Sometimes the person you hire to prevent theft is the one stealing. This is one of the dangers of a trusted bookkeeper. Below I provide a real-life story of a cash receipts supervisor on the take.
Is your cash receipts supervisor taking your cash? I once worked on a case where this person took over $300,000.
Many businesses funnel cash receipts to a supervisor who counts the money from each cash drawer and compares the funds to the daily receipts. The purpose of this step is to ensure no front-desk clerks are stealing.
The cash collections supervisor has usually worked a cash drawer in the past. So she knows all about how the receipts enter the system and how they are deposited.
The collections process often works as follows:
So how can the cash receipts supervisor steal funds in the above scenario?
In the case I worked on, the supervisor also reconciled the bank statement. After step 3., but before step 4., she would steal the cash and then lessen the deposit slip accordingly. So, if she took $2,200, the deposit slip would reflect the total daily collections less $2,200.
You’re thinking, “But then the bank account would not reconcile since the computers have recognized the front-desk collections?” You are correct—unless someone monkeys with the bank reconciliation. And that’s what she did. The supervisor adjusted the reconciling items–on the bank reconciliation–to cover up the stolen funds. The scheme worked until the annual audit.
When the auditors tested the outstanding items on the bank reconciliation, they could not tie substantial amounts to the subsequent bank statement. Generally, outstanding reconciling items clear the subsequent month’s bank statement—but large amounts on the year-end bank reconciliation could not be accounted for (because they were fictitious).
When confronted, the clerk confessed to her theft and method.
The weakness was the cash receipts supervisor who had custody of assets (cash) also performed the reconciliation of the related bank account.
The person reconciling the bank statement should not also handle cash. It’s also a good idea to perform surprise tests of the receipting records. Doing so puts everyone on notice. The receipt employees know someone can appear at any time and review their work.
For additional assistance, see my article about how to audit cash.
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Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty years, he has primarily audited governments, nonprofits, and small businesses. He is the author of The Little Book of Local Government Fraud Prevention and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events. Charles is the quality control partner for McNair, McLemore, Middlebrooks & Co. where he provides daily audit and accounting assistance to over 65 CPAs. In addition, he consults with other CPA firms, assisting them with auditing and accounting issues.
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