Procedure CR2066 - Guidelines for Decentralized Accounts Receivable
Office of the Corporate Controller
Policy Steward facilitating procedure: Associate Vice President for Finance and Corporate Controller
Table of Contents:
- ESTABLISHMENT OF AN ACCOUNTS RECEIVABLE SYSTEM
- GUIDELINES FOR OPERATION OF AN ACCOUNTS RECEIVABLE SYSTEM
- Use of Invoices
- Establishment of Accounts
- Billing Procedure
- Processing of Payments Received
- Depositing and Reporting of Payments Received
- Summary Reporting
- Reconciliation and Accountability
- Delinquent Account Processing
- Bad Debts
- PROCESSING RETURNED CHECKS
- AUDIT COORDINATION - FINANCIAL AND PROCEDURAL
- RECORD RETENTION, DISPOSITION AND DESTRUCTIONS
- CONTACT INFORMATION
- CROSS REFERENCES
As mandated by University Policy FN02, all areas of the University have the inherent authority to bill for materials and services rendered provided that published University criteria are followed. However, the authority to maintain accounts receivable and collect payments on such receivables is granted only when there is a justifiably compelling reason to do so.
Several areas have been granted an inherent right to maintain receivables. They are: Bursar (general receivables and ISIS - student receivables), Financial Officers at Non-University Park locations, the Office of Research Accounting (receivables for sponsored activity), and the Hershey Medical Center Finance Office (Hershey Medical Center Patients).
Other areas may be granted a right to maintain receivables by their budget executive and Financial Officer.
This document specifies the general basic minimum performance criteria applicable to any area granted the authority to maintain its own receivables. Exhibits indicate the general format of information that must be maintained. Similar formats, whether they be computer-generated or manually maintained, shall be suitable as long as equal information and controls exist.
Before an area may administer its own accounts receivable, it must first justify the need for such an arrangement to, and obtain the approval of, the area budget executive and the area Financial Officer, respectively. Formal permission must be documented via written memo, and retained by the area Financial Officer.
Areas denied permission to administer their own accounts receivable must Executive/ utilize the A/R system employed by the Office of the Bursar (at University Park) or Finance Office (at non-UP locations), as documented in Policy FN02, "Charge Sales and Billing."
Once an area receives permission to administer their own A/Rs, the system must be maintained in accordance with the guidelines specified below.
NOTE: - The exhibits in this procedure portray documents used in a MANUALLY-operated A/R system. However, as long as controls are properly applied (as specified in this procedure), the forms, reports, and procedures discussed may be either computerized or mutually generated, as applicable to the type of A/R system being employed. In as much as this information is "institutional data" and an asset needed for successful operation of a University department, these systems will be additionally governed by Policies AD95 and AD35.
A supply of official University invoices can be obtained from Systems and Procedures via GURU or General Stores (see http://www.generalstores.psu.edu/ ), as applicable to the type and style of invoice needed.
Areas desiring to use their OWN invoice must have their Financial Officer review it and concur that the following criteria are met:
- Invoices are preprinted or generated by computer at the time of billing;
- Invoices are multi-copied:
- Billing area copy
- A/R copy
- Customer copy
- Remittance copy;
- If invoices are preprinted, the “form number” assigned when printing the form MUST be a number different from the form numbers associated with the Invoices obtained from Systems and Procedures via GURU;
- Invoices are consecutively numbered for audit trail/accountability, either when preprinted or at the time the computer program generates them;
- Invoices contain an area specifying the appropriate department/fund/object code/amount due information for further processing and record keeping once remittances are received;
- Invoices contain a “description” area which clearly explains the nature and purpose of the charges being billed for;
- In conjunction with Policy FN01 (section entitled "Checks Received"), invoices MUST specify that all checks/money orders be made payable to “The Pennsylvania State University” and NOT the department/area making the sale or rendering the service);
- Invoices contain a “remittance address” area for remittance of payment to the proper area; and
- Invoices must specify the terms of “net payable upon receipt.”
All invoices, whether they are the standard University-designed forms or a department’s own design, must be completed and processed in accordance with the invoice instructions on GURU.
Areas maintaining their own receivables must formally establish an account for each customer/client, creating a permanent record with the following information:
- Customer/client name
- Contact person, as applicable
- Financial Data (dates of charges/ services/payments, amount billed, amount paid, method of payment, balance of account, other data, as applicable)
Charges must be recorded on an Invoice (one which meets the criteria specified in “Purchase of Invoices”). For proper accountability, all invoices must be either pre-numbered (manual systems) or consecutively numbered (computerized systems).
