Exam 11: Audit Testing for the Sales and Customer Service Process

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a. Marketing and brand awareness: Market research, advertising, telemarketing, special promotions, and brand development are ways in which a company tries to get its message to target customers.
b. Customer approval: Customer approval may be simple, as in obtaining a credit card authorization, or can be more complex, as when the company extends credit directly to the customer. Minimizing credit risks is an important objective of this activity.
c. Sales order entry: Once a customer is approved, the details of the transaction must be determined.
d. Inventory handling and shipping: Inventory is selected, packaged, and prepared for shipment. Items may be picked up by customers, or shipped by mail, parcel post, or company delivery vehicles.
e. Customer service order entry: In the case of services, schedules must be assigned and arrangements made for performance of the service
f. Customer service delivery: The timely provision of quality customer service can greatly influence customer satisfaction.
g. Sales recording: Once the goods have been delivered or the service provided, the sales should be recorded in the sales journal.
h. Pricing and billing: Appropriate prices and terms must be assigned to goods and services and communicated to customers. Invoices are typically followed with monthly statements.
i. Collection: Payments from customers are received in various forms, including cash, checks, gift certificates, credit memos, in-house credit, and payments from third parties (e.g., bank credit cards, PayPal).
j. Sales adjustments: Sales returns are the most common form of adjustment.
k. Account write-offs: In the event that a customer is unable to pay amounts owed, a process should exist to attempt collection and to authorize removal of receivables in the event that collection is impossible.

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To meet sales goals, the company designs the sales and customer process to carry out the company strategy. Objectives mostly address maximizing revenue by creating products and services that match price and quality to those demanded by customers, building a reputation for high quality or low prices, meeting or exceeding customer expectations, and delivering appropriate products or services on a timely basis. Failure to meet one or more of these objectives could result in increased risk for the organization, or even organizational failure.

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a. Performance reviews or monitoring controls provide active monitoring of risk conditions and timely responses to increased risk, which are important for establishing control within a process. Within sales and customer service processes, the auditor should expect to see effective monitoring of competition, customer attributes, technological advances, operational effectiveness, and overall performance.
b. Segregation of duties will definitely be addressed by the auditor. Clearly, some duties within a process are likely to be incompatible, and failure to achieve adequate separation of these activities could create opportunities to commit fraud or allow processing errors to go undetected. For sales and customer service, we should see a number of duties separated such as credit approval and sales entry, inventory and shipping, billing, cash receipt handling and receivable posting, and data processing and transaction authorization.
c. Processing controls reflect a broad range of procedures including required authorizations, use of adequate documents and records, and independent verification of information. For example, appropriate authorization procedures should be specified for granting credit, setting prices, releasing shipments, and accepting sales returns. Appropriate documents should be used within the process such as order entry forms, shipping documents, invoices and remittance advices. In addition, some aspects of the process may be subject to independent verification including reviewing and comparing documents for discrepancies, checking batch and control totals, monitoring open transactions, and investigating customer complaints or discrepancies. These procedures may be directly relevant to the auditor's evaluation of internal control over financial reporting.
d. Physical controls limit access to tangible assets, cash, and accounting records in order to minimize risks arising from unauthorized decisions or actions. The receipt of cash is an area where physical control is particularly critical.