Question

REVIEW QUESTIONS 3-1 (Learning objective 3-1) What is cash larceny? 3.2 (Learning objective 3-2) How do cash larceny schemes differ from fraudulent disbursements? 3-3 (Learning objective 3-3) What is the difference between cash larceny and skimming? 3.4 (Learning objective 3-4) Where do cash larceny schemes rank among cash misappropriations in terms of frequency? In terms of median loss? 3-5 (Learning objective 3-5) What are the main weaknesses in an internal control system that permit fraudsters the opportunity to commit cash larceny schemes? 3-6 (Learning objective 3-6) What are the five methods dis- cussed in this chapter that are used to conceal cash larceny that occurs at the point of sale? Explain how each works. 3-7 (Learning objective 3-8) How do employees commit cash larceny of incoming receivables? How are the schemes concealed? 3-8 (Learning objective 3-8) What is force balancing, and how is it used to conceal cash larceny? 3.9 (Learning objective 3-9) How do fraudsters commit cash Tarceny from the bank deposit? 3-10 (Learning objectives 3-5, 3-7, and 3-10) What are some basic internal control procedures to deter and detect cash larceny schemes?

Answer 1

Answer:

3.1

Cash larceny consist of the deliberate taking away of an employer’s cash without the permission, and against the will, of the employer. Cash larceny schemes involve the stealing of money that has already appeared on the victim company’s books.Cash larceny consist of the deliberate taking away of an employer’s cash without the permission, and against the will, of the employer. Cash larceny schemes involve the stealing of money that has already appeared on the victim company’s books.

3.7

Cheats may post the customer’s payment to the accounting system but steal the cash, which effects an ­imbalance in the cash account. This imbalance can be hidden if the offender has control over the recording function for ledger accounts. The fraudster makes ­unsubstantiated entries, which yield fabricated balances. Other ways to cover cash larceny include using reversing transactions, creating unauthorized discounts, charging the theft to bad debts, or adjusting the inventory account. Alternately, the offender simply may do away with all records of the transaction.

3.8

Force balancing comprises of making of unverified entries in an organization’s books and records to produce a ­fictitious balance. For example, if an employee steals an ­incoming receivables payment after it has been posted to the proper customer account, this will create a deficiency in the cash account because the amount of receipts posted will ­exceed the amount of receipts on hand. If the employee is able to make one or more unsupported entries to cash in the amount of the stolen payment, he or she can remove the ­imbalance.

3.9

Fraudsters steal all or part of the deposit and hide the scheme by destroying the bank statement, or ­by showing the ­deposits as “in transit.” This type of scheme is usually effective when there is a poor internal control system over cash collections and deposits, in which the same ­employee may be responsible for cash collections, preparing deposit slips, making deposits, and reconciling bank ­statements. The fraudster may also alter the deposit slip after it has been returned in the bank statement.