Cash Larceny from the Deposit

At some point in every revenue-generating business, someone must physically take the company’s currency and cheques to the bank. This person or persons, left alone literally holding the bag, will have an opportunity to take a portion of the money prior to depositing it into the company’s accounts.

Typically, when a company receives cash, someone is assigned to tabulate the receipts, list the form of payment (currency or cheque), and prepare a deposit slip for the bank. Then another employee takes the cash and deposits it in the bank. The person who made out the deposit generally retains one copy of the slip. This copy is matched to a receipted copy of the slip, which the bank stamps when the deposit is made.

Other Cash Larceny

Cash larceny from deposits

This procedure is designed to prevent the theft of funds from the deposit, but thefts still occur, often because companies do not adhere to the process. (See the “Cash Larceny from the Deposit” flowchart that follows.) For example, when one person is in charge of preparing the deposit slips, making the deposit, and reconciling the bank statement, that person can pilfer money from the day’s receipts and conceal it by falsifying the deposit slips. If the day’s receipts are $1,000, the perpetrator might fill out a deposit slip for $500 and steal the other $500. The employee then makes correspondingly false entries in the books, understating the day’s receipts. This process creates a false balance in the victim organisation’s records.

A failure to reconcile the bank copy of the deposit slip with the office copy can result in fraud. When the person making the deposit knows his company does not reconcile the two copies, he can steal cash from the deposit on the way to the bank and alter the deposit slip so that it reflects a lesser amount. In some cases, sales records are also altered to match the diminished deposit.

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When cash is stolen from the deposit, the receipted deposit slip will of course be out of balance with the company’s copy of the deposit slip (unless the perpetrator also prepared the deposit). To correct this problem, some perpetrators alter the bank copy of the deposit slip after it has been validated. This brings the two copies back into balance.

EXAMPLE

An employee altered 24 deposit slips and validated bank receipts in the course of a year to conceal the theft of over $15,000. These documents were altered with correction fluid and ink to match the company’s cash reports.

One common-sense issue that organisations sometimes overlook is the handling of the deposit on the way to the bank. Once prepared, the deposit should immediately be put in a safe place until it is taken to the bank. Unfortunately, some organisations leave their deposits carelessly unattended. For example, some companies prepare the daily deposit, and then leave it in the office overnight to be taken to the bank the next morning. Employees familiar with this routine have little trouble pilfering cheques and currency from the deposit after hours.

Cash larceny from deposits – chart

Cash larceny from deposits

As with all cash larceny schemes, stealing from the company deposit can be rather difficult to conceal. In most cases, these schemes are only successful in the long term when the person who counts the cash also makes the deposit. In any other circumstance the scheme’s success depends primarily on the inattentiveness of those charged with preparing and reconciling the deposit.

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Deposit Lapping

One method that fraudsters sometimes use to conceal cash larceny from the deposit is lapping. Lapping occurs when an employee steals the deposit from day one, and then replaces it with day two’s deposit. Day two’s deposit is then replaced with money received on day three, and so on. The perpetrator is always one day behind, but as long as no one demands an up-to-the minute reconciliation of the deposits to the bank statement—and if daily receipts do not drop precipitously—he might be able to avoid detection for a period of time. Lapping is discussed in more detail in the “Skimming” section.

Deposits in Transit

A final concealment strategy used for stolen deposits is to carry the missing money as deposits in transit on the bank reconciliation, which is money that has been recorded in the company’s cash account in its general ledger, but hasn’t yet cleared the bank. This is one of the ways to account for discrepancies between the company’s records and the bank statement. Although usually reasonable, deposits in transit can be used to conceal a cash larceny from the deposit. The deposit in transit amount should be traced to subsequent bank statements to ensure its legitimacy.

EXAMPLE

An employee was responsible for receiving collections, issuing receipts, posting transactions, reconciling accounts, and making deposits. This employee took over $20,000 in collections from her employer over a five-month period. To hide her theft, the perpetrator carried the missing money as deposits in transit, meaning that the missing money would appear on the next month’s bank statement. Of course, it never did. The balance was carried for several months as “d.i.t.” until an auditor recognised the discrepancy and put a halt to the fraud.

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Cash Larceny – Part 2

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Cash Larceny – Part 1

The second type of cash receipts scheme is cash larceny. In the occupational fraud setting, cash larceny is the intentional...

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