Accounting Best Practices, Fifth Edition

8–9. Periodically Audit Commissions Paid

Given the complexity of some commission structures, it comes as no surprise that the sales staff is not always paid the correct commission amount. This is particularly true of transition periods, where payment rates change or new salespeople take over different sales territories. When this happens, there is confusion regarding the correct commission rates to pay on certain invoices or whom to pay for each one. The usual result is that there are some overpayments that go uncorrected; the sales staff will closely peruse commission payments to make sure that under payments do not occur, so this is rarely a problem. In addition, there is a chance that overpayments are made on a regular basis, since any continuing overpayment is unlikely to be reported by the salesperson on the receiving end of this largesse.

The best way to review commissions for this problem is to schedule a periodic internal audit of the commission calculations. This review can take the form of a detailed analysis of a sampling of commission payments or a much simpler overall review of the percentage of commissions paid out, with a more detailed review if the percentage looks excessively high. Any problems discovered through this process can result in some retraining of the commissions clerk, an adjustment in the commission rates paid, or a reduction in the future payments to the sales staff until any overpayments have been fully deducted from their pay. This approach requires ...