Commissions Audit Work Program

Table of Contents
EXECUTIVE SUMMARY
COMMISSIONS AUDIT WORK PROGRAM: SAMPLE 1......................................................................................... 4
COMMISSIONS AUDIT WORK PROGRAM: SAMPLE 2......................................................................................... 6
COMMISSIONS AUDIT WORK PROGRAM: SAMPLE 3.......................................................................................12
2 Source: www.knowledgeleader.com
EXECUTIVE SUMMARY
Commissions are a common and desirable way to motivate and compensate employees who meet organization
goals and perform well. Commissions are typically calculated as a percentage of sales or as set-amount bonuses,
and are paid to employees in addition to their hourly or salary pay.
Like any payroll-related process, commissions are subject to fraud and inaccuracies. Commission fraud can
include false sales, inflated sales, or even collusion with clients and other third parties. Therefore, it is imperative
that organizations regularly audit their sales commissions and ensure that all related policies and procedures are
appropriately updated, clearly communicated, and closely followed by all employees.
The three work programs included in this document were designed to assist auditors with comprehending and
assessing the steps associated with the processing of sales commissions and ensuring that commission policies
and agreements are well documented. These audit programs will also help auditors check sales and related
commissions compensation measures against company policies, procedures and programs.
Each sample in this document includes a set of project work steps/audit steps that can be used as a framework
for commissions audit activities. These steps cover the full range of recommended audit activities for sales
commissions, from planning to understanding and documentation, testing, IT audit, and final reporting. By the
completion of their review, auditors should feel confident that they have verified whether the commission process
is adequately controlled, that proper segregation of duties is in place, and that they have provided information
related to internal control weaknesses and improvement opportunities as well as commented on the overall
efficiency of the commissions process.
Organizations should select, update and modify the audit steps included in this document to customize to their
enviornment and ensure that their final audit work program reflects business operations.
COMMISSIONS AUDIT WORK PROGRAM: SAMPLE 1
PROJECT TEAM (LIST MEMBERS)
Project Phase Date Comments
Planning
Fieldwork
Report Issuance
Time Project Work Step Initial Index
Risk: Transactions may not be accounted for, or may be incorrectly

accounted for, resulting in incorrect information in the GL, in the
financial statements.
Determine who is responsible for processing commissions.
Describe how commissions are processed.
Identify how many full-time employees process commissions.
Determine if commissions’ policies and agreements have been

documented.
Determine how frequently commission payments are processed.
Identify the sources of information used to process sales

commissions.
Ask if a review of sales commissions is performed to ensure that the

commissions appear reasonable. Describe the review performed.
Describe specific controls utilized to ensure that sales commission

calculations are accurate.
Identify who approves sales commissions before release for payment.
Describe the payment process and controls.
Determine how the company assures that sales commissions are

complete and timely?
Determine who the sales rep contacts for disputing commissions.
Describe the process for entering commission expenses and accruals

into the GL?
• Who is performing the procedure?

• How is this done timely?
Who is involved in the development and approval of new commission

programs?
Conclusions and Opportunities
Based upon the above responses, what is the risk that commissions
may not be accounted for, or may be incorrectly accounted for?
What are specific areas of control or efficiency concerns previously

identified by management?
Are there any planned system upgrades or changes that would impact
the commissions’ process?
Project Timing Date Comments
Planning
Fieldwork
Report Issuance (Local)
Report Issuance (Worldwide)
Audit Objectives Initial Achieved/Except
Determine whether sales commissions payouts are accurately calculated.
Assess whether the sales commissions payments are paid following sales
representatives’ compensation plans.
Ensure that all sales and related commissions compensation measures are
consistent with company policy, procedures and programs.
Planning
Planning meeting: Audit Team
• Conduct planning meetings to discuss scope, approach and

timing.
• Determine appropriate auditee contacts.
• Contact the VP of sales, human resources management or the
regional/product sales manager where applicable.
Work with the auditee(s) to determine the scope, approach, and

timing of the audit and make any detailed document requests.
Obtain sufficient understanding of the audit area:

• Determine if a sales commissions internal audit has been done
previously. Utilize any previous work products for training and
developing the current plan.
• Obtain and review the sales compensation and related
commission policies and procedures.
• Use self-assessment material, if appropriate, to have the

auditee(s) evaluate the control environment before the audit.
Review available leading practices for sales commissions and

incorporate them into the audit work and audit report, if appropriate.
Fieldwork: Understanding and Documentation
Conduct entrance meetings with the auditee(s) to reestablish the

scope and timing of the review. Establish a schedule for status
meetings and open-communication protocols.
Obtain and review the following (where available):

