Data source : Financial Report of PT. ABX

As a trading company with large credit sales, PT ABX certainly faces challenges in managing the risk of uncollectible receivables. An analysis of the effectiveness of the current internal control system for receivables at PT ABX is crucial to identify areas that may require improvement or strengthening. Understanding the strengths and weaknesses of the existing internal control system will enable PT ABX to take appropriate corrective measures to ensure that trade receivables are managed optimally, thereby minimizing the negative impact of uncollectible receivables on the company's financial performance.

Based on available data, PT ABX's current assets showed a significant upward trend from 2021 to 2023. Current assets in 2021 were recorded at Rp 134,225,858,449, in 2022 at Rp 144,080,013,313, and in 2023 at Rp 267,839,368,009.

However, despite the increase in current assets, the percentage of uncollectible receivables at this company also experienced a significant increase. In 2021, the percentage of uncollectible receivables was recorded at 15%, in 2022 it increased to 18%, and in 2023 it reached 23%. This increase in the percentage of uncollectible receivables indicates an imbalance between the increase in current assets and the quality of collectible receivables.

Management decisions regarding trade receivables play a crucial role in determining the success of internal control.

In managing the risk of uncollectible receivables, one way to measure the impact of uncollectible receivables on the company is by calculating provisions for bad debt, which is an important accounting step to anticipate potential losses caused by uncollectible receivables. The following is the calculation of bad debt provisions based on the percentage of uncollectible receivables to total receivables:

One of the main problems faced by PT ABX is the increasing percentage of bad debts from year to year. In 2021, bad debts were recorded at Rp 12,386,248,286 or 15% of total receivables, then increased to Rp 23,555, 876,377 or

18% in 2022, and surged dramatically to Rp 59,957,779,510 or 23% in 2023. This increase indicates that the internal control system in receivables management still has weaknesses that need to be addressed to help the company mitigate the growing risk of uncollectible receivables.

This phenomenon underscores the importance of evaluating the effectiveness of the internal control system for accounts receivable to ensure that the policies and procedures implemented are truly capable of minimizing the risk of uncollectible accounts receivable. This study aims to analyze the effectiveness of the internal control system for accounts receivable in minimizing uncollectible accounts receivable, providing in-depth understanding and relevant practical recommendations for the company. Therefore, the researcher intends to conduct research with the thesis title “Analysis of the Effectiveness of Internal Control Systems for Accounts Receivable to Minimize Uncollectible Accounts Receivable at PT ABX.”

The objectives of this study are, first, to analyze the effectiveness of internal control systems for accounts receivable so that the risk of uncollectible accounts receivable can be minimized. Second, to identify strategies that companies can use to improve their internal control systems for accounts receivable in order to minimize the occurrence of uncollectible accounts receivable. This research also provides benefits for companies by offering practical benefits for various parties within the company, particularly in accounts receivable management and the effectiveness of internal control systems. The benefits for academics are that it can provide scientific information to develop knowledge, particularly related to internal control to reduce the potential for uncollectible accounts receivable in companies. In addition, the benefits for the community can be a reference so that the process of controlling business accounts receivable is carried out in accordance with procedures and laws and regulations.

One important concept in accounting and management is the internal control system, which is intended to ensure that organizational goals are achieved. To understand the basics of this system, various frameworks and experts have provided complementary definitions. One of the most widely accepted definitions comes from the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In its integrated framework (COSO, 2013), the internal control system is not viewed as a single event, but rather as an ongoing process influenced and carried out by the board of directors, management, and all personnel of the entity. This process is specifically designed to provide reasonable assurance—not absolute assurance—regarding the achievement of various organizational objectives. A process influenced by the board of directors, management, and other personnel of the entity, designed to provide reasonable assurance as a guarantee in achieving the company's objectives, whether in operational activities, reporting, or corporate compliance, is the definition of internal control according to COSO. According to Romney, the essential main functions of an internal control system for the success of an organization (Romney, 2014) are:

"Corrective controls are designed to remedy problems that have been detected, ensuring that errors, fraud, and inefficiencies are properly addressed to safeguard organizational resources." (Arens et al.,2020).

