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Cash Larceny

Chapter 3

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Pop Quiz

What is the difference between larceny and skimming?

 

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• 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.

Learning Objectives

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• 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.

Learning Objectives

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Larceny

Of Cash on Hand

Other

From theDeposit

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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

23.9%

8.9%

71.1%

31.8%

28.2%

74.1%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Cash Larceny

Skimming

Fraud Disb

2002 2004

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Median Loss – Cash Misappropriations

$25,000$80,000

$70,000

$85,000

$100,000

$125,000

$0 $30,000 $60,000 $90,000 $120,000 $150,000

Cash Larceny

Skimming

Fraud Disb

2002 2004

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Dollar Loss Distribution – Cash Larceny Schemes

12.3%

12.9%

22.8%

1.4%

14.6%

6.8%

29.2%

1.9%

30.1%

8.7%

29.1%

14.6%

1.9%

13.6%

0% 5% 10% 15% 20% 25% 30% 35%

1,000,000 and up

500,000 - 999,999

100,000 - 499,999

50,000 - 99,999

10,000 - 49,999

1,000 - 9,999

1-999

All Cases Cash Larc

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Detection of Cash Larceny Schemes

0.9%

5.1%

6.2%

7.8%

23.6%

2.1%

11.7%

22.3%

22.3%

26.6%

21.3%

18.4%

10.9%

23.8%

4.3%

5.3%

2.1%

17.0%

0% 5% 10% 15% 20% 25% 30%

Law Enforcement

Anonymous Tip

Tip from Vendor

Tip from Customer

External Audit

Internal Control

By Accident

Tip from Employee

Internal Audit

All Cases Cash Larc

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Perpetrators of Cash Larceny Schemes

12.4%13.6%

34.0%

42.7%

67.8%

57.3%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%

Owner

Manager

Employee

All Cases Cash Larceny

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$900,000

$1,250,000

$140,000

$71,500

$62,000

$61,000

$- $250,000 $500,000 $750,000 $1,000,000 $1,250,000 $1,500,000

Owner

Manager

Employee

All Cases Cash Larceny

Median Loss by Position

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Size of Victim

13.3%8.0%

19.8%17.2%

21.1%

19.0%

45.8%56.0%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

10,000+

1,000-9,999

100-999

1-99

All Cases Cash Larceny

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Median Loss - Size of Victim

$105,500$39,000

$87,500$55,000

$78,500 $161,500

$98,000$100,000

$- $25,000 $50,000 $75,000 $100,000 $125,000 $150,000 $175,000

10,000+

1,000-9,999

100-999

1-99

All Cases 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