This article, focusing on sales, is part of HLB Mann Judd’s fraud review series which takes a closer look at potential areas of fraud and provides tips on how to mitigate fraud.

There are various ways an individual can manipulate sales processes to conduct fraud. Here we examine two opportunities for fraud, being via revenue and credit notes.

Revenue

The risk of fraud in the recognition of revenue arises when all revenue received by the company is not actually recorded, with the fraudster pocketing the difference. Where processes are lacking to capture revenue, fraud may be committed.

Example: An employee and customer have a close relationship. The employee provides the customer a discount by issuing a credit note. The customer may share the proceeds with the employee.

Tips

  • Ensure the sales process issues a customer receipt, thereby registering when a sale is made and the data is entered into your systems.
  • Separate duties when it comes to recognising revenue. Ensure the same person who raises the invoice in the system is not the same person who collects payment.

Credit notes

How strong are your controls for credit notes? Is there a procedure in place for documenting and approving credit notes, are credit notes common in your business?

Management should regularly review their credit note processes. Unauthorised credit notes can lead to the misappropriation of inventory or stolen deposits from customers. Both of these cases can create a benefit for an employee.

Example: An employee issues a “false” invoice with fraudulent bank details. The sale is not recorded and the employee receiving the proceeds. 

Tips

  • Ensure all credit notes pass through an approval process to validate the claim. Part of this process should involve checking customer details are correct.
  • Review and analyse credit note trends periodically to identify any anomalies or patterns involving to the same employee requesting credit notes to be issued.

How HLB Mann Judd can help you

No business is fully protected from fraud. Management must consider what their fraud tolerance is and determine what processes best mitigate fraud.

If you or someone you know are concerned with the scope of fraud in sales, or any other aspect of the business, our team can assist to identify risks, test identified areas and provide specific recommendations to protect against fraud.