Know what to look for to prevent cash receipting fraud

While cash transactions might be less frequent than those involving credit or debit cards, or have individual low dollar values, over time small daily losses can add up. According to the Association of Certified Fraud Examiners' (ACFE) 2016 Report to the Nations, the average median loss when cash was misappropriated ranged from $25,000 to $90,000.

Actual examples of cash receipting misappropriation reported to our Office that were at the $90,000 mark or higher include:

• A County cashier recorded fictitious transactions in the accounting system to misappropriate at least $617,467 in Real Estate Excise Tax payments over about six years.

• A County Probation Services employee misappropriated probation and collection agency fees totaling $62,150 over six years. We also found unsupported adjustments of $734,894, and voids and cash shortages of $30,772.

According to the 2016 Report to the Nations , “When fraud was uncovered through active detection methods, such as surveillance and monitoring or account reconciliation, the median loss and median duration of the schemes were lower than when the schemes were detected through passive methods, such as notification by police or by accidental discovery…fraud losses were 14.3%–54% lower and frauds were detected 33.3%–50% more quickly.”

The key to preventing or reducing the risk of fraud is having strong controls in place. It also helps to know what schemes and red flags to look for.

Cash Receipting Schemes

Skimming is the theft of cash before it is recorded and involves off -book sales or services that are never recorded in the books. Larceny is the theft of cash after it is recorded and involves misappropriating funds already recorded in the accounting system through daily deposits, less cash schemes, false voids, adjustments or returns, and missing funds.

To prevent or detect fraud, here are some monitoring controls to consider:

• Know who performs what duties and if there is any potential for a person performing multiple duties that should be segregated to prevent the opportunity to commit or conceal misappropriation.
• Review void activity by employee or department to ensure the voids are supported and reasonable in number. High void activity could indicate a fraud.
• Check receipt sequences to ensure the receipt order is sequential and all numbers are accounted for.
• Review adjustment activity, error reports, unusual journal entries and over/short activity.
• Verify that inventory records agree to usage or sales and follow up on any discrepancies.
• Review bank reconciliations and compare bank deposits to cash receipt records to verify that the mode of payment agrees. Consider whether bank deposits have been made promptly or there are changes in the deposit pattern.
• Look for missing or incomplete documentation, alterations or correction fluid being used on records or reports.
• Verify reports are final and haven't been altered in any way.
• Analyze revenues, including looking for unanticipated revenues or unusual changes compared to prior years.
• Review accounts receivable activities to see if changes make sense and payments are posted to the correct accounts.