What Is a Lapping Scheme?
A lapping scheme is a fraudulent practice that involves an employee converting accounts receivables to hide stolen cash.
The method involves taking a subsequent receivables rate from a transaction (for example, a sale) and the use of that to cover the theft. The receivable from the second transaction is covered thru money from the third transaction, and so on.
Key Takeaways
- A lapping scheme is a kind of accounting fraud in which stolen or misappropriated cash is obscured thru an employee who altes the accounts receivable.
- A forensic accounting audit of cash receipts will also be undertaken to reveal a lapping scheme, which might in all probability show better age of accounts receivables.
- A company can take a lot of simple steps to prevent the potential for this kind of fraud throughout the place of job.
The easiest way to Come throughout Lapping Schemes
A lapping scheme will also be detected thru tracing how cash receipts were applied to purchaser accounts. If there is evidence that cash receipts are automatically being applied to the fallacious purchaser accounts, then there is possibly an full of life lapping scheme in enlargement.
Each different indicator of a lapping scheme is an employee who refuses to take the vacation time they’ve earned. This is because lapping requires that the ‘lapper’ (the individual engaged throughout the fraud) is worried every day, and so isn’t ready to take any vacation time. One telltale sign of lapping is a rise throughout the getting outdated of accounts receivable. A lapping scheme can most simple temporarily disguise the theft. One day, the shortfall will show up and will have to be recorded as a loss.
Lapping schemes most often happen in smaller firms where only one particular person would in all probability care for cash receipts and purchaser billing.
The easiest way to Prevent Lapping Schemes
Companies can prevent lapping schemes thru doing the following:
- Environment aside cashier and billing tasks (referred to as segregation of duties)
- Electing any individual fairly than the cashier to send statements to shoppers (Shoppers are acutely aware of what they’ve paid, so that they are going to have to be able to come throughout any wrong expenses hooked as much as their accounts, or come throughout that certain expenses were certainly not applied.)
- Contact shoppers and inquire about whether or not or now not or not they’ve been receiving per 30 days statements from the company (Whoever is committing the fraud is also intercepting the statements previous to they are mailed.)
- Audit cash receipts transactions ceaselessly
- Require all team of workers to take their vacation time, without exception
- Keep close track of the use of credit score rating memos (The person committing fraud would in all probability try to end a lapping state of affairs thru writing off a receivable throughout the amount of the missing funds.)
- Mark all tests with the phrase “For Deposit Most simple,” so that team of workers cannot deposit the ones tests to their own accounts
- Have shoppers pay directly to a lockbox, so that cash cannot be intercepted and stolen thru team of workers
Example of a Lapping Scheme
Think that a company receives $150 for rate, then again an accounting clerk diverts that to a non-public account. To hide the theft, the clerk will practice the second receivable to go back in, for example throughout the amount of $200, to the main receivable. That leaves $50 leftover to be applied to the second receivable, and $150 of it however to be paid. The clerk continues allocating (lapping) money from successive product sales to the former receivables so the store’s accounting knowledge fail to reveal the discrepancy.
