REVENUE CYCLE INTERNAL CONTROL PROCEDURES - DOC

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REVENUE CYCLE INTERNAL CONTROL PROCEDURES - DOC Powered By Docstoc
					Contributed December 21, 2001


REVENUE CYCLE PROCEDURES

1.       Functions of the revenue cycle

Revenue cycle includes following functions:
    concluding services contracts with customers, client acceptance procedures,
    credit control
    activation and disactivation of subscribers
    providing cellular communications services and products
    customer master file maintenance
    customer billing
    sales analysis
    customer returns and allowances
    collection of accounts receivable
    provisioning for doubtful accounts
    receipt of cash from trade customers (initial deposit, prepayments, under/over
     payments, regular receipts, etc.)




2.       Critical forms and documents associated with the cycle:


    Service agreements with clients;
    Billing system output (minutes used by clients);
    Invoices;
    Credit memos;
    Bank statements evidencing payments for services received




3.       Common risks associated with the Revenue cycle



Authorization and accuracy of contracts with clients
    Unauthorized rates or prices are quoted.
    Extension of credit terms to customers who represent unacceptable credit risks to
     the company.
    Orders may be accepted/contracts concluded from/with related parties without
     management's knowledge or at unacceptable prices or terms.
    Orders may be accepted at prices or on terms that violate governmental laws and
     regulations.




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Providing services/shipping
   Goods may be shipped or services delivered (cellular services provided) to the
    wrong party.
   The wrong goods or services or the wrong quantity of goods or services may be
    shipped or delivered.
   Fictitious or otherwise invalid shipments or services may be made or provided.



Billing
   Goods (phones) sold or cellular services provided may not be initially recorded
    and reported.
   Records of sales or cellular services provided may be lost and therefore not
    billed.
   Incomplete invoicing of services and goods delivered to customers (minutes used
    are not included in the customers billings).
   Invoices are raised on an untimely or inaccurate basis leading to payment delays.
   Revenues may be recorded for goods or services that were not delivered.
   Invoices may not be priced from an authorized source.
   Incorrect billings may be issued due to clerical or mechanical errors.
   Invoices may not be summarized and posted on a timely basis.




Accounts receivable
   Ineffective collections of receivables from customers.




Cash receipts
   Non-recording of cash receipts. Incorrect application of cash receipts to the
    subsidiary ledger.
   Non-compliance with statutory rules and regulations in respect of revenue
    recognition and taxes.




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4.   Control objectives of the revenue cycle internal control
procedures

The principal objective of control procedures supporting the revenue cycle include
the following:

Authorization and accuracy of contracts with clients
 Contracts with customers are subject to full review and authorization prior to
  approval (client acceptance procedures are in place).
 All orders received (for cellular telephones) should be reported on a timely basis
  to enable warehouse to order and prepare the requested goods.
 Rates, special rates and discounts as well as prices for cellular telephones shall be
  approved on an appropriate level and quoted in accordance with current policy


Billing
 All cellular communication services or goods delivered should be recorded and
  recognized in the accounting records in the appropriate period.
 Billing for services and goods (cellular telephones) should be complete, accurate
  and recognized in the appropriate accounting period.
 Billings recorded in the billing system shall be reconciled to the general ledger on
  a regular basis.


Accounts receivable
 Credit control procedures shall be designed to ensure consistent and effective
  credit collection policies are applied and no unauthorized credits to be granted to
  customers with doubtful credit worthiness.


Cash receipts
 All cash receipts should be recognized in the books on a timely basis and be
  accurately applied to customer accounts in the subsidiary ledger or serve as a
  basis for sales recognition (in Russian books).




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5.     Transaction flow control procedures

An entity's internal control structure comprises the policies and procedures
established to provide reasonable assurance that specific entity objectives will be
achieved. The internal control structure might include a wide variety of objectives
and related policies and procedures. Mostly important procedures to be established
in revenue cycle are as follows:

Authorization and accuracy of contracts with clients
Authorization and Accuracy of Sales Orders - Customer requests for goods and services and
accordingly services contracts that meet management's criteria should be approved and
should be accurately reported on a timely basis.
1. Controls to ensure valid authorization of sales       Type of the       Responsible
orders:                                                    control           person
                                                         procedure
Approval by the proper level of management of           establishing of      Financial
established prices, rates per minute, special rates     the procedure        Director
and prices (for cellular telephones), customers,
credit limits and terms.
Current prices, customers, credit limits and terms       on a regular          Sales
are made available to order entry personnel.                basis           department
Approval by authorized individuals of orders and         on a regular        Financial
services contracts as to customers, prices, credit,         basis            Director
quantities and terms by reference to documented
data approved by management. Approval is made
by persons not involved in the sales function nor
in the preparation of sales orders or contracts.




