Are you Aware of Fraud within your Business?
As an entrepreneur, the path to success is busy from the moment you decided to become a business owner. Your thinking about the marketing, websites, social media and how all of these areas will generate revenue for your business. But, when does the entrepreneur slow down to think about fraud prevention within their company? Does this happen after they have built a staff and business is booming? Or does this happen when business slows down and the accountability for revenue is key to the sustainability of the business?
As you build your business include the key control of establishing policies and procedures. Having policies and procedures in place will not only be the framework of your business it will also be the additional support in preventing fraud. An example of potential fraud for any business is described below.
Lapping occurs when an employee steals cash by diverting a payment from one customer, and then hides the theft by diverting cash from another customer to offset the receivable from the first customer. This type of fraud can be conducted in perpetuity, since newer payments are continually being used to pay for older debts, so that no receivable involved in the fraud ever appears to be that old.
Lapping is most easily engaged in when just one employee is involved in all cash handling and recordation tasks. This situation most commonly arises in a smaller business, where a bookkeeper may be responsible for all accounting tasks.
If these tasks are split up amongst several people (known as the segregation of duties), then lapping can only be conducted when two or more employees are involved. Lapping typically requires that the person engaged in the fraud be involved every day, and so does not take any vacation time. Thus, having a person refuse to take the vacation time that they have earned can be considered a possible indicator of the existence of lapping.
Lapping can be detected by conducted a periodic review of the cash receipts records, to trace payments to outstanding receivables. If there is ongoing evidence that cash receipts are routinely being applied against the wrong customer accounts, then either the cashier is astonishingly incompetent, or there is an active lapping scheme in progress.
Controls that can be used to prevent or detect lapping include the following:
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