Asset Misappropriation: Theft Schemes

skimming it is the withdrawal of cash for a victim company before the transaction is entered into the accounting system. Since theft is an off-the-books type of fraud (it is never recorded), there is no direct audit trail, so fraud is difficult to detect. Employees who have the opportunity to commit skimming schemes are those who deal directly with customers or those who handle their payments. This article will cover the four main categories of skimming schemes and discuss some of the red flags for fraud detection.

Unregistered Sales

The most common form of skimming is not to record the sale of goods but to collect money from the customer. Despite controls such as tape recorders, managers, and surveillance equipment, employees can manipulate the system to avoid detection of fraud. In some examples of unrecorded sales, the fraudster manipulates the recording tape so that it is not printed on the tape when transactions are entered into the system. One means of detection would be the pre-numbering of the system’s records, so that if a theft were to occur when the fraudster turned the record tape back on, there would be a break in the previously numbered transactions. Companies need to be particularly wary of off-the-record sales schemes with revenue streams that are difficult to monitor and often of unpredictable value.

Understated sales and accounts receivable

In these skimming schemes, the customer receives a receipt for the full amount of the transaction, but when the clerk enters it into the system, it records a discount or lower value sale. To cover their tracks, they may manipulate carbon copies of the receipt by writing their own amounts or generating false discount documentation. Fraud prevention is possible by requesting approval of sales discounts, checking receipts for tampering, and tracking cashiers’ sales discount history.

check theft by mail

In this particular scheme, the sale has been recorded in the company’s system, but the account receivable payment has not been received. The payee at the company physically steals the check and cashes it at the bank. If the clerk is able to overcome check cashing issues such as endorsement and convince the bank that the transaction is legitimate, then he must deal with how to hide the fraud when the customer’s balance becomes delinquent. If the clerk is not careful, the business will send customers overdue notices likely to result in customer complaints with a copy of the canceled check. Fraudsters have prevented this by intercepting the ads or manipulating the customer’s address to redirect the mail. A major red flag for the opportunity to commit this scheme is when the employee receiving the mail is also the same person who has the job of recording the receipt. By properly segregating duties and marking all checks for deposit only, a business can easily reduce the potential for this theft scheme.

Short term skimming

The last category of short-term theft is less about stealing the money than about borrowing it to accumulate gains from the value of money over time. By delaying receipt of payment, the employee can use the funds for short-term, interest-bearing investments for the perpetrator. The means of gaining access to the money could be any of the above ways, but there is a clear distinction that in this case the money is ultimately returned to the business and the only loss is the time value of that receipt. Red flags in this area would include a higher days pending sales ratio or unusual payment timing compared to historical customer payment, especially when looking at specific customers.

Fraud prevention

Regardless of the method of skimming, the most important means of prevention is to establish adequate internal controls. Segregation of duties and employee knowledge of company policy on theft can eliminate the opportunity and rationale for committing these frauds. When early detection fails, skimming can lead to very costly losses and a corporate culture that ignores signs of fraud.