Chapter 3: Skimming

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Chapter 3 Skimming
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Skimming Schemes

• Skimming makes up approximately 29 of cash
  frauds.
• 316 cases of skimming were reported, with a
  median loss of 50,000.

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What is Skimming?

• Definition theft of cash from victim
  organization before the cash hits the accounting
  system
• Off-book fraud
• No direct audit trail
• Books stay balanced
• Most common form of cash fraud

4
Deterrence Steps for Skimming

• Identify all revenue sources
• Determine where they enter the organization
• Record accountability immediately
• Restrictively endorse all checks For Deposit
  Only immediately
• Include revenue sources in organizations budget
• Review budget versus actual revenue
• Identify and investigate significant variances

5
Common Skimming Schemes

• Sales skimming
• Receivables skimming
• Refunds and other skimming schemes

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Skimming Schemes Breakdown of Cases

• Of 316 skimming schemes that were studied, 203
  involved the theft of sales, as opposed to
  receivables.
• Sales skimming is easier to conceal because
  payments are not expected.

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Skimming Schemes -Median Losses
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Sales Skimming

• Unrecorded sales
• Perp makes a sale
• Pockets money
• Never records sale
• Understated sales
• Perp pockets a portion of a sale
• Either records sale at lower price or smaller
  quantity of goods sold

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Sales Skimming

• Register manipulations
• Cash register clerk rings no sale
• Pockets money
• Looks like transaction was recorded
• Skimming during off-hours
• Perps sell company merchandise on weekends or
  after hours

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Sales Skimming -Countermeasures

• Surveillance of employees at point of sale
• Maintain secure area for employees to store
  coats, purses, etc.
• Look for coded markers near registers (e.g.,
  employee who has stolen 500 from register keeps
  nickel by register to remind himself of the
  amount taken)
• Investigate gaps in transaction
  sequence/pre-numbered receipts

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Sales Skimming - Countermeasures

• Look for excessive non-sale transactions (voids,
  refunds) at cash registers
• Encourage customers to request receipts (forces
  employees to ring up sales)
• Rotate employee schedules, measure variances in
  revenue based on employee
• Use a secret shopper service

12
Skimming Off-Site Sales

• Remote salespersons largely unsupervised
• Common with insurance salespersons
• Sell a policy, policy never filed
• Property managers
• Lease a property, list it as vacant
• Pocket rents

13
Skimming Off-Site Sales Countermeasures

• Require external sales staff to maintain activity
  logs
• Spot-check activity log entries by independent
  personnel
• Monitor customer complaints independent of sales
  staff
• Conduct sales trend analysis on external
  salespersons

14
Theft in the Mailroom

• Mailroom employees steal incoming checks
• Checks never logged
• Usually occurs when one employee opens mail
  unsupervised

15
Theft in the Mailroom - Countermeasures

• Open mail in visible area with supervisory
  presence or video cameras
• Use two employees to open mail
• No purses or briefcases where mail is opened
• Have incoming payments sent to lockbox
• Mail marked checks to company, verify that they
  are logged

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Receivables Skimming

• More difficult to conceal than sales skimming
• Incoming payments expected
• Can result in delinquent customer accounts
• Perp must take steps to conceal the fraud

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Concealing Skimming

• Destroy or alter transaction records
• Lapping
• Steal customer statements
• False account entries
• Inventory padding

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Destroying/Altering Transaction Records

• Salesperson discards records of stolen sale
• Alter records to reflect lower sales price
• Missing records can signal fraud

19
Lapping

• Steal customer As payment
• Apply customer Bs payment to As account, etc.
• Most common concealment technique
• Perp may keep 2nd set of books to track
  misapplications

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Lapping Countermeasures

• Watch for employees who put in a lot of time
  after-hours and on weekends (lapping schemes take
  a lot of work)
• Enforce mandatory vacations
• Spot-check daily deposits to accounts receivable,
  verify names on checks match postings
• Compare a/r postings to dates payments were
  mailed by customers

21
Stealing Customer Statements

• This is done when skimming causes a customer
  account to become delinquent
• Usually change customer address in billing system
• Replace real statements with counterfeits showing
  account current
• Keeps customer from alerting company

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Stealing Customer Statements - Countermeasures

• Independent confirmations of aging a/r with
  customers
• Separate collections department from sales,
  accounts receivable
• Separate mail function from accounts receivable

23
False Account Entries

• Debit expense account instead of cash
• Debit aging receivables or very large accounts
• Write off accounts as bad debts
• Create fraudulent discounts
• Force account balances (add wrong)

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False Account Entries Countermeasures

• Separate duties of receiving cash, posting
  payments, and reconciling accounts
• Match deposit totals to a/r postings
• Investigate shortages in cash account
• Require supervisory approval for write-offs
• Look for rising trend in write-offs, discounts
• Look for large number of aging accounts

25
Inventory Padding

• Unrecorded sales cause inventory shrinkage
• Common concealment techniques
• Forced reconciliation of perpetual physical
  inventory
• False credits to inventory
• Write off as lost, stolen, obsolete

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Skimming Controls

• Segregate all cash receipting functions
• Supervise employees at all cash collection points
• Supervise employees who open mail
• Place restrictive endorsements on all checks
  received
• Enforce mandatory vacations
• Conduct surprise audits/cash counts

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Skimming Controls

• Supervisory authority for all price modifications
  and write-offs
• Independently confirm delinquent customer accts.
• Random customer satisfaction surveys
• Follow up on customer complaints