Overview

Common indicators, resources and prevention tips for cash receipt misappropriation schemes.

Description

Cash receipts or negotiable financial instruments are misappropriated by an employee or member of management before being recorded in the organization’s accounting records. This is considered an “off-the-books” scheme.

A common scenario involves employees who have access to cash receipts at the point of sale and recognize that the organization has inadequate internal controls to prevent the misappropriation of cash.

Another scenario involves employees who receive checks from customers on account and convert the remittances for personal gain. This scheme can often be carried out over longer periods of time before being detected if the employee also has the ability to manipulate the billing system.

Indicia

Financial Analysis

• Lower than expected gross revenue amount or unexpected decline in gross profit margin

• Skimming often involves the misappropriation of cash receipts over a period of time, in relatively small amounts

• As a result, the accumulation of these misappropriations may be significant enough to draw attention to abnormalities in the indicator

Validation Resource(s)

• Install concealed video surveillance of the cash collection area

• If customer receipts are pre-numbered, inspect receipt logs for breaks in the sequence

Prevention Tips

• Install video surveillance and communicate the monitoring to employees

• Limit the receipt of cash where practical

• Implement a policy of providing customers with a receipt for items purchases

Indicia

Customer Complaints

• Complaints from customer with regard to being billed for amounts previously paid (assuming the employee did not manipulate the receivables/billing system)

• Complaint follow-up investigations may detect an employee is skimming the receipt of accounts receivable payments

Validation Resource(s)

• Send monthly account statements and/or confirmations to customers

• Examine “exception” reports in the receivables/billing system for manual adjustments to remove cash sales

• Trace cash sales from the sales journal to amounts recorded in the receivables/billing system

Prevention Tips

• Ensure that there is adequate segregation of duties over the handling of cash; have the receptionist (who has no access to accounting systems) open all mail and maintain a cash receipts log

• Perform periodic reconciliations of the cash receipts log to the accounting system

• Ensure that all employees who receive checks immediately endorse the check with “For Deposit Only Account #XXXXXXXX”

• Mail monthly account statements, particularly those accounts with aged balances