The second type of cash receipts scheme is cash larceny. In the occupational fraud setting, cash larceny is the intentional taking of an employer’s cash (the term cash includes both currency and cheques) without the consent and against the will of the employer. However, recall that skimming also involves the intentional taking of an employer’s cash. The difference between skimming and cash larceny is that skimming is the theft of cash before it

appears on the books. Cash larceny involves the theft of money that has already appeared on the victim company’s books. Accordingly, these schemes are much harder to get away with—they leave an audit trail.

A cash larceny scheme can take place in any circumstance in which an employee has access to cash. Every company must deal with the receipt, deposit, and distribution of cash, so

every company is potentially vulnerable to a cash larceny scheme. While the circumstances in which an employee might steal cash are nearly limitless, most larceny schemes involve the theft of incoming cash, currency on hand (in a cash register, cash box, etc.), or theft of cash from the victim organisation’s bank deposits.

Incoming Cash

Theft of Cash from the Register

A large percentage of cash larceny schemes occur at the cash register, and for good reason— the register is usually where the cash is. The register (or similar cash collection points like cash drawers or cash boxes) is usually the most common point of access to cash for employees, so it is understandable that this is where larceny schemes frequently occur. Furthermore, there is often a great deal of activity at the register—numerous transactions

that require employees to handle cash. This can serve as a cover for cash theft. In a flurry of activity, with money being passed back and forth between customer and employee, an employee can often slip cash out of the register and into his pocket undetected.

The most straightforward cash larceny scheme is to simply open the register and remove currency or cheques. (See the “Cash Larceny from the Register” flowchart that follows.) The theft is often committed as a sale is being conducted so that it appears to be part of the transaction. In other circumstances, the perpetrator waits for a slow moment when no one is around to notice him digging into the cash drawer.

Recall that the difficulty in detecting skimming schemes comes from the fact that the stolen funds are never entered on the victim organisation’s accounts. In a larceny scheme, on the other hand, the funds that the perpetrator steals have already been reflected on the register log. As a result, an imbalance will result between the register log and the cash drawer.

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A register is balanced by comparing the transactions on the register log to the amount of cash on hand. Sales, returns, and other register transactions that are recorded on the register log are added to or subtracted from a known balance to arrive at a total for the period in question. The actual cash is then counted and the two totals are compared. If the register log shows that there should be more cash in the register than what is present, the discrepancy might be due to larceny.

Cash larceny from deposit – chart

cash larceny

The actual method for taking money at the register—opening the register and removing currency—rarely varies. It is the methods used by perpetrators to avoid getting caught that distinguish larceny schemes. Oddly, in many instances the perpetrator has no plan for avoiding detection. A large part of fraud is rationalising; the employee convinces himself that he is somehow entitled to what he is taking, or that what he is doing is not actually a crime. Register larceny schemes frequently begin when the perpetrator convinces himself that he is only “borrowing” the funds to cover a temporary monetary need. These people might carry the missing currency in their registers for several days, deluding themselves in the belief that they will one day repay the funds they have stolen.

The employee who does nothing to camouflage his crimes is easily caught. More dangerous is the person taking active steps to hide his crimes. One basic way for an employee to disguise the fact that he is stealing currency is to take money from someone else’s register.

In some retail organisations, employees are assigned to certain registers. Alternatively, one register is used and each employee has an access code. When cash is missing from a certain cashier’s register, that cashier is obviously the most likely suspect for the theft. Therefore, by stealing from a colleague’s register, or by using someone else’s access code to enter the register, the perpetrator makes sure that another employee will be the prime suspect in the theft.

EXAMPLE

A teller for a retail sales company simply signed onto a register, rang a “no sale,” and took currency from the drawer. Over a period of time, the teller took approximately $6,000 through this simple method. To get away with the theft, the teller waited until a coworker was on break and then logged onto that person’s register, rang a “no sale,” and took the cash. The resulting cash shortage therefore appeared in an honest employee’s register, deflecting attention from the true thief.