2. Controls to ensure accurate recording of sales        Type of the       Responsible
orders and services contracts:                             control           person
                                                         procedure
Accurate recording of orders received and                on a regular          Sales
contracts concluded as to customer, prices,                 basis           department
quantities and terms for use in subsequent
processing.




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3. Supervisory controls to ensure the continued           Type of the       Responsible
operation of above controls:                                control           person
                                                          procedure
Review and approval by a designated official of           adherence to        Financial
sales orders over a specified amount, and                the procedure        Director
orders/services contracts with special prices,
terms or discounts.


Completeness of Services Contracts and Sales Orders - All customer requests for goods and
services should be reported.
1. Controls to ensure completeness of sales orders:       Type of the       Responsible
                                                            control           person
                                                          procedure
Use of prenumbered sales orders/contracts or              adherence to         Sales
other means in recording all orders.                     the procedure      department
Accounting for the sequence of prenumbered                    -“-                -“-
sales orders/contracts and follow-up of missing
orders.


2. Supervisory controls to ensure the continued          Type of the        Responsible
operation of above controls:                               control            person
                                                         procedure
Review by a designated official of the results of        on a regular         Financial
follow-up on missing documents.                             basis             Director


3. Written procedures to ensure the proper               Type of the        Responsible
operation of above controls                                control            person
                                                         procedure
Adequate written procedures regarding order             establishing of      Financial
entry function activities.                              the procedure        Director




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Providing services/Shipping Function

Completeness of Shipments - All shipments made and services provided should be reported.
1. Controls to ensure completeness of recording          Type of the       Responsible
of goods shipped and services provided:                    control           person
                                                         procedure
Use of prenumbered documents, logs, or other           establishing of       billing
means in recording all shipments and services          the procedure       department,
rendered (For computer-generated shipping                                 warehouse in-
documents, assignment by computer of                                         charge
sequential number to the documents - “minutes
of use” report).


Accounting for the sequence of prenumbered              on a regular            -“-
shipping documents or records of services                  basis
provided (minutes of use report), and follow-up
of missing documents.


Matching of shipping documents with sales               on a regular            -“-
orders and records of services provided (minutes          basis (for
of use report) with services contracts and follow-      phone sales),
up of long unmatched orders, by persons other           on a periodic
than those who maintain the records of                    basis- for
unmatched orders.                                          cellular
                                                          services




2. Supervisory controls to ensure the continued          Type of the       Responsible
operation of above controls:                               control           person
                                                         procedure
Review by a designated official of the results of       on a regular      Deputy Chief
follow-up on unmatched orders and missing                  basis           Accountant
documents.




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Accuracy of Providing Service/Shipments - Shipments made and services provided should be
based on authorized customers' orders/services contracts, and should be accurately reported
on a timely basis.
1. Controls to ensure validity of shipments and           Type of the       Responsible
services provided.                                          control           person
                                                          procedure
Shipment of goods or providing of services not           adherence to          Billing
made without an authorized sales                        the procedure
order/services contract.


2. Controls to ensure accuracy of recording of            Type of the       Responsible
shipments and services provided:                            control           person
                                                          procedure
Physical counting of goods at time of shipment           on a regular       warehouse in
by persons other than those who: a) have custody            basis             charge
or access to inventories; b) authorize or make
shipments.
Accurate recording of services provided as to                 -“-              Billing
description, dates, quantities and other relevant
data for use in subsequent processing.
Use of verified shipping documents in
subsequent posting of quantities to inventory                 -“-          warehouse in-
subsidiary records.                                                           charge
Adherence to documented procedures for                                        Financial
                                                         adherence to
services provided/shipping cut-off (daily and                                 Director
                                                        the procedure
period end).