The original invoice and a "remittance copy" will be forwarded to the customer/client. The originating department will retain the two remaining copies, one of which will be filed in their receivable file by invoice number (last copy filed as seen fit by management). The invoice will request the customer/client to return the remittance copy with their payment to the "remit to" address.
A record of ALL invoices issued must be recorded to the Invoice Register (Exhibit "A" or comparable document/file, as applicable to the type of A/R system being employed) at the time the invoice is forwarded to the customer, detailing the invoice number, the customer name, date, and the amount billed.
Voided invoices must be presented to management for their review and approval. This must be done as promptly as possible, but no later than the end of that business day. The appropriate adjustment(s) to the system (e.g., issuance of a credit against the voided invoice, updating the invoice log, etc.) must be made to the system within 24 hours of the void. The appropriate notation must also be made to the Invoice Register (see Exhibit "A" or comparable document/file, as applicable to the type of A/R system being employed) to report this action, and to facilitate reconciliation (as discussed in "Invoice Register Accountability"). Monthly, a summary of all voids processed must be generated and presented, with voided invoices attached, for management review.
Customers will have 30 days from the date of the invoice or statement to report any discrepancy to the department manager. (Notification IN WRITING is the preferred method; however, notification by phone with documentation of the discrepancy, corrective action taken, etc., is acceptable if management so chooses and issues the appropriate written authorization to their staff.) Follow-up by the area and response to the customer must occur within 10 days after the customer informs the area of the discrepancy. Such requests will be investigated and corrective action decided upon by someone other than the personnel who handle the daily revenues and perform the daily bookkeeping, as designated by the department manager.
Adjustments to customer accounts may be necessary to correct billing and/or posting errors. All adjustments (debits or credits, as applicable) are to be reflected on the Invoice Register (Exhibit "A" or comparable document/file, as applicable to the type of A/R system being employed) in the same manner as the original charge sale. In addition to the information normally required on an Invoice (e.g., contact person, billing address, budget information, etc.), details covering the adjustment must clearly indicate the type of adjustment being made (debit or credit, as applicable), include the reason for the adjustment, and should reference the original invoice number issued. Such actions must have support documentation explaining the adjustment, and receive supervisor approval before adjusting the customer's account. Upon approval, the credit/adjusting invoice will be recorded to the Invoice Register (Exhibit "A" or comparable document/file, as applicable to the type of A/R system being employed). The original and 1st copy will be forwarded to the customer/client. The department copy will be retained and placed in a separate "credits/adjustments" file.
Processing payments will occur within the guidelines specified in Policies FN01, "Processing Cash Revenues" and FN07, "Electronic Payments-Credit Card Sales," as applicable to method of payment being utilized. Likewise, A/R payments held overnight will be secured in the same manner as documented in the "Safeguarding Cash" section of Policy FN01.
Upon receipt of the "Remittance" copy of the Invoice and check/money order, each payment received will be logged to the Accounts Receivables Payment Log (Exhibit "B" or comparable document/file, as applicable to the type of A/R system being employed), indicating the date received, invoice number, customer name, and amount received. Additionally, the "Payment Received" column on the INVOICE REGISTER (Exhibit "A"Exhibit "A" or comparable document/database, as applicable to the type of A/R system being employed) will be checked off to facilitate the A/R Aging Report Process. If a discount has been offered and taken by the customer when remitting payment, the applicable amount will be recorded to the "Discount" column of the Payment Log. Lastly, entries will be made to the appropriate individual customer accounts and the applicable subsidiary records, such as the Aged Accounts Receivable Report, A/R Summary Report, etc., to reflect the payment activity.
NOTE: Posting of A/R payments must be performed by individuals other than those who perform the billing and cash handling functions.
The "Remittance" copy of the invoice will be marked paid with the number of the check/money order, amount received, date recorded on the invoice, then filed in the customer/client's file.
At day-end, the "payments received" and "discounts taken" (as applicable) will be added to the respective beginning balances reported on the Accounts Receivable Payment Log (Exhibit "B" or comparable document/file, as applicable to the type of A/R system being employed) to update the respective balances for those categories on the Payment Log.
