Question

Discussion Topic: The Fraud Tree Asset misappropriation Cash Inventory and ether assets Laren Lace Fee canced Pem he Fle Oversla Alle Fund rebrimento This illustration is known as the "Fraud Tree" and depicts various ways an employee can misappropriate assets. Notice there are three main ways employees can embezale cash: skimming, Larceny, and fraudulent disbursements. Pick one of the boxes under "Cash" and explain how an employee would embezzle money under this scheme What internal controls can management put into place to prevent this type of embezzlement?

Answer 1

Cash embezzlement occurs when money, or valuables is misappropriated by any person who can be an employer, staff or even a business partner or someone at higher level. Though there are three main ways, cash skimming is the most simple form of embezzlement that is mostly practised by most of the people in business and profession. To explain cash skimming in better words, an example can be undertaken. A lower level staff, employed in a shop, sells a piece of necklace and instead of billing the same, puts the same in his pockets without the knowledge of the employer steadily. This is cash skimming. It is generally described as a white collar crime and mostly occurs at the lower level of employee hierarchy. Defalcation is another word which is used to describe cash skimming in general terms.

Cash skimming fraud thus does not enter the accounting system, because it occurs much before it is actually entered in the book of accounts. Individuals who have access to authority or direct cash are more vulnerable to such kinds of fraud. It might be direct stealing of cash or through direct password access of ATM cards, or Netbanking. Employees mostly use this type of embezzlement because the chances of detection are very low and it does not leave behind any audit proof or trail to locate the embezzlement.

There are various types of cash skimming which can be described below along with the ways of internal control that can be placed to minimize the same.

(1) Sales Skimming- When receipts of sales are not recorded in the accounting system, it is called sales defalcation. This may further be bifurcated as unrecorded, that is complete removal of the transaction and the other is understated transactions which is recorded at a reduced amount than the actual.

This can be prevented by keeping continuous checks on inventory levels and tally corresponding sales with the amount received. A decline in the inventory level without an increase in the correspondingg sales is considered as a sales defalcation.

(2) Receivable Skimming- An employer may have already billed a customer and expecting a payment for the same, but the employee unknowingly steals the same. This is receivable skimming and is often difficult to conceal. In this case often the fraudster uses a creative bent of mind to cover up the receivables. Lapping Schemes and Write of schemes are other common means of cash misappropriation.

This can be prevented by automating transactions directly in bank account, accepting digital payments, segregation of duties between the person recording the transaction and the person collecting the payment. Also, supervisory approval and authorization of payment can help in reducing these kind of frauds.

(3) Refunds and Other - Cash Skimming may occur when refunds are initiated by the company but does not reach the customer. Also, the asset is received but cash is not properly appropriated. The fraudster alter the records and take away the cash instead. This in turns attracts a bad name for the company.

This can be avoided by a implementing a check on internal control system, rotation of employees, tracking of customer records and proper communication with customers who were billed and later initiated a refund.

Thus, cash skimming is a very comman practise used all over the world, being illegal in nature but mostly attempted in case of Asset Misaapropriation.