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Sales documentation for fraud prevention


Improper documentation in terms of accuracy or completeness will always be a sure way to perpetuate fraud in any organization. For this reason, this paper will focus on how to document by means of preventing fraud properly. Also, the paper will strive to list out the possible loopholes that are exploited to defraud an organization of its sales return.

Sales Documentation
For the purpose of definition, we can refer to sales documentation as the accurate and complete recording of all transactions that revolve around sales without missing any minute details that involve bringing into account all company activities irrespective of their materiality.


The word materiality is an accounting terminology that considers the overall beneficial effect of a transaction on the organization to determine whether the benefits derivable from there justify the effort to be put to it. When our focus is not to debunk the veracity of the terminology, it only acts as a guide to us.

In sales documentation, to achieve completeness, nothing should be regarded or treated as immaterial. The reason for this is not far-fetched. There is a tendency to delve into immateriality areas to create loopholes that are eventually well exploited to commit fraud.

This becomes monumental when they are accumulated over a period of time.

Therefore, in sales documentation, all matters revolving around sales must be recorded. For the avoidance of doubt, the following matters regarding sales are open for exploitation, if not adequately managed in sales documentation.

Wastages, Scraps, Sales returns, Discount, Staff sales, Sales incentives.

Wastages are usually recorded either through the process of manufacturing or handling through carriage. These wastages are regarded because of reduced quality or quantity and are often not adequately taken care of. Some manufacturing processes are disposed of without recourse to recording, while the disposal is also favored in ordinary handling. However, in practical terms, these are usually recycled and mixed with normal products, which are subsequently sold. The effect of this is that, when there are sales returns, the company is made to refund or replace the sub-quality product. Nevertheless, the recycled product provides a loophole to carry our quality products without being noticed.


How is this possible? For instance, we may ask, let us take a hundred cartons of products bought for resale. Out of this, five cartons were damaged and taken away for disposal, but the five cartons were recycled to get four cartons that found their way to customers. The total sales to a third party have become ninety-nine, but the record will show ninety-five. In case three out of these were returned, the company replaced the three; thereby, its remitted sales had dropped into ninety-two cartons. In the first instance, a fraud has been made on four cartons, with another opportunity on the returned sales if not adequately managed.

Sales of scraps is another loophole that can provide a ready avenue for fraud if not correctly documented. Scraps are a little similar to wastages but extend further than it. Scraps may include outright wastages and rejected products sold out at a salvage value. In practice, scraps are often mixed up together and disposed of as such. It thus becomes difficult to know the exact value derivable from there. Even scraps can be recycled and treated like wastages discussed above.

Sales Returns
When sales returns are not adequately documented and certified, it creates a ready avenue for fraud. A sales return that is not treated correctly can become a toy in the hand of the staffers to play with at regular intervals. This usual tendency, especially in small organizations, is to simply keep the sales returns in one corner away from the normal product. Unfortunately, these are often resold as scraps without accounting for them.

In a situation where there is a discount variation, it provides an avenue for fraud. There should be a uniform standard for granting discounts, or it could be used to commit fraud. If a discount is granted for a certain quantity of goods, sales from different customers are sometimes combined to take out a discount that is never given to any customer.

Staff Sales
Some companies, in order to motivate their staff, usually have what is called staff prize. As beautiful as such schemes may seem, ‘smart’ staff have often used it to commit sales fraud, especially by sales department staff, who divert sales to third parties for staff sales. Some personnel may collect money from customers and pay for it as staff sales. Of course, the difference is pocketed by such staff.


Sales Incentives
Sales incentives are given to stimulate even greater sales and means to encourage people to sell. However, the effect of this is that products disappear with such incentives. For instance, the ‘free issue’ is given to some customers or agencies through the sales people in bottling companies, which are often exploited to carry out excess products. Sometimes, such ‘free issues’ are not delivered but sold by salespeople. There are instances where the company is made to suffer by such non-delivery. I recollected when the Police delayed our sales vehicles because ‘free issues’ they were expecting have been diverted by our salespeople. It became double jeopardy for the organization: The delay and the consequent loss of sales for those periods.

It is good to note that there are practical solutions to blocking all these loopholes mentioned above.

There must be a proper recording of all wastages, either from the production process or from handling. Apart from this, the sales team should be prevented from handling wastages of any kind. The record should be taken, and wastage handed over to the storekeeper. In addition to this, there should be a policy on what to do with wastages. If it is to be sold, a clear policy on its sales must be spelled out, and its sales must be identifiable.

There should be a policy on sales of scraps and a standard prize fixed for such sales. It is often not out of place to have a different customer base for the sales of scraps.

When sales are returned, they should be distinctively marked and a register open to record them. In the store arrangement, returned sales should not be mixed with the normal product yet to be sold. Also, a clear policy of treating returned sales should be in sales. Sometimes, it may be sold to staff at a discounted amount.

There should be clear means of monitoring that sales discount is enjoyed by real customers and not pseudo-customers, who may use staff proxies. A good database of customers may help in this regard.

There should be a limit to staff sales. Also, such sales should be paid directly from their salaries, preventing them from paying for it with cash, which may be actual collection from customers.


Sales incentives should be given to known customers based on their past performances. Moreover, if possible, such mechanisms in implementing the incentives should not involve salespeople in the process. This will help avoid unnecessary compromise.

A sound internal control system, where it exists, should be deployed to ensure transparency in implementing all forms of schemes that promote more sales. Also, the internal control should ensure a clear delineation of records for all aspects of the issues discussed above.

While these solutions may not guarantee a total absence of fraudulent practices, they will help reduce such incidences to the barest minimum.

Oluwadele is a chartered accountant and public policy scholar based in Canada.

He is the author of “Thoughts of A Village Boy.” Email:


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