Chapter 4: Cash Receipts and Asset Misapprops Flashcards
What are Skimmming Schemes - Cash?
Theft of cash from a victim prior to entry in accounting system
* Does not hit the books, no audit trail, can occur at any point
* -subdivided based on effect on Sales or Receivable
How does Check Skimming work?
- Fake company created with abbreviation to an existing comp with sec of state
- Perpetrator applies for federal tax ID #
- Bank account opened with these two prior reqs
- Checks arrive made out to OG comp, but perp skims ocassion check and deposits to fake comp
- Perp manages A/R associated w/ missing checks
Most Basic Skimming Scheme
Sales Skimming: Employee makes a sale of goods to customer, collect customer payment at POS, but makes no record
Skimming Sales
Explain Cash Register Manipulation
Act: Overt act of taking cash
Concealed: Employee ring “ no sale” or noncash transation, can also rig register to not print sale on register tapes
Skimming Sales
Explain After-Hours Sales
Act: Conduct sales during non business hours
Concealment: Create a cash shortage and inventory shortage –> inventory shortage an arise from many other reasons
Skimming Sales
Skimming by Off-Site Employees
Act: Employees work remote locations w/o supervision create costliest skimming schemes - Ex: property managers w/ ridiculous fees or parking lot rev
Concealment: Hard to supervise so easy to conceal
Sales Skimming
Role of Poor Collection Procedures
Act: Poor collection and recording procedures allow for the skimming of sales or receivable
Concealment: Aggregate sales instead of itemizing
Skimming of Sales
Check for Currency Substitutions
Act: Take unrecorded checks that perp has stolen and subsitute for receipted currency
Concealment: Common when access to incoming funds from an unusual source
Skimming Sales
Theft in the Mailroom for Incoming Checks
Act: Employees charged with opening daily mail take incoming checks instead of processing
Concealment: Only person in charge of receiving and recording, easy for employee to steal
Sales Skimming
What type of Sales Systems are used and the fraud risk associated ?
Manual: Easy to commit fraud
Computerized: Possible but harder to commit fraud
Mixed Use Systems: Some computerize & some manual - manual at risk for exploitation but computerized transactions with require adj to hide scheme
Sales Skimming
How can Sales Skimming be Prevented and/or Detected?
- Oversight presence when cash enters org - mngmt, cluster registers, video cameras
- Customer complaints & tips
- Cash register log in & log out times
- Activity logs for offsite personnel
- Reduce perceived opportunity to steal: 2 employees involved in opening org mail and recording pmts
Skimming A/R
How does the Skimming of Receivables happen?
Receivable payments not logged into the accounting system
- more difficult than skimming sales
AR Skimming Concealment
Explain how Lapping helps conceal skimming
Crediting one account through the abstrataction of $ from another account
**Continue until: **
1. Someone discovers the scheme
2. Restitution is made to the accounts
3. Some concealing entry made to adjust A/R balances
Some aspects of Ponzi scheme
Most common method
AR Skimming Concealment
Explain Force Balancing
Fraudster is in charge of collecting and posting payments - easy to hide - hard to catch
AR Skimming Concealment
Stolen Statements
Payment stolen and not posted, account receivable becomes delinquent
Concealment: Fraudsters intercept account statements and late notices, to keep customers unaware –> destroy or forge
AR Skimming Concealment
Explain Fradulent Write-Offs or Discounts
Write off customers accounts fraudulent, to hide skimming as A/R may be slipping - post entries to contra rev accounts - discounts and allowances
AR Skimming Concealment
Explain Debiting the Wrong Account
Debit existing or fake A/R to conceal skimmed cash –> add skimmed balances to large accounts or aging accounts abt to be written off
AR Skimming Concealment
Explain Destroying or Altering Transaction Records
Perpetrator destroys orgs accounting records to cover their tracks –> last ditch method
Ex: destroy cash register tapes, discarding transaction record
AR Skimming
How to Prevent and Detect Receivables Skimming?
- Implement strong internal controls
- Seperation of duties
- Rotate job duties
- Yearly Vacation
- Supervisor approval for witeoffs
- Trained audit staff
- Automated test
- Trend analysis of aging customer accounts
What is Cash Larceny and how does it differ from cash skimming?
