XX
7% 4% 61-190 Days
$XX
6%

1-30 Days
$XX 31-60
60% Days
$XX
23%

4
KEY PROCESSING STATISTICS (2/3)

Invoice Volume by Dollar Value

50 $XX

40 XX
XX $XX
30 $XX Number of Invoices
XX $XX $XX
20 XX Dollar Value of Invoices (In
XX Thousands)
10 $XX XX

0
$X-$XX $X-$XX $X-$XX $X-$XX $X-$XX $X-$XX

Source: Invoice Register for the months of (Month) (Year) – (Month) (Year)

Top 10 Customer Accounts by Number of Invoices Top 10 Customer Accounts by Dollar Value

Customer Name Amount # of Invoices Customer Name Amount # of Invoices

Customer 1 XX X Customer 1 XX X
Customer 2 XX X Customer 2 XX X
Customer 3 XX X Customer 3 XX X
Customer 4 XX X Customer 4 XX X
Customer 5 XX X Customer 5 XX X
Customer 6 XX X Customer 6 XX X
Customer 7 XX X Customer 7 XX X
Customer 8 XX X Customer 8 XX X
Customer 9 XX X Customer 9 XX X
Customer 10 XX X Customer 10 XX X

5
KEY PROCESSING STATISTICS (3/3)
The cost of one day of DSO is calculated below to estimate the potential savings to Company X resulting from process improvements.

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 (B) Average Cost of Funds

Average Annualized Sales $XX Senior Notes $XX XX% $XX
License $XX Revolver $XX XX% $XX
Total $XX Average Cost of Funds $XX XX% $XX
365 Days XX
Average Daily Sales $XX

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

Annual DSO Impact FBA Other

Company X’s standard payment terms for franchise
Average Contracted Payment Terms XX XX business activity (FBA) are net X days and the
Actual Estimated Days from Invoice Data XX XX payment terms for non-national invoices are net X
Contractual/Standard vs. Actual Days from Invoice Date XX XX days. DSO of XX days was used for both
Cost of One Day of DSO $XX XX
calculations, as the DSO was not available for each
type of invoices.
Annual DSO Impact ($XX) $XX

6
ISSUES & OBSERVATIONS

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

Issues/Observations
4

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

3 and write-offs are not clearly defined.
Business Impact

1 5 2. Credit policies are not consistently adhered to by sales

personnel nor consistently enforced by management.
3. Collections efforts are not always performed in accordance
with Company X policy.
4. Due to system limitations, the branch 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.
Low

5. Credit documentation is not always maintained in customer

Low High files.
Implementation Effort

Low Business Impact; High Business Impact;

Difficult to Implement Difficult to Implement

High Business Impact; Low Business Impact;

Easy to Implement Easy to Implement

7
ISSUES & OBSERVATIONS
Issue 1: Credit Memos/Write-off Procedures
Owner/
Issues/Observations Management Implementation Plan
Timing
1. Polices on the processing and authorization of credit • Document the policies and procedures (Name)
memos and write-offs are not clearly defined. related to the credit memo and write-off (Date)
process, including the guidelines identified
Internal audit reviewed a sample of credit memos and write-offs and
at left.
noted that appropriate authorizations and supporting documentation
did not exist for these transactions. Although the accounts • Distribute policies and procedures to all (Name)
receivable department has draft policies and procedures that are in departmental employees and other (Date)
the process of being finalized, the policies and procedures do not appropriate personnel; consider posting all
include the following credit memo and write-off guidelines: policies on Company X’s intranet for easy
• Proper signature and approval level structure accessibility for all employees.
• 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
ISSUES & OBSERVATIONS
Issue 2: Credit Policies
Owner/
Issues/Observations Management Implementation Plan
Timing
2. Credit policies are not consistently adhered to by sales • Document the credit approval process and (Name)
personnel or consistently enforced by management. distribute these guidelines to all personnel. (Date)
Based upon interviews of credit and collections personnel and • Educate sales employees on the
(Name)
testing a sample of customer orders placed by the sales operations importance of adhering to the credit
(Date)
team, internal audit noted the following: approval procedures.
• Sales personnel can place orders without an established credit • Hold sales personnel and managers
limit into the system. (Name)
accountable for violating the established
(Date)
• Sales personnel can place an order into the system when a credit limits.
customer’s existing balance is delinquent.
• Implement a system feature (along with
• Sales personnel have the ability to enter a sales order into the (Name)
appropriate corporate management
system that exceeds the customer's existing credit limit. Based (Date)
overrides) that will enable Corporate
upon our testing, XX% of the customer orders placed exceeded Company X to notify the sales operations
the customer’s approved credit limit. team of the following situations before
they enter sales orders into the system:
See Appendix F, page 28 for a summary of testing results.
− Account balance is over the existing
Business Impact: credit limit.
Undocumented and unapproved policies and procedures increase − A significant portion of the balance
the risk that the AR department’s goals are not aligned with exceeds X days beyond approved
Company X’s strategies; sales personnel may places orders to payment terms, regardless of available
customers that lead to outstanding/delinquent accounts. credit.
− Any existing commitment plan is
violated.
− Credit limit is not entered into the
system.