• Sales compensation, commission programs, documentation,
descriptions and related material
• Organizational charts for sales function(s) under review
• Policies and procedures for sales, including sales policies
regarding recognizing/recording sales, payment of related
commissions and other related human resources procedures
• Policies and procedures for new hires in the sales function,
including training materials or other documents that describe the
commission payment process
• Procedures for developing sales goals, related commissions
calculators and procedures for payout, customer credit
authorization, sales discounts, special incentives, etc.
Observe and document (via narratives and/or flow charts) the sales
commissions program. Consider, in particular, the following points
that can create additional complexities and risk associated with
commissions:
• Accumulation of evidence: Booked sales, any services included
with product sales, promotion programs with a specific cutoff
period (monthly/quarterly/annual) to support commissions paid.
• Application of rates: Sales commissions may have many scales
based upon types of products sold, special sales drives or
variable rates. New customer sales may have a different rate than
repeat business sales.
• Accounting Distributions: Commissions are often paid only
after revenue is received, invoiced, shipped and paid. However,
different organizations track sales in various ways. Some
distributions may include additional sales spiffs to facilitate
closing by month-end or reward new product or add-on sales.
Consider the distribution of ‘team sales’ (commissions are split).
Also, consider instances where different commission rates are
earned for various product/service sales categories to ensure
appropriate calculations.
• Application of Deductions: Sales commissions are often paid
net of applicable sales draws.
• Determination of Net Pay: Adequate controls must tie to payroll
system/commission application totals against detailed payroll
input data. Consider applicable income taxes, government benefit

plans (SUTA, FUTA, social security), retirement savings plans
(401k), and health plan/childcare plan items (these measures
should be covered in general payroll review).
• Commission Consistency: Consider whether promotional sales
commission programs are applied to all members of Salesforce
and ensure that any exceptions are documented and approved.
Consider how customers are transferred to/from different sales
representatives and how/when related commissions follow.
• Overall Administration: The segregation of duties is particularly
important since sales should be properly approved, including a
review of customer credit lines, approval for special terms or
discounts or returns policies. (An overall sales process audit may
be performed in conjunction with the review of sales
commissions.)
• Sales through External Parties: Consider how commissions are
calculated and paid for sales through distributors, outsides sales
agents and other distribution channels. These create additional
complexities and risks associated with commissions. Also,
consider combination sales (where several products from
different manufacturers are sold together at discount prices) to
ensure that sales commissions are calculated correctly.
Process map the procedures in place to administer the sales

commission process, including elements of the related sales process.
Evaluate the following areas to determine any risk of noncompliance
with company policies and procedures for sales commissions:
• Collect information/reports for sales activities over the last year to
understand the mix of sales between products, customers and
territories. Make note of special sales arrangements, exceptions,
nonstandard billing, deferred contracts, promotions, etc.
• Identify and review the system used for recording sales, sales
commissions and other incentives (sales spiffs, contests, etc.).
Determine if any exception processing is evident for sales
allowances or cutoff periods.
• Review procedures for sales returns, discounts and allowances.
Walk through authorized returns by salesperson/region/product to
identify any evident abuses.
• Review the controls for sales commissions and bonus programs
to determine segregation of duties for booking sales and
calculating commissions. Do the records indicate that
salespeople are compensated according to the actual level of
sales produced (versus sales returned, double-counted, etc.)?
Fieldwork: Testing
Discuss the organization of the sales function with management to

confirm understanding of the sales process, organization,
direct/indirect selling methods used and controls over sales records
that lead to commission calculations.
Validate the correct operation of formal procedures to add, delete and

change any employee payroll records, including approvals for
commission plans or exceptions/sales promotions, etc.
• Consider timeliness of sales commissions payments and
account/customer transfer to subsequent sales representatives
for departed or relocated employees to ensure procedural
compliance and good customer service.
• Check a sample of commission payments for all payroll taxes,
deductions and other required adjustments. Be sure that
commission payments are consistent with other payroll
processing.
Review the process for developing sales quotations or fulfilling

requests for proposals (RFPs).
Determine the procedure for recognizing and recording sales. Assess

whether segregation of duties is adequate between sales receivables
and accounting to maintain control over sales records that generate
commission payments.
Select and review a sample of individual sales records to determine

that overall organization procedures are being followed from sales
recognition through commissions calculated and paid.
• Discuss policies for allowing discounts or allowances and assess
whether controls are operating effectively. Ensure that
transactions are compliant with policies and approvals.
• Include sales from special incentive sales programs in the sample
and assess related sales commissions for accuracy.
• Evaluate the use of credit vouchers in the sales process to
determine adequate controls (sequence numbering, approval,
duplicates).
Consider the application security for sales, sales commissions and

product pricing data to determine appropriateness of the following:
• Segregation of duties
• Levels of access/authorization
• Commission calculations, supervision, approvals, etc.
Review the following:

• Procedures for sales proposals and authorizations processes for
special pricing
• Expense/travel reporting, process and timely reimbursing
• Processes for maintaining price lists and communicating pricing
to sales personnel and customers (to determine controls and
timeliness)
• Policies for handling gifts to/from customers (Determine if
reasonable and consistent with overall corporate policy.)
Conduct detailed analysis of sales over the last month or quarter.

• Compare sales by product, product profitability and commissions
paid out to sales personnel.
• Determine if sales targets are accurately established for each
product and whether actual sales are tracked against targets.
• Assess whether proper sales commissions calculations,
multipliers and formulas are used (and controlled) properly.
• Determine if recorded sales activity is reconciled to cash receipts
periodically.
• Determine if sales discounts or special pricing are authorized by
management.
Assess costs vs. sales activity/production if a contract sales force is

utilized.
• Determine whether controls are in place to ensure that
commissions and other compensation are accurate and
consistent with the contracts.
• Evaluate customer service and sales approach training.

Determine that sales tactics are not damaging company
image/reputation. Inquire about complaints tracking and handling,
etc.
• Evaluate ethical training and management ability to identify and
respond to fraudulent or unethical business or sales practices.
Fieldwork: IT Audit Steps
Download sales data for the period and sales functions under review.
Ensure that information is reconciled to the GL.
Select three separate months of sales data compared against sales

returns/cancellations in the first 10-12 days of the following month to
identify ‘pipeline’ loading for sales compensation. Inquire about
variances and unusual activity.
Match sales booked per person to sales returns. Look for variances
or high incidence rates, and investigate unusual items or trends.
Compare booked sales file(s) versus product pricing file(s) to assess

compliance with approved price schedules. Inquire about variances
and evaluate approvals of exception items/large deals/extended
pricing periods.
Review customer sale discounts/rebates/special pricing from sales

files versus the standard discount rates. Investigate exceptions and
review approvals.
Compare date of sales commissions paid with sales receipts to

determine if paid timely.
Final
Reporting: Draft
• Prepare a preliminary draft of the audit report using the standard
format. Ensure that appropriate auditee(s) review the draft and
that any action items have been discussed with auditee(s).
Reporting: Issuing draft

• Issue a preliminary report to management. At this point,
management/auditee should agree on the timing for implementing
any action items identified and agreed upon in the report.
Responsibility for implementation should also be assigned.
• Validate the accuracy of all audit report content.
Project Phase Date Comments
Planning
Fieldwork
Report Issuance
AUDIT OBJECTIVES
Objective Comments Initial
Ensure that the commission process is adequately controlled.
Ensure proper segregation of duties in commissions process.
Provide information related to internal control weaknesses and

improvement opportunities as well as comment on the overall
efficiency of the processes.
Time Audit Step Initial Index
Planning
Discuss the nature and scope of the audit with key personnel.
Discuss timing with key management.
Schedule staff, as appropriate.
Write a comprehensive audit program.
Issue the initial budget.
Reporting
Create a summary scorecard for each process reviewed.
Create the internal audit report using the standard report template
(including a compilation of findings resulting from the work performed).
Hold closing meetings with key management to review draft internal

audit reports and findings.
Publish the final report.
Other Administrative
Compile test work and key support data into a work paper binder.
Include a binder index of key information.
Include a final budget vs. actual (BVA) summary for the job in the work
paper binder.
Include a copy of the final report in the work paper binder.
Discuss job economics with internal audit manager, as necessary.
Follow up on satisfaction surveys.
Submit reports to the internal audit report database.
File work papers as appropriate.
Preliminary Field Work
Identify key contacts for audit areas.
Obtain and document an understanding of the overall operating

organization structure. Consider the following areas:
• Personnel: Organization chart, total number of personnel,
divisions, job descriptions, etc.
• Transactions: Volume/value of various transaction types
processed.
• Systems: What type of systems are being used?
• “Customers”: Who are the key external and internal customers
for the process?
Obtain electronic copies of relevant files as considered necessary to