Once appropriately logged and posted, the revenues received are prepared for deposit. The total monies are recorded on a bank slip, secured in a sealed deposit bag, and safeguarded until they are transported to the bank. The deposit is made in accordance with University Policy FN01 and Procedure CR2005 - Depositing Cash Revenues. All monies are transferred according to Procedure CR2004 - Accountability for Transfer of Items of Value (Except Equipment).
In addition to preparing the bank deposit slip, a Report of Cash Receipts (ROCR) must also be prepared for each deposit and processed in accordance with the applicable IBIS documentation. The ROCR document number is recorded on the deposit slip.
In monitoring A/R activity, the following practices must be adhered to, at minimum, on a monthly basis:
- All accounts not reported as paid on the Invoice Register (Exhibit "A" or comparable document/file, as applicable to the type of A/R system being employed) must be aged and reported on a monthly Aged Accounts Receivable Report (see Exhibit "C" or comparable document/file, as applicable to the type of A/R system being employed). This report will summarize the total due for each debtor, including a breakdown of how long the charges have been outstanding, ranging from 30 days , 60 days, and over 90 days.
- To inform customers/clients of the status of their accounts, provide payment history, and provide a formal record of balances outstanding at a specific point in time, a Statement of Account (Exhibit "D" or comparable document/file, as applicable to the type of A/R system being employed) must be generated and mailed out for each account having an outstanding balance.
- All accounts outstanding more than 60 days should be considered delinquent and summarized by customer name on a "Delinquent Accounts Report" (Exhibit "E" or comparable document/file, as applicable to the type of A/R system being employed). This report should minimally summarize for each customer having an unpaid invoice the invoice number(s), date(s) invoiced, the length of time outstanding, and amounts due. All accounts appearing on this report will be analyzed and collection efforts pursued as documented in "Delinquent Account Processing," below.
- Correction of any posting errors found during the reconciliation process will be summarized on an Accounts Receivable Adjustment Log (Exhibit "F" or comparable document/file, as applicable to the type of A/R system being employed), showing the applicable invoices, amounts, brief explanation of why an adjustment was required, and who performed the adjustment to the customer's account. Such a log must be reviewed/approved monthly by management. Management approval will be evidenced by their initials and date next to the transactions reviewed and on the documents reviewed. While review of ALL documents is not required, management should examine a large enough sample to satisfy themselves that the integrity of the system is uncompromised.
Invoice activity (billings, payment processing, etc.) must be accounted for on a regular basis. Regardless of the A/R system employed (manual or automated), there must also be regular reconciliation to verify that what is reported on the department's financial statements as an ACCOUNTS RECEIVABLE BALANCE (due the department for supplies and/or services rendered) agrees with what has been billed, plus or minus adjustments reflected on the various subsidiary records, less payments received.
On a monthly basis (or more frequently if management deems necessary), activity per the individual customer records will be reconciled to the current accounts receivable balance being reported.
A sample reconciliation form is shown on Exhibit "G" (like other documents referenced in this procedure, this document may be used, or a comparable document/file may be used, as applicable to the type of A/R system being employed). All customer accounts having an outstanding balance will be added up and recorded on the reconciliation sheet as "Total Outstanding Balance Per Customer Accounts". This total will be compared to the "Total Due" per the Invoice Register (Exhibit "A" or comparable document), less those invoices marked off on the Invoice Register as "Payment Received," plus or minus (if applicable) any adjustments per the Adjustments Log (Exhibit "F", or comparable document/file). This total should agree with the "Total Outstanding Balance Per Customer Accounts". Any variance will be researched and resolved., with documentation attached to the reconciliation sheet to support the nature of, and corrective action taken, for any discrepancies found.
Lastly, to insure that University records are in agreement with department records, all payments reported on the Accounts Receivable Payment Log (Exhibit "B" Exhibit "B" or comparable document/file, as applicable to the type of A/R system being employed) must be vouched monthly to the information reported in the IBIS system for the particular University budget(s) involved.
The numeric sequence of invoices must be reviewed and accounted for minimally on a monthly basis, but in more frequent intervals if so desired by management. This review must be performed by someone independent of the invoice issuance process (i.e., a supervisor or manager), and successful accountability shall be evidenced by their initials and date on the invoice log for the numbers verified. The numeric sequence of all invoices purchased for use will be traceable to one of the following places: Invoice Register (still on hand or issued), void file (canceled for the reason documented on the voided invoice), A/R Payments Log (payment received), Aged Accounts Receivable Report (awaiting payment), or the Delinquent Accounts Report (if outstanding past 60 days). All discrepancies must be documented, investigated, brought to the attention of management, and resolved.
