Your organization must remain vigilant to prevent financial losses from occupational fraud. In a nutshell: Trust employees, but routinely verify they aren’t stealing. This includes salespeople who, if they’re unethical, could falsify sales commission records to illicitly line their own pockets. Be aware of potential sales commission fraud schemes and how best to detect and prevent them, since catching fraudsters in the act is nearly impossible.

How Some May Cheat

Sales commission fraud can take several forms. For example, a retail employee bent on fraud may enter a nonexistent sale into a point of sale (POS) system to generate a commission. Or a dishonest sales associate might create a fraudulent contract that invents everything — including the customer.

Another risk is overstatement of sales. In such cases, workers alter internal sales reports or invoices or inflate sales captured via their organization’s POS system. Or they might change their organization’s commission records to reflect a higher pay rate. As for workers who don’t have access to such records, they might collude with someone who does (such as an accounting staffer) to alter rates.

Uncovering Schemes In Progress

Fortunately, you can use data from these types of fraud incidents to detect abuse. To uncover a scheme in progress:

Analyze Commission Expenses Relative To Sales. After accounting for timing differences, the volume of commission payments should correlate to your business’ sales revenue.

Scrutinize Individual Commissions. Focus on outliers whose commission levels are significantly higher and ascertain the reasons for such differences. Consider setting benchmarks based on commission sales by employee type, location, and seniority. This can enable you to detect fraud more easily.

Randomly Sample Sales. For sales associated with commissions, make sure you have documentation of the sales and commission payments. You might contact individual customers to verify sales transactions by framing your calls as customer satisfaction checks.

Monitor Employee Communications. Commission schemes sometimes involve collusion with other employees and customers, which usually leaves email, phone, and text trails. But to prevent lawsuits, vet your intention to monitor worker communications with legal counsel.

Importance Of Internal Controls

Detecting schemes already underway isn’t enough to prevent financial losses. You also need to adopt controls that discourage sales commission fraud. This starts with an ethical “tone at the top” and managers who set realistic sales goals that salespeople can meet without cheating.

Also, reduce opportunities to tamper with records by limiting access to files and scrutinizing unusual relationships between sales associates and accounting staffers. And if you don’t already have a confidential fraud reporting hotline open to employees, customers, and vendors, put one in place.

We Can Help

Your business may not be equipped to routinely sift through sales data and spot potential fraud. Contact us for help. We can also assist you in implementing controls that make it harder for your sales team to falsify records.