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ACCOUNTS RECEIVABLE INTERNAL CONTROLS CHECKLIST

Credit Policies and Procedures

Establish clear credit policies for extending credit to customers, including credit limits and terms.

Implement procedures for evaluating creditworthiness of new customers and monitoring existing customers' payment history.

Establish a process for reviewing and updating credit limits for existing customers on a regular basis

Develop guidelines for when to extend credit to customers with marginal credit histories

Implement a system for tracking and reporting on overdue accounts and taking appropriate action to collect outstanding debts

Establish protocols for escalating collection efforts, including involving a collections agency or pursuing legal action if necessary

Create a procedure for reviewing and approving exceptions to credit policies, such as extending credit beyond approved limits

Invoice Approval and Authorization

Require proper authorization for invoice generation and approval before sending to customers.

Implement controls to prevent unauthorized changes to invoice amounts or terms.

Maintain a master list of authorized approvers for invoices

Implement a system for electronic approval and tracking of invoices

Conduct periodic reviews of invoices for accuracy and compliance with company policies

Require dual authorization for invoices above a certain threshold

Establish a process for handling disputed invoices and resolving discrepancies promptly

Collections Procedures

Develop a collections process for following up on overdue invoices and resolving payment discrepancies.

Monitor collections activities to ensure compliance with company policies and regulations.

Conduct regular reconciliations of accounts receivable to ensure accuracy

Implement a system for tracking and recording all collections activities

Establish clear guidelines for when to escalate overdue accounts to management or a collections agency

Regularly review aging reports to identify trends and potential issues in collections

Segregation of Duties

Separate responsibilities for billing, cash application, and collections to prevent fraud or errors.

Implement dual controls for high-risk transactions or adjustments to customer accounts.

Require management approval for any changes to customer credit limits or terms

Rotate duties among employees to prevent collusion or unauthorized activities

Conduct regular reviews of employee access to sensitive financial information

Implement a system of cross-training to ensure multiple employees can perform critical tasks in case of absence or turnover

Internal Audit and Monitoring

Conduct periodic internal audits of accounts receivable processes and controls.

Monitor key performance indicators related to accounts receivable, such as DSO (Days Sales Outstanding) and aging analysis.

Review and analyze accounts receivable aging reports regularly to identify any overdue or delinquent accounts

Conduct regular reconciliations between accounts receivable records and general ledger accounts to ensure accuracy

Perform sample testing of accounts receivable transactions to verify the effectiveness of controls in place

Investigate any discrepancies or irregularities identified during internal audits or monitoring activities

Document findings and recommendations from internal audits and monitoring activities for management review and action

Training and Communication

Provide training to employees involved in accounts receivable processes on proper procedures and controls.

Communicate changes in policies or procedures related to accounts receivable to relevant staff members.

Conduct regular refresher training sessions for employees involved in accounts receivable processes

Create a comprehensive manual outlining accounts receivable procedures and controls for reference by employees

Encourage open communication and feedback from employees regarding accounts receivable processes

Implement a system for employees to report any issues or concerns related to accounts receivable processes

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