Where is Fraud Likely? - Part 2 |
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As long as entities have had accounts receivable lapping has taken place. Lapping occurs when someone in the organization steals accounts receivable payments by diverting them. The person committing the fraud then uses a subsequent payment from a different customer to credit the original amount stolen. As more and more funds are diverted, the number of accounts receivable credited with late payments becomes larger and larger.
The easiest way to prevent lapping is to have adequate separation of duties. Amounts received from customers should be listed and deposited by one individual and the details should be given to another individual to post the credits to accounts receivable. Periodically, a third individual should check the posting of receivable payments to ensure that the correct accounts were credited for payment. Beware of the trusted bookkeeper who handles all elements of the accounts receivable transactions and never takes vacations. The person committing lapping cannot take a long vacation where someone else performs his or her duties because the scheme will surely be revealed.
Make sure your auditor confirms receivables at year end. It won’t prevent lapping, but it should catch it.
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