b) In my preliminary evaluation of controls over sales and debtors I would carry out tests of controls, which would be designed to check that control procedures are being applied and that control objectives are being achieved. The questions I would raise include the following:
i) Whether there is a proper credit control department that carries out the following functions:
Evaluates the credit profile of the customer before awarding credit facilities to a customer.
Recommends to management the terms of credit to be awarded to the various customers. This would include determining the credit limit, the number of days allowed and any other special terms such as award of discounts;
Follows up accounts when they fall due for payment and recommends action to management of overdue accounts.
ii) Whether all sales orders are authorised by a senior responsible official. Before the orders are authorised whether the customer‘s account has been checked to ensure that the customer is operating within the credit limit.
iii) Whether there are controls to ensure that all sales are subsequently invoiced. This will include the use of pre-numbered dispatch records and a person to check whether all goods dispatched are subsequently invoiced;
iv) I would also seek to establish whether there is a person who reviews the invoices to ensure that the customer has been billed at the correct sales prices.
v) I would seek to establish what procedures are in place to ensure that all sales to customers and payments received from such customers are subsequently recorded in the ledger.
vi) I would also seek to establish whether the customers statements are reconciled to the ledger before being sent to the customer on a monthly basis.
vii) I would seek to establish whether there are proper follow up procedures for overdue accounts and write off of bad debts.
