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).
SHIPPING COSTS %
- 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:
- Increase : Revenue recognition: Early delivery scheme
- Increase : Revenue recognition: Bill & hold scheme
- Decrease : Revenue recognition: Fictitious revenue
References
Bell, A. (2009, February). Data Analysis for Corporate Fraud Risk: Ratio Red Flags for Fraud (p. 73). Charlotte, NC: CreateSpace. ISBN: 978-1475086324