facilitate testing and process analysis.
Detailed Audit Procedures
Understand the Process
Identify key departments involved when processing commissions

payments.
Understand and document commissions process flows.
Create process maps to verify process flows understanding.
Evaluate current practices against known best practices.
Interview key management in commissions area to gain an
understanding of the workflow. Document discussions.
Testing
1. Select a sample of commissions payments (10) off the payroll

request report and test “upstream” through the process of the
compensation plan.
Testing will be performed to ensure the following:
• Our understanding of the "nuts and bolts" of the process is
enhanced.
• Our understanding of key controls is tested.
• Our key controls are assessed consistently.
2. Test each of the commission payments selected in Step 1 for the

following attributes:
• Authorization
• Validation
• Accuracy
• Proper process
• Completeness
• Timeliness
The following tools should be used as deemed appropriate to perform
testing:
• Analytics
• Detail testing
• Key controls observation
3. Select a sample of personnel files (five) and test "downstream"

through the process of the payroll request report.
4. Test each of the personnel files selected in Step 1 for the following
attributes:
• Authorization
• Validation
• Accuracy
• Proper process
• Completeness
• Timeliness
5. Assess the timeliness of the commissions payment process. Are

adjustments received timely? Are commissions payments made
according to schedule? Assess overall performance.
6. Verify that system-generated commissions calculations are

accurate. Use samples noted above in Steps 1 and 4.
7. Review and compare exceptions and adjustments for the past

three-four quarters to determine if overall adjustments are going
down.
8. Identify metrics used by management to monitor/manage the entire

process. Identify management reports received to monitor the
entire process.
• Test metrics accuracy as deemed necessary.
• Assess needs for additional/different metrics.

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Table of Contents

PROJECT TEAM (LIST MEMBERS)

Project Phase Date Comments

Time Project Work Step Initial Index

Risk: Transactions may not be accounted for, or may be incorrectly

Determine who is responsible for processing commissions.

Describe how commissions are processed.

Identify how many full-time employees process commissions.

Determine if commissions’ policies and agreements have been

Determine how frequently commission payments are processed.

Identify the sources of information used to process sales

Ask if a review of sales commissions is performed to ensure that the

Describe specific controls utilized to ensure that sales commission

Identify who approves sales commissions before release for payment.

Describe the payment process and controls.

Determine how the company assures that sales commissions are

Determine who the sales rep contacts for disputing commissions.

Describe the process for entering commission expenses and accruals

• Who is performing the procedure?

Who is involved in the development and approval of new commission

Conclusions and Opportunities

What are specific areas of control or efficiency concerns previously

PROJECT TEAM (LIST MEMBERS)

Project Timing Date Comments

Report Issuance (Local)

Report Issuance (Worldwide)

Audit Objectives Initial Achieved/Except

Determine whether sales commissions payouts are accurately calculated.

Time Project Work Step Initial Index

Planning meeting: Audit Team

• Conduct planning meetings to discuss scope, approach and

Work with the auditee(s) to determine the scope, approach, and

Obtain sufficient understanding of the audit area:

• Use self-assessment material, if appropriate, to have the

Review available leading practices for sales commissions and

Fieldwork: Understanding and Documentation

Conduct entrance meetings with the auditee(s) to reestablish the

Obtain and review the following (where available):

input data. Consider applicable income taxes, government benefit

Process map the procedures in place to administer the sales

Discuss the organization of the sales function with management to

Validate the correct operation of formal procedures to add, delete and

Review the process for developing sales quotations or fulfilling

Determine the procedure for recognizing and recording sales. Assess

Select and review a sample of individual sales records to determine

Consider the application security for sales, sales commissions and

Review the following:

Conduct detailed analysis of sales over the last month or quarter.

Assess costs vs. sales activity/production if a contract sales force is

• Evaluate customer service and sales approach training.

Fieldwork: IT Audit Steps

Select three separate months of sales data compared against sales

Compare booked sales file(s) versus product pricing file(s) to assess

Review customer sale discounts/rebates/special pricing from sales

Compare date of sales commissions paid with sales receipts to

Reporting: Issuing draft

PROJECT TEAM (LIST MEMBERS)

Project Phase Date Comments

Objective Comments Initial

Ensure that the commission process is adequately controlled.

Ensure proper segregation of duties in commissions process.

Provide information related to internal control weaknesses and

Time Audit Step Initial Index

Discuss timing with key management.