Cash Receipts Theft: Supervisor Steals

By Charles Hall | Asset Misappropriation

Jan 08

In this article, I discuss cash receipts theft and how you can lessen this threat.

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.

Cash Receipts Theft

Is your cash receipts supervisor taking your cash? I once worked on a case where this person took over $300,000.

Cash receipts theft
Cash Receipts Supervisor

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.

Typical Deposit Cycle

The collections process often works as follows:

  1. Money is collected at the front cash-collection desks and placed in the cash drawers that are assigned to each clerk; receipts are written for each payment
  2. These clerks tally their collections at the end of each day and reconcile the monies in their cash drawers to the receipts written
  3. The daily reconciliation for each cash drawer goes to the cash receipts supervisor who recounts the funds received and reconciles collections to the receipts written (performing the same reconciliation as the front desk clerks)
  4. The cash receipts supervisor creates a deposit slip for all funds collected (if there are seven cash drawers, then the deposit slip represents the total collections for all seven cash drawers)
  5. The cash receipts supervisor gives the checks and cash and deposit slip to a courier to take to the bank
  6. The courier receives a bank deposit receipt from the bank
  7. The courier provides the bank deposit receipt to the cash receipts supervisor (so she can compare the bank deposit receipt with the copy of the deposit slip–to ensure the courier did not steal any funds in transit)

Cash Receipts Supervisor Theft

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.

So what was the control weakness that allowed the cash receipts theft?

Cash Receipts Theft Control Weakness

The weakness was the cash receipts supervisor who had custody of assets (cash) also performed the reconciliation of the related bank account.

Correcting the Control Weakness

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.

Follow

About the Author

Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty-five years, he has primarily audited governments, nonprofits, and small businesses. He is the author of The Little Book of Local Government Fraud Prevention, The Why and How of Auditing, Audit Risk Assessment Made Easy, and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events. Charles consults with other CPA firms, assisting them with auditing and accounting issues.

  • Sherrie says:

    HELLO Charles! I have been in this situation with MVA CCU. Everything you said in this previous article happened to me, I actually reported it and i believe they may of audited them. I tried to prove my case but mostly was dealing with the employees that i believe was committed the crime, they were giving me all kinds of explanations just to confuse me. I cannot get out this out of my mind or let it go because I truly feel they were in my tax info and stole my cash!!!!

  • Charles Hall says:

    Jim, I have seen this type of fraud more frequently of late. It tells me that companies that do perform bank reconciliations are not comparing cleared checks with the general ledger.

  • Charles Hall says:

    Lakshmi, yes, you’d think, in this day and time, companies would implement the right controls!

  • Jim says:

    Article brings up one of my pet peeves. When testing a bank rec, deposits in transit are more important than outstanding checks! Deposits in transit say “my books have cash that the bank does not have”. Deposits in transit should clear soon after year-end, in full.

  • >
    Tweet1
    Share26
    Share
    Flip
    Email