Accounts Receivable (Receipts)
There are a number of types of fraud involving the receipt of cash. Accounts receivable fraud can be perpetrated before the cash is put into the bank, or after the deposit has been made.
When cash is taken before being deposited and without a record being made of its receipt, the fraud is referred to as skimming. The fraudster can attempt to hide the fraud by simply failing to record the cash receipt or by issuing phony cash refunds. There should always be two people involved in counting remittances received through the mail. All refunds should require the signatures of the manager and the customer.
A common accounts receivable fraud is lapping, which occurs when money is received and deposited, but is taken by an employee rather than appropriately recorded in payment of an account. The shortage is covered by misapplying the next remittance to the deficiency, and so on. Over time, the shortages tend to get larger and larger. Often these schemes collapse when the sheer volume of the theft overwhelms the fraudster’s ability to deal with the number of transactions required to cover his or her tracks.
General Guidance
Fraud involving cash is not uncommon. After considering the risks, red flags and tools/best practices discussed in this table, you might want to investigate some of the online tools, listed to the right.
Money which should be deposited with the government is diverted to the fraudster.
Excessive number of voids, discounts and returns.
Unauthorized bank accounts.
Sudden activity in a dormant banking account.
Taxpayer complaints that they are receiving non-payment notices.
Discrepancies between bank deposits and posting.
Abnormal number of expense items, supplies, or reimbursement to the employee.
Presence of employee checks in the petty cash for the employee in charge of petty cash.
Excessive or unjustified cash transactions.
Large number of write-offs of accounts.
Bank accounts that are not reconciled on a timely basis.
All incoming mail should be opened with two persons present. A receipt log or register tape should be maintained, reviewed and reconciled to the bank deposit. The reconciliation should be done by a person involved in neither the receipting or recording of receipts.
All money should be deposited as quickly as practicable. The person depositing the money should not be a person involved in receiving or receipting the money.
Cash registered should be subtotaled and cash drawers frequently relieved of excess cash. Refunds and voids should require a supervisory signature. In the case of refunds, a customer's signature and contact information should be collected as well.
Whenever a customer questions a balance, indicates that his payment shows as outstanding has been paid, or a licensee complains of not having received a license, the situation should be reviewed to determine whether lapping or skimming has occurred.