The evaluated receipts process was first discussed in Chapter 2 as an ad­vanced approach for planned purchases within the accounts payable system. This system involves issuing a purchase order number for each authorized delivery by a supplier, which the supplier affixes to its physical order to the company; the company’s receiving staff then matches the received pur­chase order number against a database of open purchase orders, and the accounting software pays the supplier based on the purchase order-no supplier invoice is required. It is possible that customers will have their own evaluated receipts systems, in which case a company’s order entry and shipping systems must be configured with the proper controls to deal with these customer systems.

Customers with evaluated receipts systems always place orders with purchase orders, since the purchase order number is the key number used by them to approve incoming shipments. Consequently, the evaluated receipts process flow shown in Exhibit 1 is designed to handle both paper-based and electronic purchase orders. As part of the order entry process, the key control is to ensure that the evaluated receipts flag is turned on in the cus­tomer master file, since this triggers the creation of an evaluated receipts tag that is sent to the customer with the delivery and also warns the billing department not to send an invoice to the customer. The credit analysis process is also simplified, since any customer placing orders under an evalu­ated receipts system is probably a long-term business partner with an es­tablished credit line.

The controls noted in the flowchart are described at greater length next, in sequence from the top of the flowchart to the bottom.

• Set evaluated receipts flag. If a customer issues a purchase order in which it notifies the company that it is now using an evaluated receipts system, then the order entry staff should set the evaluated receipts flag in the customer master file to indicate this change in status. By doing so, the accounting system will now notify the shipping department that it must print a shipping tag for attachment to the delivered goods. These tags always list the authorizing purchase order number, and frequently the company’s supplier number as used by the customer, as well as the item number and quantity being delivered. Furthermore, this information may be required in a bar-coded format as specified by the customer. This flag should also either keep an invoice from being printed (since the customer no longer pays from the invoice) or else add an identifying mark to the invoice, so the billing staff will not mail the invoice to the customer.

Exhibit 1 Controls for Shipments to Evaluated Receipt Customers

• Compare order to available credit. Orders for evaluated receipts are generally received from long-term business partners with whom a com­pany has long since established a line of credit. Consequently, there is rarely a need for elaborate credit reviews with such orders. (If a credit review appears necessary, then the early discussion of credit controls in Section 3-3 will handily address that eventuality.) Thus, the minimal control point needed for this process is to have the computer system compare the dollar amount of the latest purchase order to the amount of available credit and to route the order to a credit staff person if the credit limit has been exceeded.
• Conduct manual credit review. This control is unlikely to be used, since it is triggered only if a customer’s credit level is exceeded, which is unlikely if the customer is a long-tem business partner.
• Flag order as approved for shipment. As is the case for all computer­ized shipment systems, all orders must be flagged by the credit depart­ment as being approved for shipment. In this case, most evaluated receipts orders are likely to be approved automatically by the system, which automatically sets the approval flag.

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