Skimming - it sounds low threat, like it doesn’t add up to much. In fact, skimming doesn’t make up a large part of fraud activity for most businesses. According to the Certified Fraud Examiners’ 2020 Report to the Nations, cash receipt theft only makes up 11% of asset appropriation schemes.

But the median loss of $47,000? That’s a figure that catches your attention. That’s a number that you’ll feel if your business is the victim of skimming. How do you prevent it? Here’s where you can start.  

How skimming happens

Skimming happens when an employee steals an incoming payment before it’s recorded. The basic skimming scheme plays out like this: 

• A worker sells a good or service to a customer
• They collect the payment but don’t record the sale

It’s a simple scenario, but it has consequences. Skimming causes discrepancies between inventory counts and the inventory ledger. 

Receivables can also be skimmed, though it’s often harder to manage these schemes as overdue accounts show up on the accounts receivable aging schedule. Skimmers often try to cover their tracks by borrowing money from one account to account for shortages in others, a process known as “lapping.”  

What to look for

Skimming can be detected by monitoring the frequency of bank deposits and fluctuations in balance. Regular shortages of cash on hand can also be a sign of skimming. Other steps to take include:

• Performing physical inventory counts to make sure they line up with recorded sales 
• Review journal entries for:
  • False credits to inventory
  • Irregular entries to cash accounts
  • Write offs for lost, stolen, or obsolete inventory

Keeping employee duties separate can be an effective method of preventing skimming. Having just one person responsible for collecting, recording, reconciling and depositing cash receipts can be a recipe for fraud - it’s much more secure to split these duties up between people.

Preventative measures can also be put into place. These include: 

• Video surveillance of locations where employees handle cash
• Implementing daily bank deposits  
• Investigating transactions recorded as no-sale or voided
• Reconciling cash deposits to all cash and checks received
• Reconciling inventory records for shrinkage
• Establishing an anonymous tip line for employees, customers and vendors.

Vulnerable industries

Some companies are at higher risk for skimming than others. Small businesses (less than 100 employees) as well as those in the education, real estate, and transportation and warehousing industries generally have higher rates of skimming and should consider additional safety measures. But no matter your industry, fraud preparedness is important. If you’re concerned about skimming in your place of business and need guidance on how to proceed, contact us today for a free consultation.