9
ISSUES & OBSERVATIONS
Issue 3: Collection Procedures
Owner/
Issues/Observations Management Implementation Plan
Timing
3. Collections efforts by the branch offices and corporate • Require collection personnel to document (Name)
collections personnel are not always performed in the follow-up efforts (e.g., collection calls, (Date)
accordance with Company X’s policies. dunning letters) in the comments field of
Lawson.
Invoice statements and dunning letters are not being mailed to notify
customers of aged accounts. Collections personnel at the branch • Automate the collections process to (Name)
offices and corporate are responsible for ensuring that other include the following: (Date)
methods (e.g., phone calls) are being utilized to work aged − Automatic identification of delinquent
accounts. 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
collection activity.
the 10 customer accounts reviewed (XX% compliance). In addition,
XX% of the aged customer accounts that had been researched and − Automatic preparation of dunning
followed up on by collection personnel were not documented in the letters.
comments field of Lawson. − Automatic 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 customer service.
personnel leave and new personnel have to recreate the credit and
• Re-evaluate the benefits of automatically (Name)
collection process; write-offs to bad debt may occur when
mailing invoice statements on a regular (Date)
documentation of the collection efforts are missing or inadequate.
basis to notify customers of aged
accounts.

10
ISSUES & OBSERVATIONS
Issue 4: Billing Adjustments
Owner/
Issues/Observations Management Implementation Plan
Timing
4. Due to system limitations, the branch offices can not • Track the types of adjustments resulting (Name)
perform system adjustments. Therefore, Corporate from billing errors and use this information (Date)
Company X must process a significant number of billing for training purposes.
adjustments resulting from billing errors created during the
• Research the cost benefit of automating
manual billing process.
the system by implementing a feature at (Name)
The process for entering pay rates into the WIN system is highly the local offices that enables personnel to (Date)
manual. The branch offices must manually input hours and rates, perform adjustments at the branch offices;
which is subject to error. Consequently, a significant amount of daily corporate should obtain reports of
adjustments are processed by the AR department to correct billing adjustments booked by branches for
errors (e.g., incorrect rates). review.
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 a billing dispute. Customer satisfaction
can be severely threatened by sending even 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
ISSUES & OBSERVATIONS
Issue 4: Billing Adjustments
Issues/Observations
5. Credit documentation is not maintained in customer files.
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.
Business Impact:
Inaccurate and/or incomplete credit information on customers can
increase time and money on collection efforts in the future.
12
Owner/
Management Implementation Plan
Timing
• Analyze customer credit information for (Name)
the following reasons: (Date)
− To assess a new customer’s
creditworthiness before establishing a
line of credit for that customer
− To assess an existing customer's credit
worthiness in the event of additional
sales orders
− 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 (Name)
corporate and branch level to utilize a (Date)
checklist to ensure that they have the
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.
• Conduct a XX% audit on all high-risk or (Name)
delinquent customer account files to (Date)
ensure that each file contains the
appropriate support for the credit line.
APPENDIX A: INTERNAL CONTROL ASSESSMENT (1/2)
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 A: INTERNAL CONTROL ASSESSMENT (2/2)

Issue
Accounts Receivable, Credit & Collections Rating Reference

1. Policies and procedures are documented, communicated and followed. #1, #2, #3
2. Proper segregation of duties exists.
3. Cash receipts, credit memos and bad debt write-offs are properly authorized,
accurately recorded and posted in a timely manner and in the proper period.
4. A/R, credit and collections records, and cash receipts are adequately maintained
and safeguarded.
5. Accounts receivable aging reports are prepared and used to manage follow-up of
overdue accounts. #3
6. Credit limits are properly approved prior to entry of a sale. #2
7. Performance measures used to control the credit and collection process are reliable.

