Do Not Let Lapping Fraud Run Circles Around Your Business

Lapping, or using receipts from one account to cover theft from another, is one of the most common methods of skimming from company accounts. With vigilance and a little knowledge you can prevent this type of fraud from damaging your business.

Spot the scheme

Lapping scams usually start small, with an employee pocketing a payment from ABC company and using a payment from XYZ company to hide the loss. As time goes on, however, the amounts get larger and the employee must maintain detailed records to track the movement of money.

This house of cards usually tumbles when the employee makes an error. For example, one man who stole $150,000 by programming an elaborate computer scam based on 29-day cycles forgot that February has only 28 days (except in a leap year). The scheme collapsed and he was discovered.

There usually are warning signs that can alert you before a lapping problem grows to epic proportions. Such signs include:

  • Excessive billing errors
  • Accounts receivable write-offs
  • Delays in posting customer payments
  • Customer complaints
  • A trend of decreasing accounts receivable payments
  • Accounts receivable details that do not tally with the general ledger

Effective controls

Most of the time, lapping is a sign not only of a cash-strapped employee but also of a company with inadequate internal controls. To ensure lapping does not tempt fraudsters, take preventive measures.

Have someone review and compare every check that is deposited to the receivables ledger. Better yet, require two people review the records. The review should include the actual checks — not just ledgers. Because employees who are lapping may set up their own accounts in the company’s bank, it is important for reviewers to have a list of valid accounts by bank name and number for authentication.

Another relatively easy protection is to closely monitor aging accounts. If you routinely send overdue notices to customers, pay attention to the responses. Follow up immediately if customers say they have already paid an invoice.

No more easy money

It is not hard to understand why some employees might be tempted by the prospect of easy money — even if they may be caught in the long run. However, with a little extra attention to detail you can make it difficult for lapping to occur in the first place. Contact us for more information on preventing fraud.

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