CJ 125 UNIT TWO SKIMMING AND LARCENY REVIEW THREE MAJOR CATEGORIES OF FRAUD WHAT ARE THEY? THE THREE GENERALCATEGORIES 1. MISAPPROPRIATION 2. CORRUPTION 3. FRAUDULENT STATEMENTS MISAPPROPRIATION • CAN BE BROKEN DOWN INTO TWO TYPES. • WHAT ARE THEY? TWO TYPES • CASH • NON-CASH CASH FRAUDS • THREE CATEGORIES. • WHAT ARE THEY? THREE TYPES OF CASH FRAUDS 1. SKIMMING 2. CASH LARCENY 3. FRAUDULENT DISBURSEMENT FRAUD MISAPPROPRIATION CASH CORRUPTION FRAUDULENT STATEMENTS NON-CASH SKIMMING CASH LARCENY FRAUDULENT DISBURSEMENTS SALES SKIMMING WHAT IS IT? WHAT ARE SOME EXAMPLES? Skimming • Theft of cash from a victim entity prior to its entry in an accounting system – “Off-book” • No direct audit trail • Its principal advantage is its difficulty to be detected. 10 Sales Skimming • Employee makes a sale of goods or services, collects the payment, and makes no record of the transaction. • Pockets the proceeds of the sale • Without a record of the sale, there is no audit trail. 11 Sales Skimming • Cash register manipulation – “No Sale” or other non-cash transaction is recorded. – Cash registers are rigged so that sales are not recorded on the register tapes. – No receipt is issued. • After hours sales – Sales are conducted during non-business hours without the knowledge of the owners. • Skimming by off-site employees – Independent salespeople – Employees at remote locations – branches or satellite offices away from the primary business site 12 RECEIVABLES SKIMMING • WHAT IS IT? • WHAT ARE SOME EXAMPLES? Receivables Skimming • More difficult than skimming sales – There is a record of the sale. – Collection is expected. • Customers are notified when payment is not received and will most likely complain. • Lapping • Force balancing • Stolen statements • Fraudulent write-offs or discounts • Debiting the wrong account • Document destruction 14 Receivables Skimming • Lapping – Crediting one customer’s account with payment received from another customer – Keeping track of payments becomes complicated. – Second set of books are sometimes kept. • Force balancing – Posting to the customer’s account without depositing the check creates an imbalance condition. – Cash account is overstated so the amount skimmed must be forced in order to balance the account. • Stolen statements – Employee steals or alters the account statement or produces counterfeit statements. – May change the customer’s address in order to intercept the statement 15 Receivables Skimming • Fraudulent write-offs or discounts – Write off the account as bad debt. – Post entries to a contra revenue account – “discounts and allowances.” • Debiting the wrong account – Debit an existing or fictitious A/R. – Wait for the A/R to age and be written off. • Destroying or altering records of the transaction – Often a last ditch effort to conceal the fraud – Makes it more difficult to prove the fraud 16 PUT IT TO THE TEST • WAS DR. LEE’S CRIME SALES OR RECEIVABLE SKIMMING? • WAS WINKLER’S CRIME SALES OR RECEIVABLE SKIMMING? • DESCRIBE ANOTHER SCENARIO OF EACH CATEGORY? YOU ARE THE EMPLOYER • WHAT ARE SOME WAYS YOU CAN PREVENT – SALES SKIMMING? – RECEIVABLES SKIMMING? CASH LARCENY • WHAT IS IT? • HOW DO WE LEGALLY DEFINE IT? WHAT ARE THE CATEGORIES OF CASH LARCENY SCHEMES? • NAME THREE TYPES OR CATEGORIES. Cash Larceny • Intentional taking away of an employer’s cash without the consent and against the will of the employer • Fraudulent disbursements • Cash receipt schemes 21 Cash Larceny Schemes • Can occur under any circumstance where an employee has access to cash – At the point of sale – From incoming receivables – From the victim organization’s bank deposits 22 Larceny At The Point of Sale • It’s where the money is • Most common point of access to ready cash • Results in an imbalance between the register tape and cash drawer 23 PUT IT TO THE TEST • WHAT IS AN EXAMPLE OF POINT OF SALE LARCENY SCHEME? • HOW IS IT COMMITTED? • HOW ARE THEY CAUGHT? • HOW COULD IT BE PREVENTED? WHAT IS AN EXAMPLE OF INCOMING RECEIVABLES SCHEME? • HOW IS IT COMMITTED? • HOW ARE THEY CAUGHT? • HOW COULD IT BE PREVENTED? WHAT IS AN EXAMPLE OF BANK DEPOSIT SCHEME? • HOW IS IT COMMITTED? • HOW ARE THEY CAUGHT? • HOW COULD IT BE PREVENTED? WHAT IS DEATH BY A THOUSAND CUTS? • AND WHAT DOES THAT HAVE TO DO WITH LARCENY?? • WHAT ARE SOME OTHER TRICKS? YOU ARE THE EMPLOYER • WHAT IS THE SINGLE BEST THING YOU CAN DO TO PREVENT SKIMMING AND LARCENY IN YOUR COMPANY??