Rating: Good/World Class Moderate Use Limited/Some Use

14
APPENDIX B: LEADING PRACTICES SCORECARD (1/2)

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 B: LEADING PRACTICES SCORECARD (2/2)

Issue
Accounts Receivable Rating Reference

1. Identify and act on distressed and delinquent accounts. #3, #5

2. Assign and update customer credit rating. #2, #5
3. Automate the remittance processing function.
4. Use the credit and collections process to enhance customer satisfaction. #2
5. Develop, motivate and monitor collections specialists. #2
See Pages 17-21 for detailed information on Company X’s current practices.

Rating: Good/World Class Moderate Use Limited/Some Use

16
APPENDIX C: LEADING PRACTICES DETAIL
KEY INTERNAL CONTROL OBJECTIVE
Leading Practice
1. Identify and act on distressed and 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: Good/World Class Moderate Use
17
Evaluation/
Company X Practice 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 #3, #5
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.
Limited/Some Use
APPENDIX C: LEADING PRACTICES DETAIL
Evaluation/
KEY INTERNAL CONTROL OBJECTIVE
Leading Practice Company X Practice Reference

2. Assign and update customer credit rating. To establish a customer service rating, the
branch offices can either obtain bank
• Create cost-effective procedures for credit
information and two trade references or
investigation.
utilize the Company X Voice credit evaluation
• Use credit and behavioral scoring models to grant system. Company X Voice is a telephone #2, #5
credit, assign credit limits and monitor payment credit reference service that provides
behavior. customers with credit information from Dun
and Bradstreet within a matter of minutes.
• Process credit applications promptly using online
Branch offices do not currently utilize or
credit reference services.
encourage the use of this service due to the
• Segment the accounts receivable portfolio by high, $XX charge for services.
medium and low-risk to better focus on the high-risk
At Corporate Company X, credit limits are
portion of the portfolio.
assigned based on research from the credit
and collections personnel, including the use
Benefits
of Dun and Bradstreet’s customer credit
• Mitigated risk rating book.
• A decline in bad debt The current policy is for customer credit
ratings to be reviewed at least annually, with
• Reduced collection costs
higher-risk customers reviewed even more
• Increased cash flow 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.

Rating: Good/World Class Moderate Use Limited/Some Use

18
APPENDIX C: LEADING PRACTICES DETAIL
KEY INTERNAL CONTROL OBJECTIVE
Leading Practice
3. Automate the remittance processing 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
• Minimized “float” through expedited processing
• More efficient use of staff time on actual collections
Rating: Good/World Class Moderate Use
19
Evaluation/
Company X Practice Reference
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.
Limited/Some Use
APPENDIX C: LEADING PRACTICES DETAIL
Evaluation/
KEY INTERNAL CONTROL OBJECTIVE
Leading Practice Company X Practice Reference

4. Use the credit and collections process to enhance The credit and collection policy is not
customer satisfaction. adhered to by employees or enforced by
management. As a result, credit procedures #2
• Document, communicate and evaluate the credit
are not always appropriately communicated
policy message.
to customers.
• Discuss and document credit terms with customers
at the beginning of the business relationship.
• Identify and eliminate sources of customer
dissatisfaction.

Benefits
• Clear communication of credit policies to customers
• Strong customer relationships
• Faster turnaround of receivables

Rating: Good/World Class Moderate Use Limited/Some Use

20
APPENDIX C: LEADING PRACTICES DETAIL
KEY INTERNAL CONTROL OBJECTIVE
Leading Practice
5. Develop, motivate and monitor collections
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.
• Establish realistic performance goals.
Benefits
• Enhanced collections performance
• Improved retention of seasoned collectors
• Reduced amount of aged receivables
Rating: Good/World Class Moderate Use
21
Evaluation/
Company X Practice Reference
Performance measures exist for collectors
that focus on credit limit criteria, percentage
of bad debt write-off, AR over X days and #3
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.
Limited/Some Use
APPENDIX D: ACCOUNTS RECEIVABLE
BENCHMARKING ANALYSIS (1/2)

Indicates Above-Median Performance

Indicates Slightly Below or Above-Medium Performance

Indicates Below-Median Performance (Opportunity for Improvement)

