Fraud Doctor

Inventory Fraud

Shipping Costs and Inventory Fraud

Are you at risk for inventory fraud?  A simple evaluation of shipping costs relative to sales over time could indicate a greater risk for inventory fraud (Bell, 2009).


  • Definition: Shipping costs expense divided by total sales: (Shipping Costs Expense) / (Total Sales)
  • Measurement Unit: %
  • Measures: The relationship between shipping costs and sales.
  • Fraud Indicator: An increase is a red flag for early delivery and bill & hold schemes.  A decrease could indicate fictitious revenue.

Fraud Red Flag:

  1. Increase : Revenue recognition: Early delivery scheme
  2. Increase : Revenue recognition: Bill & hold scheme
  3. Decrease : Revenue recognition: Fictitious revenue


Bell, A.  (2009, February).  Data Analysis for Corporate Fraud Risk: Ratio Red Flags for Fraud (p. 73).  Charlotte, NC: CreateSpace.  ISBN: 978-1475086324