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A very unsophisticated way to avoid detection is to steal currency in very small amounts over an extended period of time. Because the missing amounts are small, the shortages might be dismissed as accounting errors rather than theft. Typically, the employee becomes dependent on the extra money he is pilfering and his thefts increase in scale or become more frequent, which causes the scheme to be uncovered. Most retail organisations track overages or shortages by employee, making this method largely ineffective.

REVERSING TRANSACTIONS

Some employees conceal cash larceny by processing reversing transactions, which cause the register log to reconcile to the amount of cash on hand after the theft. By processing false voids or refunds, an employee can reduce the cash balance reflected on the register log.

EXAMPLE

A cashier received payments from a customer and recorded the transactions on her system. She stole the payments from the customers and then destroyed the company’s receipts that reflected the transactions. To complete the cover-up, the cashier went back and voided the transactions that she had entered at the time the payments were received. The reversing entries brought the receipt totals into balance with the cash on hand.

REGISTER MANIPULATION

Instead of using reversing entries, an employee might manually alter the register log. Again, the purpose of this activity is to force a balance between the cash on hand and the actual cash received. An employee might use correction fluid to cover up a sale where the proceeds were stolen or might simply cross out or alter the numbers on the tape so that the register total and the cash drawer balance. This type of concealment is not common because the alterations will generally be noticeable.

ALTERING CASH COUNTS

Another method for concealing cash larceny is to alter the cash counts on registers. When cash from a register is totalled and prepared for deposit, an employee simply records the wrong amount so that the cash on hand appears to balance with the total on the register log. Obviously, employees who deal with the receipt of cash should not be charged with verifying the amount of cash on hand in their own register, but this control is often overlooked.

DESTROYING REGISTER LOGS

If the fraudster cannot make the cash and the tape balance, the next best thing is to prevent others from computing the totals and discovering the imbalance. Employees who are stealing from the register sometimes destroy detail tapes that would implicate them in a crime. When detail tapes are missing or defaced, it might be because someone is trying to conceal a fraud.

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Other Larceny of Sales and Receivables

Not all receipts arrive via the cash register. Employees can just as easily steal money received at other points. One of the more common methods is to take cheques received through the mail and post the payments to the accounting system, but steal the cheques. (See the “Other Cash Larceny” flowchart that follows.) Obviously, this type of scheme leaves the cash account out of balance. From a perpetrator’s perspective, it would make much more sense to take cheques that have not yet been posted to customer accounts. Often, this type of cash larceny scheme is committed by an employee who claims to only be “borrowing” the funds for a short while—one of the classic rationalisations in occupational fraud schemes.

Those employees who have total control of a company’s accounting system can overcome the problem of out-of-balance accounts. It is common, especially in small businesses, for a single person to control all of a company’s deposits and ledgers. These employees can steal incoming cash that has already been posted and then conceal the crime by making unsupported entries in the victim organisation’s books. Poor separation of duties is often the weakness that allows cash larceny schemes to go undetected.

EXAMPLE

An employee posted customer payments to the accounts receivable journal but stole the cash received. This resulted in an imbalance in the victim company’s cash account. But the perpetrator had control over the company’s deposits and all its ledgers. This allowed her to conceal her crime by making unsupported entries in the company’s books that produced a fictitious balance between receipts and ledgers.

In circumstances in which payments are stolen but nonetheless posted to the cash receipts journal, reversing entries are sometimes used to balance the victim company’s accounts. The incoming payment is initially credited to the customer’s account, but the entry is later reversed with an unauthorised adjustment such as a “courtesy discount.”

A less elegant way to hide a crime is to simply destroy all records that might prove that the perpetrator has been stealing. This “slash and burn” concealment technique does not prevent the victim company from realising that it has been robbed, but it might help conceal the thief’s identity.

 

Cash Larceny – Part 1
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