Question

6-6   (Learning objective 6-11) Beta is one of ten salespeople working for ABC Company. Over a given period, 15 percent of Beta’s sales are uncollectable, as opposed to an average of 3 percent for the rest of the department. Explain how this fact could be related to a commission scheme by Beta.

Answer 1

One of the possible and most likely reason would be that Beta is falsifying the amount of sales made by him by showing fictitious sales. What happens next is that Beta will collect the sales commission on such inflated sales. However since we are talking about fictitious sales which actually do not exist, no payment will be received from customer and hence such sales will eventually age and be written off as uncollectable. Therefore the percentage of uncollectable sales would be much higher than the standard expectations in such a case (15% as opposed to 3% in present case).

One way to avoid such a scheme is to perform appropriate checks at the time of formation of customer in the accounting software.