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Chapter 12

The Revenue Cycle: Sales to Cash Collections

12-1

The Revenue Cycle

12-2

The Revenue Cycle

Provides goods and services to customers

Collects cash in payment for those sales

Primary Objective:

Provide the right product

In the right place

At the right time for the right price

12-3

General Revenue Cycle Threats

Inaccurate or invalid master data

Unauthorized disclosure of sensitive information

Loss or destruction of master data

Poor performance

12-4

General Revenue Cycle Controls

Data processing integrity controls

Restriction of access to master data

Review of all changes to master data

Access controls

Encryption

Backup and disaster recovery procedures

Managerial reports

12-5

Sales Order Entry

Take order

Check and approve credit

Check inventory availability

12-6

Sales Order Threats

Incomplete/inaccurate orders

Invalid orders

Uncollectible accounts

Stockouts or excess inventory

Loss of customers

12-7

Sales Order Entry Controls

Data entry edit controls

Restriction of access to master data

Digital signatures or written signatures

Credit limits

Specific authorization to approve sales to new customers or sales that exceed a customer’s credit limit

Aging of accounts receivable

Perpetual inventory control system

Use of bar-codes or RFID

Training

Periodic physical counts of inventory

Sales forecasts and activity reports

CRM systems, self-help Web sites, and proper evaluation of customer service ratings

12-8

Shipping

Picking and packing the order

Shipping the order

12-9

Shipping Threats

Picking the wrong items or the wrong quantity

Theft of inventory

Shipping errors (delay or failure to ship, wrong quantities, wrong items, wrong addresses, duplication)

12-10

Shipping Controls

Bar-code and RFID technology

Reconciliation of picking lists to sales order details

Restriction of physical access to inventory

Documentation of all inventory transfers

Periodic physical counts of inventory and reconciliation to recorded quantities

Reconciliation of shipping documents with sales orders, picking lists, and packing slips

12-11

Billing

Invoicing

Updating accounts receivable

12-12

Billing Threats

Failure to bill

Billing errors

Posting errors in accounts receivable

12-13

Billing Controls

Separation of billing and shipping functions

Configuration of system to automatically enter pricing data

Restriction of access to pricing master data

Data entry edit controls

Reconciliation of shipping documents (picking tickets, bills of lading, and packing list) to sales orders

Data entry controls

Reconciliation of batch totals

Mailing of monthly statements to customers

Segregation of duties of credit memo authorization from both sales order entry and customer account maintenance

12-14

Cash Collections Threats

Theft of cash

Cash flow problems

12-15

Cash Collection Controls

Separation of cash handling function from accounts receivable and credit functions

Regular reconciliation of bank account with recorded amounts by someone independent of cash collections procedures

Use of EFT, FEDI, and lockboxes to minimize handling of customer payments by employees

Prompt, restrictive endorsement of all customer checks

Having two people open all mail likely to contain customer payments

Use of cash registers

Daily deposit of all cash receipts

Lockbox arrangements, EFT, or credit cards

Discounts for prompt payment by customers

Cash flow budgets

12-16