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CS Professional · Internal and Forensic Audit · Internal Audit of Specific Functions

Internal audit of Sagar Foods Ltd reveals that sales commission is paid to dealers based on invoices raised. Sample testing shows several invoices to a dealer were cancelled after commission was calculated, yet commission was not recovered. The best recommendation is to:

Commission should be linked to realised collections and sales net of returns and cancellations, with automatic reversal when invoices are cancelled. This closes the control gap that caused the overpayment, unlike discretionary recovery, blanket stoppage or year-end payment without reconciliation.

  1. ALink commission payment to realised collections and net-of-returns sales, with automatic reversal on cancelled invoicesCorrect
  2. BStop paying commission to all dealers permanently
  3. CPay commission only at the end of the financial year without any reconciliation
  4. DLet the sales manager decide recoveries case by case

Explanation

The root cause is that commission is triggered by gross invoicing, not final realised sales. Tying it to collections net of cancellations and returns, with system-driven reversal, removes the incentive and the gap. Stopping commission is impractical, deferring without reconciliation does not fix the error, and discretionary recovery weakens control.

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