IIF 430

INTRODUCTION TO
FRAUD

CHAPTER 3
CASH LARCENY
MADAM SURIZA
LEARNING OBJECTIVES
At the end of the chapter, students should be able to :
• Define cash larceny
• Recognize the difference between cash larceny and skimming
• Discuss measures that can be used to prevent and detect cash larceny
at the point of sale.
CONTENTS

• Incoming cash
• Cash larceny from the deposit
• Miscellaneous larceny schemes
• Detection
• Prevention
INTRODUCTION
• Cash larceny refers to the act of stealing cash that has already been
recorded in the books of accounts during a specific period. This fraud
is perpetrated by an employee, without the consent or knowledge of
the employer.

• Larceny often occurs at the cash register, cash collection point, or from
deposits in transit.
• However, this form of theft is detectable if the company maintains
accurate cash records, and it can be identified during cash
reconciliations.

• Most companies tend to overlook larceny because employees tend to

steal small amounts that may not have a significant effect on the
overall revenues.

• However, when the practice is allowed to continue, the small amounts

may sum up to become material amounts that will push the company
into financial distress.
CASH LARCENY vs SKIMMING

Cash Larceny Skimming

Cash larceny involves the theft of Skimming refers to the theft of
cash that has been recorded on the money that has not been captured
employer’s books on the employer’s books of
accounts or accounting system.
INCOMING CASH
Cash flow that is paid to your business is considered incoming. It can
include payments from customers, profits from the sale of assets, and
accounts receivable.
TYPES OF CASH LARCENY
There are various types of cash larceny that employees use to steal cash
from an employer. They include:

1. Stealing cash from the register

2. Reversing cash transactions

3. Altering cash counts
4. Writing personal checks to cover theft
5. Destroying cash register logs
1. Stealing cash from the register
• A high percentage of employee cash theft occurs at the cash register (or
alternative cash collection points like cash drawers) because that is
where the cash and receipts are stored. When money is being passed
back and forth, the employee may pick some cash and slip it into his
pockets when no one is watching.

• The employee may also wait for an opportunity when there is less
activity at the cash register to open the till and dig in to remove some
notes. However, since the employee steals cash that has already been
recorded at the register log, an imbalance between the cash recorded
and the cash stored indicates possible cases of fraud.
2. Reversing cash transactions
• After stealing money from the employer, some employees may reverse
certain transactions as a way of hiding the cash larceny. They achieve this by
recording fraudulent returns and false voids as a way of decreasing the
amount of cash balance that is reflected in the register log.

• For example, after stealing the cash received by a customer as a payment for
a product purchase, the employee may destroy the receipts that reflected the
transaction. To hide the larceny, the employee may go back to the cash
register and void the transaction that has been entered at the time of
purchase. Reversing the transaction serves as a way of decreasing the balance
shown on the register log so that it equals the cash on hand.
3. Altering cash counts
• Employees may get an opportunity to alter the cash count if they are in
charge of recording the cash payments and reconciling the cash on
hand and the cash captured on the cash register log. It gives them an
opportunity to reconcile the cash register to a figure that conceals their
theft footprints, allowing them to steal without getting noticed.

• Ideally, an employee that deals with the cash register should not be the
same person charged with verifying the cash on hand and the amount
captured on the register log, since this creates a loophole for stealing
money.
4. Writing personal checks to cover theft
• This type of cash theft involves covering the cash balance with a
personal check as a way of reconciling the cash difference. This
practice aims at concealing the cash shortage when reconciling the
cash register with the cash on hand. However, the employee faces the
risk of the check being unmasked when an auditor is reviewing the
cash trail. Also, when the check is cashed, it will counteract the cash
they had taken, or bounce and alert the employer of the scheme that
the employee is involved in.
5. Destroying cash register logs
• If employees are unable to balance the cash recorded on the cash
register and the cash received, they may resort to destroying register
logs to avoid being implicated in a crime.