22
APPENDIX D: ACCOUNTS RECEIVABLE
BENCHMARKING ANALYSIS (2/2)
Benchmark Group: Commercial Services Group, 8 Companies
Benchmark Group World Class/
Quantitative Performance Measures Company X Evaluation
Median Leading in Class
Cost Statistics
Total Accounts Receivable Cost as a % of Revenue XX% XX% XX%
Staff per $X million in Revenue XX XX XX
Total Accounts Receivable Cost per FTE $XX X $XX $XX
Total Remittance Processing Cost per Remittance Processed $XX $XX $XX See Issue
C & C Cost per Account Requiring Credit Activity $XX $XX $XX #4
C & C Cost per Account Requiring Collections Activity $XX $XX $XX
Receivable Statistics
Bad Debt as a Percentage of Sales XX% XX% XX%
Percentage of Write-Offs to Total Receivables XX% XX% XX%
Average Write-Off Bill $XX $XX $XX
Accounts Receivable Turnover XX XX XX
Staff to management Remittance Processing XX XX XX
Staff to management Credit and Collections XX XX XX
Days Sales Outstanding XX XX XX
Workload Statistics
Annual Volume of Remittances per FTE XX XX XX
Number of Active Accounts per FTE XX XX XX
Credit Application Turnaround X Days X Days X Days
% of Customers Requiring Credit Activity XX% XX% XX%
% of Customers Requiring Collection Activity XX% XX% XX%
% of Customers Referred to OCAs XX% XX% XX%
Remittance Processing Statistics
Average Remittances Processed per Day XX XX XX See
% of Remittances that are a First Time Match XX% XX% XX% Issue #2,
% of Remittances with Errors XX% XX% XX% #3, #4
& #5
% of Remittances Received on or Before Due Date XX% X XX% XX%
Employee Statistics
% of Same Day Credit to Customer Account XX% XX% XX%

23
APPENDIX E: ACCOUNTS RECEIVABLE PROCESS MAP
(1/2)
The timecard is The customer Transaction
KEYSales
INTERNAL CONTROL OBJECTIVE The printed An error report
are submitted and remits payment errors are
invoice
conducted at the the of the invoice to is generated researched and
is mailed to the
local office level invoice is a lockbox daily reconciled by the
customer daily
created number AR department
• A customer will • A timecard is • Standard invoices • Two lockbox • A daily report is  A “cash form” is
contact one of the utilized by the are folded by processing and generated that completed for
over X local temporary automated remittance contains a listing of every account
Company X offices employee to track machinery, application remittance errors exception by the
and request hours worked. enveloped and vendors, (Bank) in and the reasons for cash application
temporary The local offices metered with (Location) and the errors. team and
employee services enter the bill hours appropriate (Bank) in forwarded to the
for a specified and rates postage and (Location), are customer service
period. information into the mailed directly to utilized to minimize team.
WIN system (billing customers each the amount of time
and payroll day. for mail delivery of
system).  The invoice is remittances.
scanned into the • The customer
 Approximately X
LASERARC sends payment to
adjustments
system. the appropriate
resulting from
lockbox number.
billing errors are
performed by the • Payments that are
Corporate AR received at the
Department daily. local office are
See Issue #5. forwarded to the
lockbox.
• Payments that are Company X Control Points In Place:
received at  Internal control point (manual)
corporate are  Internal control point (system-based)
processed in- Company X Control Weaknesses:
house.  Internal control weakness

24
APPENDIX E: ACCOUNTS RECEIVABLE PROCESS MAP
(1/2)
The timecard is The customer Transaction
KEYSales
INTERNAL CONTROL OBJECTIVE The printed An error report
are submitted and remits payment errors are
invoice
conducted at the the of the invoice to is generated researched and
is mailed to the
local office level invoice is a lockbox daily reconciled by the
customer daily
created number AR department
 There is no • A second copy of  The remittance
process in place to the invoice is sent house opens the
track billing errors to the local office lockboxes and
by purpose and for filing. processes the
individual. See payments daily.
Issue #5.
• Payments are
 An invoice is deposited into
generated from the Company X’s bank
information in the account.
WIN system and  The remittance
support information house reconciles
services prints all all payments and
invoices for send the payment
mailing. information to
 The special Company X.
handling
 If the bank is
department is
unable to apply the
responsible for
payment to a
printing invoices for
specific invoice,
customers with
the bank will send
special billing
the payment
instructions (e.g.,
information to Company X Control Points In Place:
manual re-typing,
Company X to  Internal control point (manual)
timecard
research.  Internal control point (system-based)
attachment to
invoices). Company X Control Weaknesses:
 Internal control weakness

