Question

Explain how each of the following three conditions could be a red flag for a register disbursement scheme.

a. Able, a cash register teller, is authorized to approve sales ¬refunds and she is also authorized to make inventory ¬adjustments

b. Baker is a cashier who, in the last week, processed 15 ¬refunds. No other cashier processed more than 5 over that same period. Each of the transactions was for between $13.50 and $14.99.

c. Over 70 percent of the refunds processed by Chase, a cash register clerk, were run on the same date as the original sale.

Answer 1

1. The conditions under which Able works are ripe for fraud. Able is a cash register teller, which means she is in a position to enter refunds, but she also has the authority to approve refunds, meaning there is an inadequate separation of duties. In addition, Able is authorized to make inventory adjustments, which could enable her to conceal any shrinkage that would result from a register disbursement scheme. Even though this scenario does not contain any evidence that Able is actually committing fraud, the conditions are such that if she did commit fraud, she would most likely be successful.

2. The fact that Baker processed three times more refunds than any other cashier over the relevant period does not prove that he is involved in a register disbursement scheme, but it is consistent with that type of scheme and there is sufficient reason to conduct further inquiry. The fact that all of the refunds were for amounts in a very narrow range just under $15.00 is also suspicious. It would be worth checking to see whether Baker’s company has a review limit for refunds at or near $15, since the pattern of his transactions suggests he may be structuring false refunds to avoid review.

3. The scenario involving Chase contains less hard evidence than the other two, but the fact that most of the refunds Chase processes occur on the same date as the underlying sales could point to fraud. It would make sense for an employee to run fraudulent refunds close to the time of the original sale, since he would be more likely to remember the details from the sales transaction, such as the amount, the customer’s name, the item purchased, etc. There is no information here that would tell us whether it is typical for a customer to return merchandise on the same date he or she purchased it, but that is something that should be tested, given the information here.