Management and Organizational Studies 3367A/B Chapter Notes - Chapter 2-3: Trend Analysis, Bank Statement, Remittance

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Ch2 Skimming
The theft of cash from a victim entity prior to its entry in an accounting system
Off-book fraud
Missing money is never recorded, no direct audit trail
Difficult to detect
3 major categories of occupational fraud
1. Asset misappropriations (most common)
2. Corruption
3. Fraudulent statements
Skimming schemes
Sales skimming
o Occurs when employee makes a sale of goods or services to a customer,
collects the customer's payment at the point of sale but makes no
transaction
o Cash register manipulation
Rings no sale
Manipulate register tape
No receipt issued
Destroy store copy of receipt
o Sales during nonbusiness hours
o Off-site sales not reported (rental, parking lot, insurance independent
salesperson)
o Poor collection procedures
o Understated sales (skim the difference between the actual purchase price of
the item and the sales figured recorded on the cash register)
Only a portion of the cash received in a sales transaction is stolen
o Check for currency substitutions (take unrecorded checks that has been
stolen and substitute them for recorded currency in the same amount)
o Theft in the mail room--incoming checks
Detection and prevention sales skimming
o Maintain a viable oversight presence at any point where cash enters an
organization
o Video surveillance
o Managers should routinely check on all cash entry
o Place registers in one cluster area rather than spread out through the store
o Utilize customers
o Record login and logout time of each user
o Off-site sales personnel should also be required to maintain activity logs
o Eliminate potential hiding places for stolen money
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o Incoming mail should be opened in a clear, open area free from blind spots
and with supervisory presence
Receivable Skimming
o More difficult to conceal than sales skimming
o Conceal either the payment is stolen or it is due
o Lapping
The crediting of one account through the abstraction of money from
another account
A steals from B, use C to make it up for the loss that B has and it keeps
going until 1. someone discovers the scheme, 2. restitution is made to
the accounts, 3. some concealing entry is made to adjust the accounts
receivable balances
o Force balancing (plugging )
The perpetrator hides the imbalance by forcing the total on the cash
account, overstating it to match the total postings to accounts
receivable
Fraudster steals a customer's payment but nevertheless post it to the
customer's accout so the accout does’t age past due
o Stolen statements
Alteration of account statements
Send customers fake statement to keep them from complaining about
stolen statements
o Fraudulent write-offs or discounts
Write off the related receivables as bad debt
Posting entries to contra revenue accounts (discounts and allowances)
o Debiting the wrong account
Simply wait for the fictitious receivables to age and be written off,
knowing they are uncollectable
Add the skimmed balances to accounts that either are very large or that
are aging and about to be written off
o Document destruction
Destroy the entire register tape
Cut off large portion where the fraudulent transactions were recorded
Prevention and Detection Receivable Skimming
o Reconciling bank statement regularly and thoroughly
o Employee spot-check deposits to A/R to ensure payments are being applied
to the proper accounts
o Mandate employees to take vacation/ job rotation
o Mandate supervisory approval for write-offs/ discounts to A/R
o Run reports summarizing discounts, write-offs
o Trend analysis on aging of customer accounts
o Train audit staff
o Segregation of duties
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