One of the most common forms of fraudulent financial reporting is recording sales that never occurred. Examine the examples of financial reporting controls for sales-related transactions in Figure 11-5. Identify relevant controls that can be used to help prevent or detect fraudulent sales from being recorded and explain how they help reduce the likelihood of such fraudulent financial reporting.

Figure 11-5

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(19) Excessive customer service costs. (20) Failure to link supply chain and production to sales activity. (21) Failure to innovate. (22) Inadequate training/staffing. (23) Improper accounting for vendor allowances or rebates. Proper training of customer service personnel. Establish policies on appropriate customer service levels and monitor performance. Supply chain integration and information sharing. Sales forecasting and joint marketing/production . planning. Establish standards for supplier qualifications. Monitor competition and customer needs. Adequate product research and development. Monitor employee training. Establish appropriate com- pensation and promotion policies. Adopt flexible staffing and work rules. Document and monitor vendor allowance agreements. Establish vendor allowance policies (e.g., discounts, advertising). Service costs as a percent- age of sales. Service costs per customer. Merchandise return rates. Warranty claims. Percent of product shortages. Length of product backlog Time delay in filling backlog. New product introduction rate. Time-to-market for new products. Age of product lines. Employee satisfaction. Time spent in training per employee. Training budget. Vendor allowances per buyer. Total vendor allowances compared to competitors.