Lapping Scheme

What Is a Lapping Scheme?

A lapping scheme is a fraudulent practice that includes an employee changing accounts receivables to conceal taken cash.

The method includes taking a subsequent receivables payment from a transaction (for instance, a sale) and utilizing that to cover the theft. The receivable from the subsequent transaction is covered by money from the third transaction, etc.

Step by step instructions to Detect Lapping Schemes

A lapping scheme can be identified by following how cash receipts have been applied to customer accounts. Assuming evidence that cash receipts are regularly is being applied to some unacceptable customer accounts, then, at that point, there is possible an active lapping scheme in progress.

One more indicator of a lapping scheme is an employee who will not take the vacation time they've earned. This is on the grounds that lapping requires that the 'lapper' (the individual engaged in the fraud) is involved consistently, as is unable to take any vacation time. One indication of lapping is a rise in the aging of accounts receivable. A lapping scheme can briefly conceal the theft. Sometime, the shortfall will appear and must be recorded as a loss.

Lapping schemes commonly occur in more modest companies where just a single person might handle cash receipts and customer billing.

Step by step instructions to Prevent Lapping Schemes

Companies can forestall lapping schemes by doing the accompanying:

• Isolating cashier and billing liabilities (called segregation of duties)
• Choosing somebody other than the cashier to deliver statements to customers (Customers are aware of what they've paid, so they ought to have the option to distinguish any mistaken payments associated with their accounts, or recognize that certain payments were rarely applied.)
• Contact customers and ask about whether they've been getting month to month statements from the company (Whoever is committing the fraud might be catching the statements before they are sent.)
• Audit cash receipts transactions consistently
• Require all employees to take as much time as necessary, no matter what
• Keep close track of the utilization of credit updates (The person committing fraud might try to end a lapping situation by discounting a receivable in the amount of the missing funds.)
• Mark all checks with the phrase "For Deposit Only," so employees can't deposit these checks to their own accounts
• Have customers pay straightforwardly to a lockbox, so that cash can't be blocked and taken by employees

Illustration of a Lapping Scheme

Assume that a company gets $150 for payment, however an accounting representative redirects that to a personal account. To conceal the theft, the representative will apply the second receivable to come in, for instance in the amount of $200, to the first receivable. That leaves $50 extra to be applied to the second receivable, and $150 of it still to be paid. The agent keeps distributing (lapping) money from progressive sales to the previous receivables so the store's accounting records fail to uncover the error.

Features

• A company can find several simple ways to forestall the opportunity of this type of fraud in the work environment.
• A forensic accounting audit of cash receipts can be embraced to uncover a lapping scheme, which might show increased age of accounts receivables.
• A lapping scheme is a form of accounting fraud by which taken or misused cash is a the darkened by an employee accounts receivable.