Meaning
Standardized procedures for conducting on-site examinations of a borrower’s books and physical inventory ensure consistency and accuracy in asset verification. A field audit protocol dictates how an inspector should sample invoices, verify shipping documents and count warehouse stock. Following a set routine allows the lender to compare results across different periods and locations.
Inspection Sequence
Clear guidelines specify which records must be made available and the depth of the testing required for every account. The field audit protocol often includes a review of the accounts payable ledger to identify potential liens that could take priority over the lender. It also covers the verification of customer payments to confirm that invoices are genuine and fully collectible.
Verification Standard
Observations made during the site visit can reveal operational weaknesses that data alone might miss. A field audit protocol requires the auditor to assess the physical security of the inventory and the quality of the internal accounting controls. These qualitative findings complement the quantitative analysis of the financial statements and tax filings.
Data Integrity
Findings from the visit are compiled into a formal document that influences future credit decisions. If the field audit protocol uncovers measurable discrepancies, the lender may reduce the borrowing base or increase interest rates. Regular adherence to these steps maintains the integrity of the lending relationship.
