Check-for-Cash Fraud: How to Understand It and Prevent It

Day 6 of 30 Days of Fraud

The Theft

The check-for-cash fraud scheme is a simple yet effective way for employees to steal. Today I explain how this type of theft occurs and how you can prevent it.

Kelly is a receipts clerk in the City of Whosville. She usually collects about $25,000 each day with $8,000 of this being in cash and the remainder in checks. Kelly, based on city policy, receipts all monies she receives, but she does not note on the receipt whether the payment is cash or check.

check-for-cash fraud

Kelly also opens the mail and receipts those checks. Each month the city receives about a dozen alcohol tax checks–each made out to the City of Whosville–in the range of $3,000 to $6,000 each. These payments are paid by the alcohol distributors based on their sales, so the revenue is recognized upon receipt (and no receivable is accrued before payment).

Kelly wants to take a trip overseas, but she needs about $15,000 which he doesn’t have. But then she has a novel idea.

Since she opens the mail, she can steal cash in the following manner:

  1. Don’t receipt a check received in the mail (e.g., an alcohol tax check for $4,503)
  2. Place that check in her cash drawer
  3. Take $4,503 from her cash drawer and place it in her purse

The $4,503 in cash came from legitimate collections. Receipts were written for the payments, but Kelly did not note whether cash or checks were received. 

Over a three month period, Kelly steals $17,505, and no one notices.

The Weakness

Though receipts are issued, the type of payment (cash or check) is not noted. No one (such as a supervisor) is reconciling the composition–total cash and total checks–to the receipts.

The Fix

As receipts are issued, require collection personnel to note the type of payment received (whether cash or check). A supervisor should reconcile the amount of cash and checks in the collection drawer to the receipts. If total cash and total checks don’t reconcile to the receipts, then the check-for-cash fraud might be occurring.

Compare the budgeted alcohol tax amount to the total received.

Also, consider installing a camera to record cash collections activity and do not allow purses or other bags in the collections area.

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