A Delinquent Accounts Report (Exhibit "E" or comparable document, as applicable to the type of A/R system being employed) must be generated, at minimum, on a monthly basis, showing all accounts with balances outstanding past 60 days. For clients/customers on this list, a statement (Exhibit "D" or comparable document/file, as applicable to the type of A/R system being employed) will be generated, marked "PAST DUE," and mailed to the customer/client notifying them that payment of the invoice(s) listed as unpaid is due immediately. If payment is received within the next 30 days, processing will commence as documented in "Processing of Payments Received."
If accounts remain outstanding beyond 90 days, a collection agency will be solicited to assist in collection attempts (contact the Bursar for recommendation of/assistance in securing a collection agency). A letter will be sent to the customer notifying them that this action is being taken.
Once the decision has been made to turn an account over to a collection agency, the account should be written off. A "write-off list" of those customers and the amounts owed must be compiled and presented to the area Financial Officer with a request to write off these accounts. Appropriate documentation supporting the investigation and attempts at collection must be made available to the area's budget executive at the time the request for write-off is made. Not until the Financial Officer is satisfied that sufficient collection efforts have been made will permission to write off these accounts be granted.
Upon approval, the appropriate records (Invoice log, A/R ledger, client file) will be adjusted to remove the outstanding balance from department records. All write-off documentation shall be maintained by client account name in a "Write-off" file for reporting and audit trail purposes. The appropriate staff will also be informed of this action, so that future sales/services are not rendered to these customers.
If collections occur subsequent to this write-off activity, the appropriate client account file will be pulled and collection data recorded to document the recovery of funds. Payments will be recorded and deposited within the guidelines specified in "Processing of Payments Received."
The Financial Officer is responsible for ensuring that procedures pertaining to the accountability and safeguarding of all cash receipts, cash funds, and other assets are established and followed in accordance with approved University policies and procedures. Regular audits relating to advances, cash, travel, equipment accountability, and other expenditures provide a means to protect University assets. The Financial Officer is responsible for working with Internal Audit when audits are being performed in the administrative area, as well as performing an annual audit that is submitted to the Assistant Controller.
Record retention must be managed in accordance with Policy AD35 - University Archives and Records Management, and records schedules approved by the Records Management Advisory Committee, Office of General Counsel, and Office of the President. These retention requirements are the University's retention criteria, either derived or based upon federal, state, and local statute or regulations, industry standards, and business needs. Retention beyond recommended time periods require justifiable reasons and warrant review by the Records Management Officer or designee. All documents must be maintained in such a manner so as to provide ease of access for review, and to provide a suitable audit trail for all transactions.
- Documents subject to a Legal Hold (see AD35, Legal Hold). A legal hold will remain in effect until it is released in writing by the Office of General Counsel.
- Documents under audit or review, either internally or externally. The retention period extends until released by the Corporate Controller's Office. The Financial Officer will be notified regarding any accounts which are under audit; the Financial Officer will be responsible for contacting the department.
Additional questions may be directed to the University Archivist or the Records Management Officer.
- Exhibit A - Sample of an Invoice Register
- Exhibit B - Sample Accounts Receivable Payment Log
- Exhibit C - Sample Aged Accounts Receivable Report
- Exhibit D - Sample Statement of Account
- Exhibit E - Sample Delinquent Accounts Report
- Exhibit F - Sample Accounts Receivable Adjustment Log
- Exhibit G - Sample Accounts Receivable Reconciliation Form
For questions, additional detail, or to request changes to this procedure, please contact the Associate Controller.
- Policy AD22 - Health Insurance Portability and Accountability Act
- Policy AD35 - University Archives and Records Management
- Policy FN02 - Charge Sales and Billing
- Policy FN07 - Electronic Payments - Credit Cards (formerly Credit Card Sales)
- Procedure CR2002 - Processing Returned Checks
- Procedure CR2004 Accountability for Transfer of Items of Value (Except Equipment)
- Procedure CR2005 Depositing Cash Revenues
- Blue/White Shredding Program
Date Approved: 09/22/14
Most recent changes:
- Revision 2 - dated 09-18-14 (updated per the 2014 internal audit on Research Post-Award)
- Revision 1 - dated 12-08-99 (revised to reﬂect current operations, per changes to Policy FN02)
- Original - dated 02-26-93