The most widely recognized and used international internal control framework is the one published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In its publication, “Internal Control - Integrated Framework” (2013), COSO defines internal control as a process influenced by the board of directors, management, and other personnel of an entity, designed to provide reasonable assurance regarding the achievement of the entity's objectives in its operations, reporting, and compliance (COSO, 2013). COSO internal control is a framework that combines professional practices to build efficient and effective business systems and processes. The functions and application of these five interrelated components influence the success of internal

control system implementation. These components provide a framework for the design, implementation, operation, and performance evaluation of internal control.

The conceptual framework described by Mulyadi is often used in Indonesian accounting literature to explain the fundamental elements or “key components” of internal control systems (Mulyadi, 2016). The structure presented is slightly different but has the same essence, which is easier to understand and implement in practice in Indonesia.

Receivables management is an integral part of a company's financial management that relates to the management of investments in accounts receivable. Receivables management involves determining the amount of receivables that a company should have, the credit terms offered to consumers, the collection policies to be used, and the evaluation of customer creditworthiness (Horne and Wachowicz, 2005). The key variables that need to be managed are part of the company's fundamental receivables policy. These variables include: (1) credit standards, which are the minimum financial strength criteria that customers must have to be eligible for credit; (2) credit terms, which include the credit period (payment period) and the existence of a cash discount if payment is made early; (3) overall credit policy, which is a combination of credit standards and terms; and (4) collection policy, which is the procedure the company takes to collect overdue receivables (Brigham and Houston, 2018).

Receivables reflect the amount of money that the company must receive from the sale of goods or services that have been made, but payment has not yet been received in cash when the transaction occurs. When giving receivables to customers, it is necessary to have an element of trust from the company that the customer will pay the amount owed at the agreed time.

In addition to recording and billing, accounts receivable management is a strategic part of financial management. It involves a number of decisions and actions intended to effectively manage the company's investment in accounts receivable to support sales and profitability goals and reduce risk and costs.

This study uses the Input-Process-Output (IPO) approach within the conceptual framework to analyze the effectiveness of the internal control system for accounts receivable, with the aim of minimizing the risk of uncollectible accounts receivable, in reference to the COSO framework.

Figure 4.1 shows the process of uploading interview transcript data to Nvivo and saving it in files named according to the informant, ensuring that it cannot be mixed with other data. After uploading or importing the interview transcript data, the next step is for the researcher to code the data. During this process, the researcher creates basic categories based on emerging concepts, compares them, and combines related ones. Nodes play a crucial role in managing and analyzing qualitative data in Nvivo because the categories of themes analyzed by the researcher are stored in nodes during the coding process. Figure 4.2 shows the results of the text transcript coded in nodes.

Figure 4.2 shows the results of the coded transcription. By observing the nodes created based on the categories and subcategories of the unit of analysis, researchers can identify patterns in the relationships between themes and/or concepts generated from the available data.

The following is the discussion based on the results of data processing using NVivo 12 Plus Qualitative Data Analysis Software.

Source: Data analysis results from NVivo 12 Plus

Based on Figure 4.4, the analysis of the COSO components in the form of an exploration diagram is as follows:

The exploration diagram shows that the control environment encompasses several subcategories, including top management commitment, values and integrity, professionalism, and segregation of duties. These elements help enhance a culture of compliance and ethics within the company. With the support of leadership, work culture, and regular training, PT ABX has created a strong control foundation.

This component describes how the company identifies and addresses risks related to uncollectible accounts receivable. Systematic efforts to assess customer risk are indicated by codes such as Risk Management, Transparency, Customer Financials, and SOP. However, time and resource constraints were identified as issues in this process.

Customer Billing, the Accounts Receivable Aging Report, and Tiered Authorization are subcodes in the control activities category. The diagram illustrates that the company has formal mechanisms to control its accounts receivable, including control evaluations and routine checks. Nevertheless, human error and field conditions suggest that technical and operational issues still hinder these operations.

The information and communication diagram illustrates the importance of communication between information systems and departments. Some of the main obstacles identified are Application Feature Limitations, Communication Barriers, and Input Errors. Nevertheless, the company's efforts to update information and establish two-way communication between staff and supervisors suggest that it is committed to improving its internal information and communication systems.

The final component is monitoring activities, which include evaluating and following up on internal audit results. These results include procedure checklists, control evaluations, and audit recommendations. The diagram shows that the company regularly reviews and improves its internal control system; however, some procedures are not yet fully functional.

