Confidential Sales Discounts

Kickback has many conduits. One is confidential discounts.

Modus Operandi

There are many cases wherein public or private funds are fraudulently used to buy the influence of responsible people. Consequently, some of the funds are diverted to personal again.

A typical case concerned a division sales manager of a transportation company by promising the latter confidential cash discount allegedly to assure the patronage of the customer. At the end of each month, the sales manager computed and followed up with their accounting department the amount payable to the purchasing manager. The sales manager under the organizational set up was also authorized to approve sales discount confidential, it had to be paid in cash. So, the check was made in the name of one of the officials of the company for cashing. The sales manager personally delivered the cash money to the purchasing manager.

For several years, the confidential cash discounts amounted to hundreds of the thousand pesos. To perpetuate the bonanza and show his gratitude, the purchasing manager secretly shared some of the cash discounts with the giver. The confidential cash discounts were charged against the sales revenues of the company to camouflage the dubious expense.

Some branch managers in another case, recommended confidential sales discounts higher than what were actually given to the customers. As the confidential sales discounts at the branches likewise had to paid in cash, the head office authorized the branch managers to issue company checks in their names in order that they could cash them. However, as the discounts were paid in cash, it was easy then for a branch manager to take his share before delivering the cash discount to the customer or pocket it all and forge the acknowledgement signature of the customer.

Detection and Prevention

The purchasing manager began living beyond his means. In no time, the top executive of the transportation company was confidentially informed of the cash bribe through an anonymous letter. Consequently, the purchasing ,manager was relieved and demoted until eventually he resigned.

To forestall recurrence, the transportation company placed their substantial purchases of material, supplies and services, under a bidding committee to avoid collusion with the supplier and to secure the best price, quality and service. The new purchasing manager was strictly required to take full yearly vacation leave to rotate his job. The internal auditor strongly suggested that the giving of confidential cash discount weakened internal control, raised questions of business ethics, loyalty and should therefore be stopped. It tempted some good branch managers to misappropriate the cash discounts which caused their dismissals. The internal auditor further recommended that sales discounts be paid by check in the name of the customers and mailed directly to them to prevent splitting of the discounts. To discourage future wrongdoing, the internal auditor programmed to review periodically the excessive and questionable sales discounts so that the top executive would be aware of them and justification for granting them could be obtained from recommending and approving officers.

As a good business practice, the giving of extraneous sales discounts to increase sales volume should be done legitimately with the assurance that the customer gets them all. A remedy to the kickback problem would be for the top officer to create an environment that the fosters morality and high business ethics. Let honesty flourish at the top and these will work downward.