Internal Audit Checklist: Client Acquisition

Audit Client Acquisition
In general, the objective of an internal audit is to assess the risk of material misstatement in financial reporting. Material misstatements can arise from inadequacies in internal controls and from inaccurate management assertions. As such, testing the validity of various implicit managerial assertions is a key objective of an internal auditor.

While this applies to all financial cycles, this article is the third in a series focusing on the General Control Activities for the Sales, Invoicing and Credit Management (SICM) cycle. The most important general controls for SICM include:

  • Organization
  • Sales Planning and Target Setting
  • Customer Acquisition
  • Client Acceptance and Sales Agreements
  • Management Client Relationships
  • Order Processing
  • Invoicing
  • Sales Returns and Credit Notes
  • Credit Management
  • Customer Master Data

Creating Prospective Client List and Determining Client Needs

There are important goals for the business when creating a prospective client list and determining client needs, which include:

  • Target potential clients
  • Determine primary prospective clients based on expiration of current contracts and competitors
  • Categorizing clients

If the business doesn’t define a strategy to identify and engage prospective clients, a variety of adverse consequences can occur, such as:

  • Poorly defined target group
  • Inability to identify prospective clients due to incomplete market
  • Not identifying customer needs
  • Difficulty in determining prospective client contract status with competitors

When conducting the audit look out for the following controls/best practices:

  • Identify criteria for identifying prospective clients.
  • List all prospective clients (return clients and service clients).
  • Evaluate whether there has been a proper market analysis.
  • Analyze list of delivered products and services.
  • Verify that a Customer Relationship Management (CRM) system is being used.
  • Validate that clients have been vetted for credit worthiness.
  • Make sure there is a process to assess existing customer consumption to identify further sales opportunities within client base.
  • Verify there is a process to facilitate the sharing of market and client information between entities (where relevant) to identify potential cross selling opportunities.

Key Account Management

The primary goal of Key Account Management is to make sure all key accounts are adequately serviced to leverage all income generating opportunities.

The risk of having ineffective Key Account Management is that customer needs not identified or met, loss of key accounts to competitors, and all income generating opportunities are not identified or acted upon.

When conducting the audit look out for the following controls/best practices:

  • Key accounts are adequately resourced with account managers assigned.
  • Key account’s needs are identified through regular communication.
  • Key account managers are involved in all communication with key customers to a complete view of relationship.
  • Key account managers are responsible for identifying and leveraging sales opportunities to maximize revenues from existing customers.

Preparing bidding documents/business proposal

The most important goal for preparing bidding documents/business proposals is to make sure that all Requests for Proposal (RFP) is completed accurately with appropriate information and submitted on time.

If the bidding process is not defined the company could create inconsistent proposals, be subject to human error and incorrect data being presented, release confidential information without adequate protection, or unknowingly enter into non-profitable business relationships.

When conducting the audit look out for the following controls/best practices:

  • Assure there is an appropriate level of management, in accordance with schedule of authority, to review and approve the final proposal prior to sending to client.
  • Verify there are policies and procedures in place stipulating what data can be released, which includes the prospective client signing a non-disclosure agreement with respect to information received during the bidding process.
  • Validate that all relevant stakeholders, including Finance/Control, are involved in preparation of bidding documents.
  • Evaluate whether bidding documents / business proposals are prepared in accordance with pre-established company selling conditions.
  • Make sure that all business proposals are approved in line with pre-established authority levels with respect to volumes and margins.
  • Verify that proposals are tracked by sales team to ensure timely follow up and that profit margin analysis is approved by appropriate management.

Advertising and Marketing Spend

The advertising and marketing budget must support the business growth and should be in line with business objectives. The advertising and marketing spend should be monitored for effectiveness.

There are a variety of risks associated with not having a defined Advertising and Marketing Spend policy and procedure, which includes:

  • Spend is not in line with the marketing strategy and therefore not effective at meeting business objectives.
  • Spend is not controlled within a marketing budget.
  • Optimal pricing on advertising and marketing services is not achieved due to decentralized provider selection and negotiation.
  • Advertising and Marketing spend is not reviewed and approved by appropriate management and finance.
  • Advertising and Marketing spend is not in line with corporate directive, advertising and marketing services could be either over or under-utilized.

When conducting the audit look out for the following controls/best practices:

  • Make sure that authorization of marketing spend is in line with business authority schedule and budget.
  • Verify that someone is monitoring the effectiveness of advertising and marketing spend, including a process for applying lessons learned into future actions.
  • Test to make sure that supplier selection for marketing activities subject to the review and approved of the purchasing function.
  • Validate that spend is reviewed and approved to ensure validity, it is adequately supported, and it is in line with regulatory standards.
  • Assure that marketing spend is supported and approved by finance.

In conclusion, auditing standards require that auditors test basic underlying management assertions implicit in the financial statements. Key objectives to these assertions are; Existence and Completeness, Rights and Obligations, Valuation or Allocation, and Presentation and Disclosure.