25
APPENDIX E: CREDIT AND COLLECTIONS PROCESS
MAP (1/2)
Credit rating is
Overdue accounts suppose to be
Customer sends reviewed annually Payment is
Credit rating is Sales operations are reviewed and
payment and credit received or
established for > team places > memo is issued (if > the collection > or more frequently
for accounts that
> account is written
new customers customers order process is
necessary) are over 30 days off
initiated
outstanding
• Credit limit and  Sales personnel can • See previous page • Invoices that are 0-  Credit ratings are not  Current documented
approval checks are initiate a sales order for process of 30 days overdue are being reviewed each policies and
performed on most without an invoicing, remittance considered current year or more procedures are not in
new applicants. established credit and posting of and collection efforts frequently for high- place on the process
• Multiple methods limit in the system. account payments. are not performed. risk accounts. See for posting bad debt
(Company X Voice, See Issue #2.  Current documented  Due to system Issue #5. write-offs. See Issue
D&S rating, ABI policies and limitations, computer- #1.
 A system control is
rating, etc.) are used not in place that procedures (e.g., emitted collection  Unpaid accounts
to perform a prevents sales authorization limits, letters have not been over X days and less
customer’s credit personnel from reason for refunds, mailed to the than $XX are written
check. entering an order etc.) are not in place customer since off as bad debt and
that exceeds the for the process for Lawson was forwarded to a
customer's existing issuing customer implemented in collection agency.
credit limit. See Issue refunds. See Issue (Month) (Year) See
#2. #1. Issue #3.
• 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

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APPENDIX E: CREDIT AND COLLECTIONS PROCESS
MAP (1/2)
Credit rating is
Overdue accounts suppose to be
Customer sends reviewed annually Payment is
Credit rating is Sales operations are reviewed and
payment and credit received or
established for > team places > memo is issued (if > the collection > or more frequently
for accounts that
> account is written
new customers customers order process is
necessary) are over 30 days off
initiated
outstanding
• Local offices can • As of (Date), the  The corporate C&C  The legal department
establish credit bonus structure for department utilizes a is responsible for the
checks for lines of sales department weekly aging report collection efforts of
credit up to $XX; the personnel will be for all overdue unpaid accounts over
corporate credit and impacted by accounts with X days that are
collections (C&C) customer orders that balances of $XX or greater than $XX.
department will are written off to bad more to perform
• The collections
perform all other debt. follow-up.
agency collects on
credit checks.
 Oracle does not have  Follow-up efforts approximately XX%
 The credit analysis a system control in performed by the of accounts that are
and supporting place that prevents corporate C&C written-off to bad
documentation for sales personnel from department are not debt.
establishing credit entering an order into always documented
ratings and the system when a in the comments field
corresponding credit customer has an of Lawson. See
limits is not always existing overdue Issue #3.
contained in the account. See Issue
 When an account
customer’s file. See #2.
balance is overdue,
Issue #3.
there is no system
control that places a
credit hold on the
customer's account
Company X Control Points In Place:
until payment is
received. See Issue  Internal control point (manual)
#2.  Internal control point (system-based)
Company X Control Weaknesses:
 Internal control weakness

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APPENDIX F: SUMMARY OF TESTING RESULTS
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 the process. These improvements will ensure that internal controls are operating
effectively and efficiently in order to mitigate risks associated with the process.
Items Issue
Test Attribute % In Compliance Comments/Detail
Tested Ref.
Credit limits were assigned for all XX accounts tested;
Customer Customer credit analysis was
XX XX% however, only X customers had supporting #5
Credit documented in file
documentation in their files.

Customer Current balance does not exceed The current credit limits of the customer account was
XX XX% #2
Credit credit limit not evaluated annually or once the account was aged.

Collection efforts were performed on the XX accounts;

Customer Customers’ credit worthiness is
XX XX% however, they were not documented in the Lawson #5
Credit reviewed periodically
system.
Collection Collection efforts were performed
XX XX% #3
Process on aged accounts
Collection Collection efforts were documented
XX XX% #3
Process in the system
Reason for credit memo is properly
Credit Memos XX XX%
documented

Credit Memos Credit memo is properly authorized XX XX%

Credit memo is properly linked to

Credit Memos XX XX%
corresponding invoice
Cash Invoice amount agrees with
XX XX%
Application remittance amount
Cash
Cash is applied in a timely manner XX XX%
Application
Write-Offs Write-offs are properly approved XX XX%

Write-Offs Write-offs are properly documented XX XX%

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