• Destroying the logs would prevent the employer or auditors from

reviewing the logs to identify any discrepancies with the cash received.
PREVENTION OF CASH LARCENY
Below are some of the steps that employers can take to prevent cash
larceny:
1. Separation of duties
2. Assignment rotation and mandatory holidays
3. Surprise cash counts and procedure supervision
1. Separation of duties
• Employers should have a clear organizational structure that separates
the duties assigned to employees. Ideally, each employee should not be
given control over an entire accounting transaction, since this
increases the risk of fraud.

• For example, when one employee is in charge of recording cash

payments, depositing the cash, and reconciliations, it presents an easy
opportunity to benefit fraudulently. Some of the duties that should be
separated include cash receipts, cash disbursements, bank
reconciliations, cash counts, posting of deposits, etc.
2. Assignment rotation and mandatory
holidays
• When an employee performs certain functions continuously, they may get too
comfortable and start finding ways of manipulating the system to their
advantage. This mainly applies to employees who are involved in receiving
cash payments, recording payments, payment authorizations, and cash
reconciliations. The employer should have a system in place that rotates
assignments carried out by specific employees, to reduce incidences of fraud.

• The employer should also impose a mandatory holiday for employees so that
they can review their performance to determine if they are involved in any
form of cash manipulation or financial fraud. When the employee is absent,
the employer may assign another employee to carry out that function to
ensure the continuity of the business operations.
3. Surprise cash counts and procedure
supervision
• Another way of preventing cash larceny is to conduct surprise cash
counts to detect any incidences of fraud.

• Surprise cash counts help instill discipline among employees, since

they will be afraid that the employer will unmask their schemes.

• The cash counts should target all the cash handling processes, from
receipts to bank deposits. Also, employees involved in these critical
roles should be directly supervised, and the supervisor must approve
any refunds or voids.
CASH LARCENY FROM THE
DEPOSIT
• When a company receives cash, someone is assigned to tabulate the
receipts, list the form of payment (cash or check) and prepare a deposit
slip for the bank. Then another employee, preferably one not involved
in the preparing of the deposit slip, takes the cash and deposits it in the
bank.

• One copy of the slip generally is retained by the person who made out
the deposit. This copy is matched to a receipted copy of the slip
stamped by the bank when the deposit is made.
• This procedure is designed to prevent theft of funds from the deposit,
but thefts still occur, often because the process is not adhered to.

• For example, an employee in a small company was responsible for

preparing and making the deposit, recording the deposits in the
company’s books and reconciling the bank statement.

• This employee took several thousand dollars from the company

deposits and concealed it by making false entries in the books that
corresponded to falsely prepared deposit slips.
• Similarly, in another case, in a retail store where cash registers were
not used, sales were recorded on pre umbered invoices. The controller
of this organization was responsible for collecting cash receipts and
making the bank deposits. This controller was also the only person
who reconciled the totals on the pre numbered receipts to the bank
deposit.

• Therefore, he was able to steal a portion of the deposit with the

knowledge that the discrepancy between the deposit and the day’s
receipts would not be detected.
• When cash is stolen from the deposit, the receipted deposit skill will, of
course, be out of balance with the company’s copy of the deposit slip (unless
the perpetrator also prepared the deposit).

• To correct this problem, some fraudsters alter the bank copy of the deposit
slip after it has been validated.

• In one example, a bookkeeper who had been employed for only one month
was put in charge of making the deposit.

• She promptly diverted the funds to her own use. This is not to say that al new
employees are untrustworthy – but it is advisable to have some sense of a
person’s character before handling that person a bag full of money.
 GEOMATIKA UNIVERSITY COLLEGE
CHANCELLERY OFFICE,
LOT 5-5-7, 5TH FLOOR, PRIMA PENINSULA,
JALAN SETIAWANGSA 11, TAMAN SETIAWANGSA
54200 KUALA LUMPUR

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