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Accounting & Audit

Detecting and Preventing Cash Fraud

By May 23, 2019No Comments

Whether you are a non-profit organization collecting cash donations or a for-profit business collecting cash for sales, you may be susceptible to cash theft or fraud. Increasing awareness of the most common types of cash theft and fraud schemes and implementing controls to deter them is essential to their detection and prevention.

There are several different types of cash theft and fraud schemes. Some of the most common schemes are counterfeit currency, cash larceny, and skimming.

Counterfeit Currency

Counterfeit currency is the act of printing paper cash without the legal sanction of the U.S. government. The most frequently counterfeited bills are one-hundred-dollar bills, whereas the least are one-dollar bills. In essence, the only way to prevent counterfeit cash is to detect it. Some counterfeit bills are incredibly convincing; however, there are proven methods to validate authenticity. Using a black light can reveal special security features embedded in all valid U.S. currency. Additionally, holding a bill up to the light can help you to locate the unique government watermark. A counterfeit bill will often fail to replicate the original watermark or use the wrong watermark for the bill. (Researching what security features and watermarks are included on each bill is the best way to familiarize yourself with the unique characteristics that should be present.) Training your organization’s staff on the different currency characteristics is essential to implementing the control throughout your organization. If your organization handles large amounts of cash at a time, purchasing a two-in-one bill counter, which also detects counterfeit currency, may serve as a solution to help detect counterfeit currency.

Cash Larceny

Cash larceny is the removal of cash from the system after it has been recorded. It can involve taking cash from the register or reversing a cash transaction to attempt to hide the theft. Larceny is an easier scheme to detect as you will notice that more cash is recorded than is on hand. Some preventative measures include proper segregation of duties, mandatory holidays and vacations for employees, and surprise cash counts.

Skimming

Skimming is the act of removing cash from the system before it has been recorded. An example of skimming would be if an employee receives a cash donation for your organization but pockets the money instead of recording it. Skimming is more difficult to detect because it does not leave an audit trail, which would ordinarily reveal the source of the theft. Skimming is most often detected by accident. Monitoring for lower-than-expected revenue during the financial reporting process may serve as a tool for detecting skimming. Installing video monitoring in all areas where employees handle cash can also serve as a preventive and detective measure. Reconciling the physical inventory count with the perpetual inventory records to reveal shrinkage without corresponding cash receipts can also help to detect skimming schemes.

Designing and implementing sufficient internal controls around the cash cycle can help to prevent and detect most cash frauds that your organization may encounter. For assistance in determining the risk of cash theft and fraud to your organization, please contact your L&B professional at (858) 558-9200.

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