The importance of finance and accounting controls goes far beyond complying with legal requirements. In fact, revenue cycle controls are perhaps the most important component of an organization’s overall internal control framework!
Not only are revenue cycle controls an organization’s strongest defense against fraud and loss, they help ensure that decisions are made based on valid and reliable information. Moreover, accounting, management and financial reporting are the backbone of an organization’s information and communication system.
What is the revenue cycle?
Sometimes referred to as “Sales, Receivables, Receipts,” the revenue cycle includes all activities directly associated with selling products or services. Typically, it encompasses order processing, credit checking, sales contracts, warranties or guarantees and cash receipts.
First, each organization must gauge its own revenue risks and then ensure that appropriate controls are in place. The 60 Essential Revenue Cycle Questions from First Reference is a free resource that can help you begin to assess the strength of your revenue cycle. This best practice checklist also refers to the recommended policies you should implement to bolster revenue-related internal controls.
Strengthening your revenue cycle controls with policies
Revenue cycle policies are designed to ensure that there are effective internal controls over all aspects of the cycle. The common objectives of these internal controls are to:
- Ensure that all sales are billed and that all billings are recorded
- Control the risks associated with extending credit
- Prevent loss or theft of assets, particularly cash or cheques
- Report accurate financial information
These objectives can be achieved by establishing basic internal controls, including:
- Comparing business activity to billings
- Processes to control and grant credit
- Controlling processes over mail opening and receiving cheques by using more than one person and by independently comparing a list of cheques received to bank deposits
- Separating handling of cash receipts from accounting record-keeping
- Following up customer complaints independently of the invoicing function
- Approval processes and support for credit notes, write-offs of bad debt, and other items that reduce revenue or accounts receivable
- Analyzing results by comparing to budget and prior years and investigating unusual trends
Where to get started
You can download the free revenue cycle audit checklist here to gauge how well your controls measure up. In addition, the checklist refers you to recommended policies and where you can find ready-to-use versions of each policy in Finance & Accounting PolicyPro®, published by First Reference (try it free for 30 days). This cross-reference helps to ensure you have all the policies you’ll need and that you have reviewed and updated them to meet your internal and external compliance requirements.
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