3. Supervisory controls to ensure the continued           Type of the       Responsible
operations of above controls:                               control           person
                                                          procedure
Assignment of a designated official to supervise        assignment of         Financial
providing services and shipping operations.               the person          Director


4. Written procedures to ensure the proper                Type of the       Responsible
operation of above controls:                                control           person
                                                          procedure
Adequate written procedures regarding shipping          establishing of       Financial
function activities.                                    the procedures        Director




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Billing
Completeness of Billings - All shipments made and services provided should be billed and
recorded in the general ledger and subsidiary records.
1. Controls to ensure the completeness of recording        Type of the       Responsible
of billings for goods shipped and services                   control           person
provided:                                                  procedure
For computer-generated invoices, assignment by            establishing of       Billing
computer of sequential number to invoices (in             the procedure
manual systems - use of prenumbered and
controlled sales invoices in recording all billings.)
Invoices are automatically generated by the                    -“-              Billing
computer system based on computer records of
shipments/services provided to customers.

For invoices produced manually - Matching of               on a regular     Deputy Chief
sales invoices with shipping documents or records             basis          Accountant
of services provided, and follow-up of long
unmatched shipments or services by persons other
than those who maintain the records of unmatched
items.




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2. Controls to ensure the completeness of               Type of the     Responsible
summarization of billings for goods shipped and           control         person
services provided:                                      procedure
Accounting for sequence of prenumbered                  on a regular    Deputy Chief
manually-prepared invoices, and follow-up of               basis         Accountant
missing and/or duplicate invoices by persons
other than those who (1) prepare invoices, (2)
record shipments, (3) process accounts receivable
transactions, (4) deal with cash receipts (5)
authorize the voiding of invoices, (6)prepare credit
memos. (7) record goods returned and claims or (8)
are involved in computer operations and
programming.


Detailed checking of sales invoices (quantities         on a regular        -“-
billed) against printouts (“minutes of use” reports),      basis
follow-up of unprocessed invoices, and
investigation and correction of differences by
persons with no incompatible duties.


Reconciliation (by computer or users) of invoice            -“-             -“-
control totals for posting to the receivable control
account with totals of previous reports.
Reconciliation, and investigation and correction of
differences, by persons with no incompatible
duties.


Prenumbered journal entry forms and related             adherence to        -“-
accountability for all numbers each period.                  the
                                                         established
                                                         procedure




3. Supervisory controls to ensure the continued         Type of the     Responsible
operation of above controls:                              control         person
                                                        procedure
Review by a designated official of the results of       on a periodic    Financial
follow-up on unmatched shipments and services.              basis        Director
Review by a designated official of the results of           -“-             -“-
follow-up on missing documents.




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4. Written procedures to ensure the proper                 Type of the       Responsible
operation of above controls:                                 control           person
                                                           procedure
Adequate written procedures regarding                     establishing of      Financial
procedures for billing and summarization of sales               the            Director
invoices.                                                   procedures


Accuracy of Processing and Summarization of Billings - Billings (including costs of goods
and services sold and sales-related expenses where these are based on billings) should be
based on shipments made and services provided (actual minutes used by client), should be
accurately computed, and should be accurately and promptly summarized and recorded in
the correct accounts in the general ledger and subsidiary records.
1. Controls to ensure validity of recorded sales           Type of the       Responsible
                                                             control           person
                                                           procedure
Verification of invoiced prices to approved sales        on a test basis    Deputy Chief
orders or price lists, by persons other than those                           Accountant
who (1) prepare sales invoices or (2) are involved
in the order entry function (For computer-
generated invoices where prices are stored on
current authorized price master file adequate
controls over the master file).
Ensuring that manually-prepared sales invoices            on a regular           -“-
have been checked and approved as being valid                basis
before posting of amounts to the accounts
receivable control account and subsidiary records.




2. Controls to ensure accuracy of recorded sales:          Type of the       Responsible
                                                             control           person
                                                           procedure
Verification of extensions and footings of invoices       on a periodic     Deputy Chief
by persons other than those who prepare sales                 basis          Accountant
invoices. (For computer-generated invoices,
adequate assurance of the propriety of program
logic.).


