Keeping Your Cash – Preventing Skimming

In a recent article, I discussed two broad types of cash fraud: skimming (taking cash before it is recorded on the books), and larceny (taking cash after it is recorded on the books).
The question this post asks is, “How do you prevent skimming?”
To answer this question, we first need to answer the question, “How does skimming occur?” There are some common ways:

  • Giving customers product for cash and not recording the sale. The easiest example of this is the fast-food employee that gives friends free food. In a skimming case, the food isn’t free, but the employee pockets the money. This also includes sales off the back dock.
  • Pulling money out of the cash box (and perhaps tearing up cash receipts or tickets). If the company does significant cash business, it is vulnerable to the theft of that cash. According to my audit professor, the easiest organization to steal from is the church! Cash put in the offering plate is not ‘expected’ by the organization (since an invoice–in most cases–was not issued for it). Note that some cash register systems also permit employees to void transactions–this has been used to skim funds in some organizations.
  • Kickbacks may also be considered skimming (although some classify them as larceny). In the classic kickback, a vendor overcharges a purchasing agent for a product, then pays the purchasing agent some of the extra profit in exchange for the business. The purchasing agent is the employee guilty of skimming; the vendor may be breaking the law as well, but since the vendor is generally aware of the scheme, it isn’t skimming.
  • Any scheme that takes cash before it is recorded on the books. The waitress that gives a customer free drinks in exchange for a larger tip is skimming. The golf instructor that gives extra lessons (at a reduced rate) is skimming. The consultant that moonlights is skimming.

Knowing how it happens helps with the list of countermeasures:

  • Video surveilance can prevent skimming.
  • Manager presence at the area where cash transactions are occuring.
  • Employee rotation so that different employees are paired together in cash transaction areas.
  • Rewarding customers who report suspicious activities like not receiving a receipt for a cash purchase can force employees to record cash transactions.
  • Good inventory control prevents cash sales off the books or off the dock
  • Forced vacations which place new employees in key positions can locate skimming when customers ask for the ‘special deal’ they have normally gotten.

Other items can be appropriate in specific situations. The key to preventing skimming, though, is to force employees that handle cash to make an accounting record of some type that is difficult to destroy (for example, a numbered receipt).