... and One for Me: Skimming Is by Far the Most Popular Method for Stealing an Organization's Cash
Roger had worked hard to earn his CPA. He had big dreams--he had planned to use his newfound financial expertise after college to build a fortune. But 10 years later, here he was, stuck as the controller for a midsize soft drink bottler and distributor in the South, going nowhere fast. It wasn't fair, Roger reasoned. Besides, he thought his boss was ignorant and didn't have a fraction of Roger's accounting knowledge. A beverage company generates a lot of currency, and Roger's primary responsibility was to keep track of it. The cash came from three principal sources: customer payments on accounts receivable, direct sales to customers (supermarkets) and vending machine collections. Payments on account usually came through the mail, while customer sales and vending machine currency was collected by route salesmen. No matter where the cash came from, it all arrived on Roger's desk daily. He was the last person to see the money before it was deposited in the bank. At the end of one particularly distressing day, Roger noticed a deposit slip with a math error: There was exactly $1,000 more in cash than reflected on the deposit. At first irritated at the notion of having to correct the mistake, Roger stopped and smiled. And then he put 50 twenty-dollar bills in the top of his desk drawer, locked it, went home and didn't look back. Two years and $475,000 later, Roger still didn't feel good about his job, he hated working in this company, and he despised the boss more than ever. For Roger, being able to skim money had been no real challenge. He thought the boss should have noticed the glaring internal control deficiency in the operation and that his controller had unrestricted access to cash since he had unrestricted access to the books. On top of that, the company wasn't audited. But so it is with many small to midsize businesses. Roger's skimming scheme was the essence of simplicity. The daily bank deposits that arrived on his desk had already been prepared by a bookkeeper. Attached to the deposit slip was documentation in two forms: The bookkeeper prepared a list of payments on accounts receivable and each route salesman prepared a deposit for the cash he had collected. Roger left the accounts receivable alone. But for the route deposits (cash sales) he kept a handy supply of blank forms in his desk. After everyone went home, Roger simply removed cash from one of the route deposits and prepared a new form showing the lower deposit amount. Then he'd throw away the deposit slip prepared by the bookkeeper and fill out another in his own handwriting. In an effort to avoid detection, Roger rotated the route salesman he shorted and he took cash on an irregular basis. His scheme seemed to be working. But despite all of that money, Roger still had a serious attitude problem. The boss noticed how screwy Roger had been acting for months. Things weren't getting done. Financial statements were late. Tax returns were overdue. Roger had not conducted a serious inventory in a year. He was missing more and more work. When the boss would point out all these problems, Roger would just glare at his desk. But in one final fit of anger, the boss fired Roger--effective on Friday. The following Monday, the boss called his CPAs for some temporary help until Roger could be replaced. By that afternoon, one of the CPAs spotted a journal entry of just over $380,000 made by Roger the previous Friday: He debited cost of sales and credited the same amount to inventory. Roger described the reason for the journal as, "To adjust inventory to actual value." That one journal entry wiped out half the bottling company's profits. It was a pretty simple matter for the CPAs to unravel the scheme. First, they conducted a complete physical inventory of the operation. Next, they examined--by hand--every deposit slip for a three-year period. They located over a hundred bank deposit slips seemingly prepared in Roger's own handwriting. …