Skimming

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Chapter 2

• Skimming

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Skimming Schemes
Skimming
Receivables
Sales
Refunds Other
Unrecorded
Write-off Schemes
Understated
Lapping Schemes
Unconcealed
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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
  detect

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Asset Misappropriations
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Frequency of Cash Misappropriations
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Median Loss of Cash Misappropriations
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Dollar Loss Range for Skimming Schemes
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Detection of Skimming Schemes
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Perpetrators of Skimming Schemes
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Median Loss by Perpetrator
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Size of Victim Skimming Schemes
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Median Loss by Victim - Skimming
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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

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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

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Sales Skimming

• Understated sales
• Sales is recorded for a lower amount than was
  collected
• Sales item is reduced in price or the number of
  units sold
• Check for Currency Substitutions
• Theft in the mail room incoming checks
• Incoming checks are stolen and cashed
• Customers account is not posted

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Skimming Example 1

• Fraudster Manager for an auto tune-up shop

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Skimming Example 2

• Fraudster Grocery store manager

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Skimming Example 3

• Fraudster Manager of an apartment complex

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Preventing and Detecting Sales Skimming

• Maintain a viable oversight presence at any point
  where cash enters the business
• Create a perception of detection (opportunity leg
  of fraud triangle)
• Install video cameras
• Utilize customers to detect and prevent fraud
• Use secret shoppers
• All cash registers should record the log-in and
  log-out time of each user
• Investigate gaps in transactions sequences

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Preventing and Detecting Sales Skimming

• Look for excessive non-sale transactions at cash
  register
• Rotate employee schedules and measure variances
  in revenue based on employee
• Off-site sales personnel should also be required
  to maintain activity logs and periodically
  substantiated
• Eliminate potential hiding places for stolen
  money
• Incoming mail should be opened in a clear, open
  area free from blind spots with supervisory
  presence
• Have incoming payments sent to lockbox

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Receivables Skimming

• More difficult than skimming sales since there is
  a record of the sale and collection is expected
• Customers are notified when payment is not
  received and will most likely complain

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Receivables Skimming

• Lapping
• Crediting one customers account with payment
  received by another customer
• Becomes complicated by keeping track of payments
• Second set of books are sometimes kept
• Force balancing
• Posting a customers account without depositing
  the check creating an imbalance condition
• Cash account is overstated so the amount skimmed
  must forced in order to balance the account
• Stolen statements
• Employee steals or alters the account statement
  or produces counterfeit statements
• May change the customers address in order to
  intercept the statement

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Receivables Skimming

• Debiting the wrong account
• Debits an existing or fictitious A/R
• Waits for the A/R to age and be written off
• Fraudulent write-offs or discounts
• Write off the account to bad debt
• Post entries to a contra revenue account
  discounts and allowances
• Destroying or altering records of the transaction
• Often a last ditch effort to conceal the fraud
• Makes it more difficult to prove the fraud

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Preventing and Detecting Receivables Skimming

• Succeed when there is a breakdown in an
  organizations controls
• Mandate vacations
• Mandate supervisory approval of write-offs,
  discounts, refunds, reconciliations, accounting
  entries
• Proactively search out accounting clues
• Perform trend analysis on aging of customer
  accounts
• Conduct audit tests