Detecting Fraud: Appropriate financial controls help prevent skimming

Accounting professionals play a significant role in preventing fraud. One of the most common forms of fraud for today’ small business is “skimming,” or removing cash before a transaction is recorded on the organization’s books and records. Because skimming can occur anywhere cash enters an organization, financial personnel should be vigilant about cash receipt and handling procedures.

Typical points of employee theft:

  • On-Site sales:
    For on-site salespersons, skimming generally happens at the point of sale. An employee simply rings up a “no sale,” and then pockets the customer’s money. One of the best defenses against on-site sales skimming is proper supervisory presence. A sales clerk is less likely to steal when there is a manager or another employee present.
  • Remote salespersons:
    Because they work off-site and unsupervised, remote salespersons are in an especially good position to sell goods or services, then pocket the proceeds without recording a sale. Another scenario is a salesperson who runs the business during off-hours, such as on weekends or early in the day, then deletes all sales records for that period of time, and takes the cash. Careful inventory control can help prevent both of these types of fraud. Even something as simple as a follow-up sales call can be helpful in discovering sales made but not reported.
  • Mail room theft:
    Another common type of theft is removing checks from incoming mail. This can usually be prevented if one employee opens the mail and another records the receipt of payment.
  • Check-for-cash substitutions:
    If your company consistently receives “unexpected” cash revenues, such as rebates or refunds, you will need to guard against check-for-cash substitutions. In this scheme, an employee pockets $1000 in cash and substitutes a $1,000 “refund check” on the deposit slip instead. Eliminate this kind of fraud by being vigilant about reconciling daily deposits. Make sure that the employee making the deposits is not the employee who reconciles them.
  • Inventory theft:
    Inventory shrinkage is a common indicator that a business has been a victim of skimming. An employee will cash a check from a customer, then steal the inventory to send to the customer. (This prevents the customer from complaining that he or she did not receive the goods paid for). Small business owners who conduct regular inventory counts and who investigate shortages will insulate themselves against this type of fraud.

In short, when business owners eliminate “opportunities,” dishonest employees are less likely to attempt fraudulent removal of cash.

Source: “How to Prevent Small Business Fraud.” Association of Certified Fraud Examiners. 23 March 2005.