Intentional taking away of employer cash without consent & against employer will
Difference: Money has already appeared on vicitims book and can occur anywhere employee’s have cash assess
**Occurs: ** Point of sale, from incoming receivables, from victim org’s bank deposit
Larceny at Point of Sale
Majority of larceny schemes, concealed w/ many methods
Larceny POS Concealment: Theft from Other Registers
Take money from another register to replace stolen cash in their register
Larceny POS Concealment: Death by a Thousand Cuts
Steal currency in very small amounts over extended period –> shortages credited to errors
Feasibility: Hard bc orgs trach shortages by employee
Larceny POS Concealment: Reversing Transactions
False voids or return - reconcile the amount of cash after the theft
Larceny POS Concealment: Altering Cash Counts & Register Tapes and Destroying Register Tapes
Why: cash register is balanced by comparing transacs on tape w/ cash on hand
Alter to cash counts to match total receipts or manually alter register tape from cash register
Last resort: destroying register tape
Preventing and Detecting Larceny POS
- Strong internal controls
- Segregation of Duties
- Descrepencies btw sales records and cash
- Reports of dicounts, returns, adjustments, and concealing transacs
Larceny of Receivables
Steal Customers’s incoming payments
- Hide imbalances caused by fraud
Concealed through: force balancing, reversing entries, destruction of record
Describe A/R Larceny 3 Concealment Methods
1. Force Balancing: Control of acc system can overcome problem of out-of balance accnts due to poor separation of duties
2. Reversing entries: When pmts stolen, but posted ot the cash receipts journal, revesing entries to balance acounts
3. Destruction of Records: Destroy records proving theft, helps conceal identity of theft
What is Cash Larceny of Deposits?
Taking money prior to depositing - difficult to conceal
*Possible Concealments: *
1. Deposit Lapping: An employee steals a deposit on the first day and then replaces it with a deposit from day two
2. Deposits in Transit: Carry missing money as deposit in transit
How to prevent Larceny of Deposits?
- Seperation of duties
- Itemized deposit slip
- Compare authenticated slip to orgs copy of deposit slip, remittance list, and gen ledger postin
- Deliver 2 copies of bank statement to different people in the org
What is the Misuse of Noncash Asset and how does it happen?
Misappropriation of company assets by:
1. Being misused (borrowed)
2. Being stolen
Ways to misapprop: misuse, unconcealed larceny, asset requisitions, purchasing and receiving schemes, fraudulent shipment
What is the cost of Inventory Misuse?
- Difficult to quantify, can be minor or costly
- Lowers productivity and can increase competition
- No guarantee it will be brought back
How do Unconcealed Larceny Schemes occur?
- Emp take property without attempt hide in the books - loss can be millions
- No attempt to justify absense
- Employees w/ access to inventory
- Fake sale
What is The Fake Sale?
Outside accomplice of fraudster “buys” mechandise, but employee does not ring up sale, and accomplice take merchandise without payment
How to prevent and detect larceny of noncash assets?
- Segregation of duties: requisition, purchasing, & receiving
- Physical Controls: merchandise guarded and restricted asses
- Installation of security cameras
- Physical inventory counts on a period basis
- Mechanish for customer complaints
What are Purchasing and Receiving Schemes?
False billing - purchase merchandise that the company doesn’t need
Noncash Misapprop: intentionally purchased but misappropriated by fraudster
How Incoming Shipments are Falsified?
Person charged with receiving foods on behalf of the victim company falsifies records of incoming shipments
- may reject part of the shipment
- Issue: receiving report does not match the vendors invoice
Misapprop of NonCash Assets
False Shipments of Inventory
Act: Fraudster creates false shipping and sales doc to make it appear that inventory sold and not stolen.
- Company unknowingly delivers targeted assets
- Let receivable age in books until written off as uncollectable
- May take steps to remove sales or understate sales so accomplice billed for less
Why is it important for Fraudsters to conceal Inventory shrinkage?
Red flag signal for fraud –> people ask where inventory went
What 4 methods can be used to concal inventory shrinkage?
1. Alter Inventory Records: Change the perpetual inventory record to match physical inv - no shortage appears
2. Fictituous Sales & AR: Fake sales to mask the theft of assets –> issue creates uncollectible A/R or cash –> can sell to client who wont notice and pay or write off receivable
3. Write off Inventory/Asset: mark as obsolete before or after sale - no shortage
4. Physical Padding: Make it appear as if they have more assets than present - Empty boxes or wall of product
How to Prevent and Detect Noncash Thefts Concealed by Fraudulent Support
- Seperate duties for ordering, receving, counting goods as well as payment
- Match invoices to receiving reports before payment
- Match packing slip to purchase order
- Monitor rise in bad debts
- Reductions in inv be well supported
- Reconcile material ordered for projects to work done
- Trend analysis of scrap inv
- Writeoffs require extra authorization
