Transcript Chapter 3 Cash Larceny 1

Chapter 3
Cash Larceny
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Pop Quiz
What is the difference between larceny and
skimming?
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Learning Objectives
• Define cash larceny.
• Understand how cash receipts schemes differ from
fraudulent disbursements.
• Recognize the difference between cash larceny and
skimming.
• Understand the relative frequency and cost of cash larceny
schemes as opposed to other forms of cash
misappropriations.
• Identify weaknesses in internal controls as inducing factors
to cash larceny schemes.
• Understand how cash larceny is committed at the point of
sale.
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Learning Objectives
• Discuss measures that can be used to prevent and detect
cash larceny at the point of sale.
• Understand and identify various methods used by
fraudsters to conceal cash larceny of receivables.
• Understand schemes involving cash larceny from deposits
including lapping and deposits in transit.
• Understand controls and procedures that can be used to
prevent and detect cash larceny from bank deposits.
• Be familiar with proactive audit tests that can be used to
detect cash larceny schemes.
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Larceny
Of Cash on
Hand
From the
Deposit
Other
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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
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Frequency – Cash Misappropriations
74.1%
Fraud Disb
71.1%
28.2%
Skimming
31.8%
23.9%
Cash Larceny
8.9%
0%
10%
20%
30%
40%
2002
50%
60%
70%
80%
2004
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Median Loss – Cash
Misappropriations
$125,000
Fraud Disb
$100,000
$85,000
Skimming
$70,000
$80,000
Cash Larceny
$0
$25,000
$30,000
$60,000
2002
$90,000
$120,000
$150,000
2004
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Dollar Loss Distribution –
Cash Larceny Schemes
1.9%
1.4%
1-999
8.7%
1,000 - 9,999
12.3%
29.1%
10,000 - 49,999
22.8%
14.6%
12.9%
50,000 - 99,999
30.1%
29.2%
100,000 - 499,999
1.9%
500,000 - 999,999
6.8%
13.6%
14.6%
1,000,000 and up
0%
5%
10%
15%
All Cases
20%
Cash Larc
25%
30%
35%
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Detection of Cash Larceny Schemes
Internal Audit
17.0%
Tip from Employee
23.8%
26.6%
23.6%
22.3%
21.3%
22.3%
By Accident
Internal Control
18.4%
11.7%
10.9%
External Audit
4.3%
Tip from Customer
7.8%
5.3%
6.2%
Tip from Vendor
2.1%
Anonymous Tip
5.1%
2.1%
0.9%
Law Enforcement
0%
5%
10%
All Cases
15%
20%
25%
30%
Cash Larc
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Perpetrators of Cash Larceny Schemes
57.3%
Employee
67.8%
42.7%
Manager
34.0%
13.6%
12.4%
Owner
0.0%
10.0%
20.0%
30.0%
All Cases
40.0% 50.0%
60.0%
70.0%
Cash Larceny
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Median Loss by Position
$61,000
Employee
$62,000
$71,500
Manager
$140,000
$1,250,000
Owner
$-
$900,000
$250,000
$500,000
All Cases
$750,000
$1,000,000 $1,250,000 $1,500,000
Cash Larceny
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Size of Victim
56.0%
1-99
45.8%
19.0%
100-999
21.1%
17.2%
19.8%
1,000-9,999
10,000+
0.0%
8.0%
13.3%
10.0%
20.0%
All Cases
30.0%
40.0%
50.0%
60.0%
Cash Larceny
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Median Loss - Size of Victim
$100,000
$98,000
1-99
100-999
$78,500
$161,500
$55,000
1,000-9,999
$87,500
$39,000
$105,500
10,000+
$-
$25,000
$50,000
$75,000
All Cases
$100,000 $125,000 $150,000 $175,000
Cash Larceny
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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
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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
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Larceny Schemes
• Theft from other registers
– Using another cashier’s register or access code
• Death by a thousand cuts
– Stealing in small amounts over an extended period of time
• Reversing transactions
– Using false voids or refunds
– Causes the cash register tape to balance to the cash drawer
• Altering cash counts or cash register tapes
• Destroying register tapes
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Preventing and Detecting Cash
Larceny at the Point of Sale
• Enforce separation of duties
• Independent checks over the receipting and recording of
incoming cash
• Upon reconciliation of cash and register tape, cash should
go directly to the cashier’s office
• Discrepancies should be checked especially if a pattern is
identified
• Periodically run reports showing discounts, returns,
adjustments, and write-offs by employee, department, and
location to identify unusual patterns
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Larceny of Receivables
• Theft occurs after the payment has been recorded
• Force balancing
– Having total control of the accounting system can overcome the
problem of out-of-balance accounts
– Can make unsupported entries in the books to produce a fictitious
balance between receipts and ledgers
• Reversing entries
– Post the payment and then reverse the entry through “discounts”
• Destruction of records
– Destroying the records can conceal the identity of the perpetrator
even though the fraud has been discovered
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Cash Larceny From The Deposit
• Whoever takes the deposit to the bank has an opportunity
to steal a portion of it.
• Having controls such as matching the receipted deposit slip
to the originally prepared slip does not always prevent theft
• Failure to reconcile the slips can foster an environment
leading to theft
• Lack of security over the deposit before it goes to the bank
can also lead to theft
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Cash Larceny From The Deposit
• Deposit lapping
– Day one’s deposit is stolen and is replaced by
day two’s deposit . . . .
• Deposits in transit
– Carrying the missing money as a deposit in
transit but never clears the bank statement
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Preventing and Detecting –
Cash Larceny From The Deposit
• Separation of duties is the most important factor
• All incoming revenues should be delivered to a centralized
department
• Compare the authenticated deposit slip with the company’s
copy of the deposit slip, the remittance list, and the general
ledger posting of the day’s receipts
• Two copies of the bank statement should be delivered to
different persons in the organization
• Require that deposits be made at a night drop at the bank
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