3. Controls to ensure propriety of account                 Type of the       Responsible
classification                                               control           person
                                                           procedure
Checking of coding of invoices.                           on a regular      Deputy Chief
                                                             basis           Accountant




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4. Controls to ensure accuracy of summarization       Type of the      Responsible
                                                        control          person
                                                      procedure
Verification of mathematical accuracy of              on a regular     Deputy Chief
summaries (e.g., by periodic refootings or               basis          Accountant
agreement to independent control totals) used as
basis for general ledger entries.
Period-to-period comparisons of the amounts of       on a periodic      Financial
recurring entries.                                       basis          Director
Adherence to documented cut-off and period-end        at the end of        -“-
closing procedures.                                       period


5. Supervisory controls to ensure the continued       Type of the      Responsible
operation of above controls:                            control          person
                                                      procedure
Review by a designated official of exception         on a periodic       Chief
report on the verification and checking of               basis         Accountant
invoices.
Review and approval by a designated official of       on a regular      Financial
invoices over a specified amount, and invoices           basis          Director
with special prices, terms or discounts.
Review and approval of each journal entry by a            -“-            Chief
designated official who did not participate in its                     Accountant
preparation.



6. Written procedures to ensure the proper            Type of the      Responsible
operation of above controls:                            control          person
                                                      procedure
Adequate written procedures regarding activities     establishing of    Financial
on billing and summarization of sales invoices.      the procedure      Director




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Accounts receivable related procedures
Substantiation of balances - the validity, accuracy and completeness of recorded balances of
  receivables and sales should be periodically substantiated.

1. Controls to ensure the validity, completeness            Type of the        Responsible
and accuracy of recorded balances:                            control            person
                                                            procedure
Periodic comparison of recorded balances with              on a periodic         Financial
budgeted amounts, prior periods and industry                   basis             Director
statistics.

Maintenance of the accounts receivable subsidiary          appointment           Chief
records by persons other than those who (1)                of the person       Accountant
prepare, check or approve accounts receivable
documentation, (2) maintain the control account
or (3) deal with the cash receipts function.

Periodic reconciliation of accounts receivable             on a periodic      Deputy Chief
subsidiary records with related control account                basis           Accountant
and investigation of differences by persons other
than those who (1) post the accounts receivable
subsidiary records, (2) maintain the control
account, (3) account for sales invoices and credit
memos or (4) deal with the cash receipts function

Periodic mailing of customer statements, and                    -“-                 -“-
investigation of exceptions by persons with no
incompatible duties.

Periodic review of credit balances in accounts                  -“-              Chief
receivable to determine their causes.                                          Accountant




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Evaluation of balances - the valuation of recorded balances of receivables and related
allowances should be periodically evaluated.

1. Controls to ensure receivables are stated at             Type of the         Responsible
realizable value.                                             control             person
                                                            procedure


Comparison of provisions, write-offs, credit               on a periodic       Deputy Chief
memos and other non-cash reductions to                         basis            Accountant
receivables with budgets and historical
information.

Preparation of an aged analysis of receivables              on a regular           A/R
and follow-up of past due items (Compiling and                 basis            accountant
approving a disconnection list). Reconciliation of
total of aging analysis with related control
account balance.

Periodic review of the formula used for                    on a periodic            -“-
determining provisions and allowances for                      basis
doubtful accounts.

Periodic determination of provisions required                   -“-               Chief
and accounts to be written off by a person not                                  Accountant
involved in the sales, accounts receivable
recording and cash functions.

Periodic determination of additional valuation                  -“-                 -“-
allowances (returns, allowances and other non-
cash reductions) by persons not involved in the
sales, accounts receivable recording and cash
functions.



2. Supervisory controls to ensure the continued             Type of the         Responsible
operation of above controls                                   control             person
                                                            procedure
Review by a designated official of aged analysis           on a periodic         Financial
of receivables for unusual items and results of                basis             Director
reconciliation procedure.

Review and approval by a designated official of                 -“-                 -“-
provisions, write-offs and additional valuation
allowances made.




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3. Written procedures to ensure the proper                  Type of the        Responsible
operation of above controls of above controls:                control            person
                                                            procedure


Adequate written procedures regarding accounts            establishing of        Financial
receivable function activities.                           the procedure          Director



Cash Receipts control procedures
Completeness of cash receipts procedures- all cash receipts should be recorded in the general
ledger and subsidiary records.
1. Controls to ensure the completeness of                    Type of the       Responsible
recording of cash receipts:                                    control           person
                                                             procedure
Prenumbering and control over bank statements              establishing of     Cash in bank
evidencing cash receipts from customers, that are          the procedure        accountant
subsequently accounted for, in recording all cash
receipts.
Comparison, either individually or in total, of the         on a periodic      Deputy Chief
records of entries in the cash receipts book with               basis           Accountant
bank statements as to dates and amounts, by
persons other than those who (1) handle cash
receipts or (2) maintain the accounts receivable
records (This is done as part of bank
reconciliation.)