Source: Data analysis results from NVivo 12 Plus

The word cloud above illustrates important words derived from qualitative research on implementing an internal control system for accounts receivable at PT ABX, organized by frequency. The words were derived from coded interview data and documents focusing on the five elements of the COSO framework: control environment, risk assessment, control activities, information and communication, and monitoring. Some of the most frequently used keywords are:

indicate routine administrative procedures to ensure accurate and reliable accounts receivable data.

This word cloud shows that PT ABX's implementation of internal control already covers important elements, such as operational procedures, internal communication, and customer and employee involvement. However, issues related to communication, system limitations, and the need for more frequent evaluation and monitoring remain.

These results align with those of the exploration diagram analysis, which indicates that, although all five COSO components have been implemented, there is room for improvement in interdepartmental communication, information systems, and operational oversight to reduce uncollectible accounts receivable.

Source: Data analysis results from NVivo 12 Plus

Figure 4.5 shows the distribution and intensity of discussions and findings based on the number of coding references from interviews and observations of the five main components of the COSO framework.

The visualization highlights parts of the information and communication component and shows that issues with the reporting system, data updates, inter-division communication, and application features are significant problems in accounts receivable management at PT ABX. The quality and effectiveness of internal communication and the accounting information system are crucial to preventing uncollectible accounts receivable.

The risk assessment component is also important, with keywords such as risk management, standard operating procedures (SOP), proactivity, and financial risk. This shows that PT ABX has recognized the importance of identifying receivable risks from the beginning of transactions and has standard processes for mitigating risk.

A significant proportion is allocated to the control environment. Topics such as professionalism, accountability, and supervision emerge, indicating that PT ABX has a work culture and organizational structure sufficient to support the implementation of internal controls. However, consistency and oversight are still needed.

Control activities include controls over general reporting, evaluation of procedures, and human resource aspects. Although proportionally smaller, the presence of technical and administrative controls remains important in supporting the effectiveness of the accounts receivable control system.

Reviews, evaluations, and checklists are the main themes of monitoring activities. Although routine monitoring accounts for a smaller proportion than other components, it is very important to ensure that all control systems are

running according to procedures and providing feedback for continuous improvement.

The Text Search Query feature is used to analyze words that appear in the Word Cloud Query from various research data sources. In this study, the researcher wanted to understand how the word "customer" is used, as it was the most prevalent word in the collected research data. The search results are displayed in the word tree below:

Figure 4.6: Word tree of the use of the word "customer" in research data sources

Source: Data analysis results from NVivo 12 Plus

As Figure 4.6 shows, customer-related topics are very complex and involve various dimensions of the company's receivables control process. Customer risk is one of the most dominant dimensions, particularly in relation to credit risk and customer concentration. Informants expressed concern about high-risk customers, especially those from certain industry segments, new customers, and customers with inconsistent payment histories. Therefore, when making credit decisions, caution is encouraged, as is emphasizing the importance of evaluating accurate, complete, and up-to-date customer information.

Additionally, informants stated the importance of customer data as the primary material for risk analysis and assessment. This data includes supporting documents, accounts receivable reports, payment history, and external customer information, such as business reputation and financial conditions. In practice, managing this data presents various obstacles. Several informants stated that customer information is often outdated, does not reach the relevant parties, or is not formally documented. This condition poses a major challenge for companies in maintaining the effectiveness of internal control and the accuracy of financial reports.

Prospective customers are another prominent dimension in the initial risk assessment process. When assessing prospective customers, their ethical values, reputation, and future payment ability must be considered. This demonstrates that companies not only react to risks that have already occurred but also proactively approach the customer selection process from the beginning.

Informants emphasized the importance of long-term relationships with customers in terms of loyalty and fulfillment of obligations. Having good relationships with customers can facilitate communication and data clarification processes. Conversely, problematic relationships can potentially worsen accounts receivable risks.

Cluster analysis was conducted by researchers to perform analysis based on word similarity, meaning that words contained in selected nodes would be compared. Nodes with a higher level of similarity based on word frequency and occurrence would be displayed in groups. Conversely, nodes with a lower level would be displayed separately.

Figure 4.7 illustrates the outcomes of analyzing the five COSO components based on word similarity. This method was employed to understand the linguistic relationships between the terms and ideas of each component, as well as their function in internal control practices.

The clustering results indicate that risk assessment and control activities are the two most semantically similar components. This suggests a strong relationship between the risk identification process and the control measures applied to accounts receivable. Aligning risk assessment with the implementation of control policies at PT ABX is crucial to preventing uncollectible accounts receivable.

