Internal Audit Department

GJKIDS-IAR-ACC-001
MARCH 4, 2019

TO: MANAGEMENT

RE: BUSINESS PROCESS REVIEW FOR ORDER TO CASH

Part 1. Order to Cash Overview

Order to Cash, also known as O2C or OTC, refers to the set of business processes for receiving and
processing customer sales orders for goods and services and their payment. These processes are at
the heart of all businesses and unless they are managed efficiently and accurately, organizations
would not only face financial problems, but also reputational issues. Every department in a given
company is affected either directly or indirectly by the Order to Cash system.
Objective:
The general objective of this audit is to be able to draw recommendations with the end in view of
providing top management with a reliable basis for optimization of plant operation. Determine if
receivables are accurately recorded and if delinquent accounts are being collected in accordance
with procedures and internal controls over billing, collection, and write-off functions are properly
designed and implemented of GJ Kids Inc. Sales and Development Inc.
Procedures Performed:
The audit was conducted from evaluating the data collected on Sales, Accounting, Production, QA,
Logistics and Maintenance areas from the 4th Quarter 2018 through SAP records, log sheets, field
data sheets among others. Interview with process owners or responsible persons were also
conducted as needed.
Part IV. Invoicing and Collection
Data Gathered
Below is the list of documents used in GJ Kids Sales and Development Inc. order to cash audit for
the fourth quarter of 2018.
1. Production Order (SAP)
2. Bill of Materials (SAP)
3. Issue for Production (SAP)
4. Receipt from Production (SAP)

Data profiling

Table 1 Internal Audit generated SAP Reports from Fourth Quarter of 2018. Data profiling

BUSINESS PROCESS NO. OF DOCUMENTS

Accounts Receivable Invoice 102
GRN 86
Incoming Payments 33
Collection Report 1
Bank Statement 0
Deposit 0

Table 2 Selection of Audit Samples

SAMPLE TEST PLAN PARAMETER

Population Size 662
Sample Size 102
Margin of Error 7%
 Confidence Level 87%

Sample size is based on the result of Sample Test Plan computation from 639 total population of
accounts receivable invoice from the month of January to December 2018. Sample size of 102
Accounts receivable invoice was used for analyzation of business process and risk assessment.
Parameter is set in consideration of access to financial data. Sample size is selected in fourth
quarter of 2018. Accounts Receivable Invoice series used is 0001 to 00639.

Data Analysis

Table IV. 3 Business process timeliness of Accounts Receivable

Statistic GRN A/R Invoice
Summary for Incoming Payments
(Date received of GRN - Posting (Creation Date - Collection Date)
(Posting Date of DR - Date received)
Timeliness Date of ARV)
Average Lead
Time per 14 4 15
Process
Maximum
Lead Time per 85 14 100
Process
Minimum
Lead time per 1 0 0
Process

Above table indicated the timeliness of process from receiving of GRN to Incoming Payments that
took 33 days to complete. Key Performance Indicator for Collection result indicates bottleneck in
two process that give high contribution of inefficiency rate when it comes to process timeliness.
(GRN=40%, Incoming Payments 50%)

Summary of Concern
Audit Findings Responsible Likelihood Significance Audit Scoring
Business
Unit
Accounts
5 5 25
Receivable Team
 have difficulty in Sales
requesting GRN Department
from Unilever. This Accounts
difficulty has effect Receivable
of 40% slowness in
timely account
receivable invoicing
and collection.

Audit Recommendation
1. Make it a practice to touch base with your customers via phone or email the exact date
payment is due, rather than waiting 45 days or longer. If customers know collection tea, are
diligent about collecting on receivables, they are more likely to pay on time to get you off
their back. To speed up the collection of AR business unit such as Sales and Accounts
Receivable should follow up on accounts that are delinquent or are about to become
delinquent. If a payment due date is approaching and haven’t heard from a customer about
the invoice, AR Collection team to send a reminder notice or collection notice. The first
reminder should go out about a week before the due date, especially if the invoice was sent
out a month earlier. In the reminder, state the due date is approaching and when the due date
is. There is a chance of at least 10-20% improvement in