2. Controls to ensure completeness of                        Type of the       Responsible
summarization of cash receipts:                                control           person
                                                             procedure
Accounting for sequence of prenumbered cash                 on a regular       Deputy Chief
receipts documents and follow-up of missing                    basis            Accountant
documents.
Prenumbered journal entry forms and related
accountability for all numbers each period.




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Accuracy of processing and summarization of cash receipts - cash receipts should be
accurately recorded as to amounts, dates, customer names and numbers, and should be
accurately and promptly summarized and recorded in the correct accounts in the general
ledger and subsidiary records.
1. Controls to ensure validity of cash receipts:         Type of the        Responsible
                                                           control            person
                                                         procedure
Ensuring that cash receipts have been checked            on a regular      Deputy Chief
and approved as being valid before posting of               basis           Accountant
cash receipts to control account and subsidiary
records.


2. Controls to ensure propriety of account               Type of the        Responsible
classification:                                            control            person
                                                         procedure
Checking of account coding of cash receipts for          on a regular      Deputy Chief
posting to general ledger.                                  basis           Accountant


3. Controls to ensure accuracy of summarization          Type of the        Responsible
of cash receipts:                                          control            person
                                                         procedure
Verification of mathematical accuracy of                on a periodic         Chief
summaries (e.g., by periodic refootings or                  basis           Accountant
agreement to independent control totals) used as
bases for general ledger entries.

Period-to-period comparisons of amounts of
recurring entries.

Adherence to documented cut-off and period-
end closing procedures.


4. Written procedures to ensure the proper               Type of the        Responsible
operation of above controls:                               control            person
                                                         procedure
Adequate written procedures regarding cash             establishing of       Financial
receipts processing and summarization activities.      the procedure         Director




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Access To Cash Receipts—Access to cash receipts should be restricted to authorized
personnel, and cash receipts should be deposited in bank accounts promptly.
1. Controls to ensure adequacy of physical                Type of the        Responsible
safeguards:                                                 control            person
                                                          procedure


Adequate physical controls (e.g., lockbox               establishing of        Chief
arrangements, work area layouts, safes, etc.) of         the controls        Accountant
cash on hand.




2. Written procedures to ensure the continue              Type of the        Responsible
operation of above controls:                                control            person
                                                          procedure
Adequate written procedures regarding cash              establishing of        Chief
receipts function activities.                           the procedure        Accountant



Completeness Of Receiving And Processing Of Sales Returns (phones) And Allowances—
All goods(phones) returned should be promptly reported and recorded in the accounting
records.


1. Controls to ensure the completeness of                 Type of the        Responsible
recording of returns and allowances:                        control            person
                                                          procedure
Use of prenumbered receiving documents, logs            establishing of    Warehouse in-
or other means to record all returns made.              the procedure         charge

Accounting for sequence of prenumbered                    on regular             -“-
receiving documents and follow-up of missing                basis
documents.

Use of prenumbered and controlled credit and                  -“-           Deputy Chief
debit memos, that are subsequently accounted                                 Accountant
for, in recording all returns and other
adjustments.

Matching of credit memos with prenumbered                     -“-                -“-
receiving documents, and follow-up of
unmatched items by persons other than those
who maintain the records of unmatched items.




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2. Controls to ensure accuracy of recorded             Type of the       Responsible
returns and allowances:                                  control           person
                                                       procedure
Physical counting of goods at time of return.          adherence to     warehouse in-
                                                      the procedure        charge
Accurate recording of returns made as to                   -“-              -“-
quantities, description, customer, date and other
reference data for use in subsequent processing.



3. Written procedures to ensure the proper             Type of the       Responsible
operation of above controls:                             control           person
                                                       procedure
Adequate written procedures regarding activities      establishing of      Financial
on processing and summarization of sales              the procedure        Director
returns and allowances.




6.       Common accounting entries

Revenue cycle functions are likely to initiate accounting entries reflecting such
economic events as:
    Sales
    Costs of services rendered, goods sold
    Cash receipts
    Cash discounts
    Sales returns and allowances
    Allowance for doubtful accounts
    A/R write-offs and recoveries
    Commission expense
    VAT




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