FUNDAMENTALS OF FORENSIC AUDITING AND ACCOUNTING

CASH LARCENY

LEARNING OBJECTIVES

• 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

• 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

Larceny

Of Cash on Hand

Other

From theDeposit

WHAT IS CASH LARCENY?

Definition:• Intentional taking• Of employer’s cash• Without employer’s consent

“Cash” includes currency and checks

DEFINITION (source - acfe.org)Cash larceny:

A scheme in which an incoming payment is stolen from an organization after it has been recorded on the organization’s books and records (e.g., employee steals cash and checks from daily receipts before they can be deposited in the bank)

CASH LARCENY SCHEMES

• Can occur where an employee has access to cash

1. At the point of sale – cash register .

2. From incoming receivables

3. From the victim organization’s bank deposits

LARCENY - AT THE POINT OF SALE

Cash Larceny Controls

Separate the following duties: • Cash receipts• Cash counts• Bank deposits• Deposit receipt reconciliation• Bank reconciliation• Posting deposits• Cash disbursements

LARCENY AT THE POINT OF SALE

• Example

• A cashier takes in cash in a supermarket or restaurant – rings up the sale, opens the drawer and gives up the change.

• Removes cash from the drawer – presses void key to cancel

• Voids bill• Voiding transaction – makes the draw

balance to register tape

METHODS USED TO CONCEAL CASH LARCENY AT POINT OF SALE

1. Theft from other registers

2. Death by a thousand cuts

3. Reversing transactions

4. Altering cash counts or cash register tapes

5. Destroying register tapes

LARCENY AT THE POINT OF SALE

• Controls

• Receipt for each customer – ensures all transactions are recorded (sign)

• Sequenced receipts – pre numbered for control

• Approval for voids

• Supervision

PREVENTING AND DETECTING CASH LARCENY AT THE POINT OF SALE

• 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

• Set tolerance limits for shortages – employees to repay

PREVENTING AND DETECTING CASH LARCENY AT THE POINT OF SALE

• Supervisor to authorize voids• Collection of cash during the day• Night deposits• Video surveillance• Enforce separation of duties – for

receiving cash, counting cash and reconciling registers

• Surprise audits/cash counts

PREVENTING AND DETECTING CASH LARCENY AT THE POINT OF SALE

• Controls over cash - Upon reconciliation of cash and register tape, cash should go directly to the cashier’s office

• Cash couriers –G4/Amalgamated • Independent checks over the receipting

and recording of incoming cash

LARCENY OF RECEIVABLES

WHEN ?

• Theft occurs after the payment has been recorded HOW?

1. Force balancingo Having total control of the accounting system can overcome the

problem of out-of-balance accountso Can make unsupported entries in the books to produce a

fictitious balance between receipts and ledgers

LARCENY OF RECEIVABLES

2. Reversing entrieso Post the payment and then reverse the entry

through “discounts”

3. Destruction of recordso Destroying the records can conceal the identity

of the perpetrator even though the fraud has been discovered

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

CASH LARCENY FROM THE DEPOSIT

• Deposit lapping• Day one’s deposit is stolen and is replaced

by day two’s deposit . . . .• Fraudster is always behind in deposits• Difficult to conceal• Successful when there is no segregation of

duties• Importance of bank reconciliations

CASH LARCENY FROM THE DEPOSIT

• Deposits in transit

• Carrying the missing money as a deposit in transit but it never clears the bank statement

• Eg Max & Co’s bank statement cuts off on the last day each month. Deposits made on that day will not appear on the bank statement. In order to reconcile – classified as deposits in transit. Will show up next month. Should clear when deposit comes in.

PREVENTING AND DETECTING –CASH LARCENY FROM THE DEPOSIT

1. Separation of duties is the most important factor

2. All incoming revenues should be delivered to a centralized department

3. 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

4. Two copies of the bank statement should be delivered to different persons in the organization

PREVENTING AND DETECTING –CASH LARCENY FROM THE DEPOSIT

1. Documented procedures

2. Require that deposits be made at a night drop at the bank – daily deposits

3. Bank Reconciliations

4. Review timing of the deposits – same day/1day after

5. Cash pick up system – security company

CASH LARCENY - QUIZ

What is the difference between Skimming and Cash Larceny?

CONTROLS

SKIMMING

Theft of cash from a victim entity prior to its entry in an accounting system

“Off-book”Money is never recordedNo direct audit trail Its principal advantage is its difficulty to be detected.

CASH LARCENY

• Intentional taking away of an employer’s cash without the consent and against the will of the employer.

• There is an intent to steal.• Takes place after the cash has been

recorded in the books• Leaves a trail

COMPARISON

ON BOOK INTENTIONAL AFTER CASH IS

RECORDED LEAVES A TRAIL

OFF BOOK DIFFICULT TO

DETECT BEFORE CASH IS

RECORDED LEAVES NO TRAIL

CASH LARCENY SKIMMING