Cash Skimming and Cash Larceny in Business

According to Dr. Donald Cressey’s Fraud Triangle, people commit fraud due to three primary reasons; financial pressure, rationalization, and opportunity. Misappropriation of cash is a form of financial fraud that makes up 47% of all fraud cases and among the various sub-schemes that fall under that category, are cash skimming and cash larceny. According to the Occupational Fraud 2022: A Report to the Nations recently published by the Association of Certified Fraud Examiners [ACFE], cash skimming and cash larceny consist of 9% and 8% respectively of asset misappropriation frauds.

How does cash skimming occur?

Also legally known as defalcation, cash skimming is defined as the stealing of unrecorded cash receipts, such as sales, refunds, or receivables, in cases where the money has not been accounted for in the organization. It involves taking off the top of daily cash receipts hence considered an ‘off-book’ fraud. A fraudster may conduct this by failing to record sales or understating sales.

Cash skimming is the most difficult form of fraud to detect as it does not leave any audit trail. This form of fraud can also occur on an individual level in the form of ATM skimming and Credit card skimming.

Although it is not easy to detect, management and business owners can prevent this cash skimming, through various ways, such as: –

  1. Actively monitor revenue receipts and check for voided transactions to detect stealing;
  2. Looking out for inventory shrinkages as sometimes cash skimming can appear like inventory errors; and
  3. Avoiding cash transactions to ensure an audit trail for all transactions.

How does cash larceny occur?

Cash larceny involves stealing recorded receipts. Unlike cash skimming, this form of fraud involves the stealing of funds that have already been accounted for, making it easy to detect. It occurs at cash collection points or when deposits are in transit.

Cash larceny requires a lot of covering up on the part of the fraudster. In most cases, small amounts of money may be written off as cash shortages, whereas bigger transactions may be recorded as voids, refunds, or bad debts. Additionally, fraudsters may apply teeming and lading tactics which involve the allotment of receipts from one customer/debtor’s account to another intending to make the books of the account balance, to conceal the theft of money.

Some of the ways through which cash larceny can be prevented include, but are not limited to: –

  1. Segregation of duties – this ensures that no one employee has control over an entire accounting process;
  2. Business owners and/ or managers’ participation in cash counts and account reconciliations; and
  3. The use of a POS (Point of Sale) system – this will aid in curbing cash fraud, especially where cash transactions are mainly used.

How can we help?

Cash can be difficult to track once it is in the hands of a fraudster. Forensic experts can uncover fraud schemes by following the money trail, which involves uncovering every person who has come in contact with the money.

At Riskhouse international, we have a team of Forensic Accountants and Fraud investigators who have hands-on experience in conducting investigations on various forms of fraud such as; fraudulent financial statements and other accounting frauds; potentially fraudulent payments; revenue-related irregularities such as revenue overstatement or understatement; matters involving fraudulent disbursements, cash larceny, and skimming; and inventory frauds.

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