Lapping Fraud Scheme Essay

Lapping fraud is a scheme where the bookkeeper diverts cash receipts received from one customers. The bookkeeper then hides the theft by clearing the first customer's account with the receivables from a second customers. According the case presented, the teller is engaging is a lapping fraud scheme coupled with misappropriation of receivables. The teller steals the money received form the first customer, fails to give a receipt to the client then uses the receivable from a second customer to clear the account of the first. The lapping fraud scheme tends to last for a long period as new payments are often to clear older debts.

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A lapping fraud scheme applies in a situation that satisfies various conditions. First, there are no segregation of duties. In this case the person receiving payments and recording transaction is the same. Also, since all accounting activities are carried out by the same person, it increases the chances of fraud due to lack of a check system (Wells, 2017). Secondly, often the bookkeeper does not take vacation times. This condition is often a possible indicator of the fraud scheme. A lapping fraud scheme is common in small businesses that employ one individual to carry out all accounting responsibilities.

Controls to Address the Fraud Risk

Lapping fraud scheme can be detected and prevented by implementing various internal control systems. First, the segregation of duties is a preventive control that minimizes the fraud risk (Kranacher & Riley, 2019). This control system ensures that two or more people handle different tasks. The individual collecting the funds from clients is different from the one recording these receipts in the accounting books. It implements a check system where one employee checks the actions of the other to ensure accountability and responsibility. However, this control system can be compromised where the lapping scheme involves the two employees.

Secondly, having a staggered schedule of printing customer statements and review of cash receipt records is a detective control measure. Lapping fraud scheme can be detected where there is a continuous application of receipts to the wrong customers (Wells, 2017). It can either indicate that the book keeper is poor at their job or a lapping fraud scheme has occurred for a while. Printing statements in unscheduled patterns ensures that the fraud can be detected.

Thirdly, the rotation of duties and creating mandatory vacation periods are both detective and preventive control measures (Kranacher & Riley, 2019). Rotation of duties ensures that occasionally, a different employees perform book keeping tasks. It minimizes fraud risk by creating a check system. Also, mandatory vacations ensures that the book keeper does not feel comfortable with the fraud system they have created. Other employees are likely to detect the fraud during the vacation.

Additionally, placing surveillance cameras and having sequentially pre-numbered receipts and their duplicates are detective measures (Kranacher & Riley, 2019). These control measures where employees, especially the bookkeeper, are unaware of them. The surveillance cameras can pick on the bookkeeper diverting cash receipts. On the other hand, pre-numbered receipts will show cases where payments made are more than the receipts given to customers.

Finally, encouraging customers to use online banking systems and insist on receipts once they made payments is a preventive control measure. It limits the cash receipts handled by the bookkeeper. Receipts are directly remitted to the bank. Tt reduces the fraud risk.

References

Kranacher, M. J., & Riley, R. (2019). Forensic accounting and fraud examination. John Wiley & Sons.

Wells, J. T. (2017). Corporate fraud handbook: Prevention and detection. John Wiley & Sons.