Next are information and communication, which indicates that internal information dissemination and reporting processes strongly support the implementation of risk assessment and control activities. This underscores the importance of accounting information systems for tracking accounts receivable and responding to customers.

Meanwhile, the control environment is in a slightly separate group, indicating that, semantically, this term has a broader scope. Nevertheless, as the main foundation of the internal control system at PT ABX, the control environment still plays a role in determining the system's overall effectiveness, including in accounts receivable management.

Lastly, monitoring activities are the most distinct component linguistically. This reflects the fact that these activities are evaluative and act as an overall supervisor of the control system. In practice, routine monitoring of the implementation of internal control procedures for accounts receivable is critical for identifying weaknesses and taking prompt corrective action.

Overall, this analysis reinforces the understanding that, while the five COSO components are interrelated, they have distinct roles and characteristics in promoting the effectiveness of the internal control system, particularly in minimizing the risk of uncollectible accounts receivable at PT ABX.

We conducted an in-depth analysis of PT ABX's internal control system for accounts receivable using a COSO-based approach and exploratory text data methods, including activity diagrams, word clouds, hierarchy charts, text search queries, and horizontal dendrograms. The results indicate that PT ABX's internal control over accounts receivable is not fully effective in minimizing uncollectible accounts. Several important findings are as follows:

The activity diagram obtained from the five COSO components (control environment, risk assessment, control activities, information and communication, and monitoring) shows that:

These issues indicate that although there is an administrative system, it has not been effectively implemented to identify and prevent problematic accounts receivable.

The word cloud shows words that appear frequently, such as: "customer," "control," "internal," "information," "how," "salesman," "reconciliation," "payment," "accounting," "ensure," and "communication."

This shows the importance of communication and reconciliation between departments, as well as the importance of accounting and information in controlling accounts receivable. The many occurrences of the word "how" also indicate significant questions about technical implementation. The word cloud analysis revealed that:

The hierarchy chart and horizontal dendogram group frequently occurring terms into related clusters.

Based on this mapping, it can be concluded that:

Quick decision-making is not possible because the system cannot yet systematically assess credit risk based on historical customer data or manage information.

A text search analysis using keywords such as "receivables," "control," "risk assessment," "customers," and "payment" reveals that:

This suggests that the internal control system lacks a proactive approach to accounts receivable risk.

Considering the overall results of the data exploration and analysis of internal control components, it can be concluded that the accounts receivable internal control system at PT ABX still needs improvement. Although the system has been structurally built, it is inefficiently implemented and lacks a robust information and monitoring system. The main weaknesses are:

After conducting an exploratory data visualization analysis using various tools, such as activity diagrams, word clouds, hierarchy charts, text search queries, and horizontal dendrograms, it appears that PT ABX is having difficulty implementing and integrating components. Therefore, to improve the efficiency of the existing internal control system in reducing uncollectible accounts receivable, several approaches can be suggested for improvement. The following improvement strategies are based on the obtained findings:

The word cloud and text search query results indicate weak customer risk assessment, as evidenced by the minimal use of terms such as “credit analysis,” “customer scoring,” and “early warning.” The recommended strategies are as follows:

The hierarchy chart and horizontal dendrogram indicate the overlap of functions between the sales and accounting departments. This overlap creates potential conflicts of interest and weak control. Recommended strategies:

The word cloud highlights the importance of "information" and "communication," but also indicates limitations in the effectiveness of both. Additionally, the text search query reveals a lack of data connectivity. Recommended strategies:

Monitoring of the billing process has not been carried out systematically or continuously, as indicated by the activity diagram and horizontal dendrogram. The recommended strategy is:

In implementing control, humans play an important role, as reflected in the word cloud that brings up words such as “salesman,” “do,” and “how.” However, it also reflects the possibility of ignorance or inconsistency in implementation. The recommended strategies are:

The Hierarchy Chart indicates weak documentation and inconsistent reconciliation. The recommended strategies are:

The recommended improvement strategies, based on the results of the exploration and analysis, aim to enhance the effectiveness of the internal control system for accounts receivable at PT ABX. These strategies cover managerial, procedural, technological, and human resource aspects. The improvements focus on information integration, risk evaluation, separation of duties, and training personnel responsible for accounts receivable management. Comprehensive implementation of these strategies is expected to significantly reduce the risk of uncollectible accounts receivable and support the company's long-term financial health.