How to Spot and Prevent Cash Skimming

Jan 23rd 2019
CPA, CFE Powerful Accounting LLC
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Learn how to fight fraud
Learn how to fight fraud

On a recent podcast about fraud (aka The Fraudcast) I spoke with CPA Stephen King of client accounting services firm GrowthForce about the disproportionate frequency in which small businesses are victims of fraud compared to larger ones.

Moreover, we discussed his eBook, The CEO’s Guide to Reducing Fraud, which is largely based on the ACFE Report to the Nations that addresses the aforementioned issue, as well as how critical it is to understand what cash skimming is and to protect against it.

First, let's talk basics. When an employee receives money from a customer and they steal it before it hits the banks, that’s cash skimming. The employee takes cash off the top, which can be difficult to detect and it can destroy businesses.

Steve shared with us a “classic” story of a doctor scammed by a trusted, hardworking bookkeeper (she never took a vacation—RED FLAG). When the bookkeeper finally went away for a wedding and another person in the office took over for her, the underlying problems were exposed.

A regular patient came in to the doctor’s office and pulled out cash to pay her bill. The stand-in employee told the patient that they didn’t accept cash, to which the patient revealed that she expected a 10 percent discount for paying in cash, as per usual.

It may seem impossible to avoid cash skimming when the nature of it is so sneaky, but there are means of defense. Steve noted that if a CEO or owner sets the right tone in the workplace by upholding strong core values and ethics, it becomes harder for employees to accept being fraudulent as the norm.

He also emphasized the importance of separating duties. For instance, you can’t have the person who is receiving the cash be the same person who is making the deposits. It’s just unsafe. Cover your tracks by dividing transactions.

Cash is the scariest form of payment, in my opinion. When running a business, another form of security is to have two people count the cash together, which allows more than one person to check for any source of deletion.

It doesn’t cost anything extra to have two or more people count or have separation of basic duties if there's already more than one employee. Having a simple system of monitoring how many clients come in per day versus the number of payments made is something any business can do. Steve recommended breaking up who can perform QuickBooks functions as well. There should be a supervisor and a clear segregation of work.

Tax season is a perfect opportunity to talk to your clients about frauds like cash skimming. Give them advice regarding the implementation of internal control or smoothly backing up their tax returns. There are also technological solutions available.

Tax season is also when we have clients’ attention and these are subjects we need to talk to them about. The CEO’s Guide to Reducing Fraud further describes what cash skimming is and touches on raising the issue with clients, as well as showing them the best methods of minimizing risk.

In addition, as Steve mentioned, offering clients a second set of eyes or the ability to reconcile two bank accounts is a valuable idea. Keeping precautions in mind, the eBook places common scenarios in conversation with each other and guides readers in confronting fraud.

On, you can look for links to accounting resources and for future fraudcasts. We will be discussing payroll fraud, check tampering, cyber threats, employee expense, and billing fraud.

Hear more from Steve and Dawn on these issues on the The Weekly Fraudcast.

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