Definition of Lapping Scheme
A lapping scheme is a method of accounting fraud where an employee absconds with cash or funds from a receivable account and then uses the funds from subsequent transactions to cover the shortfall, creating an illusion of intact accounts. This fraudulent activity results in continuously shifting or “lapping” of the cash receipts to relay a false financial stability.
Comparison: Lapping Scheme vs Kiting
Feature | Lapping Scheme | Kiting |
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Definition | Fraudulently covering stolen cash through subsequent receivables | Taking advantage of the float between banks by moving checks before they’re cashed |
Purpose | To conceal a cash theft | To exploit bank timing differences for operating cash |
Method | Shifting receivables payments | Writing checks against accounts with insufficient funds |
Detection | Forensic audit of accounts receivable aging | Bank reconciliation showing overlapping transactions |
Legality | Illegal accounting fraud | Often illegal and unethical, can lead to banking fraud charges |
Examples
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Example of Lapping Scheme:
- Employee A steals $1,000 from Customer 1’s payment. Instead of reporting this theft, Employee A uses $1,000 from Customer 2’s payment to cover the theft. This cycle continues, with new payments covering previous thefts.
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Related Terms:
- Fraud: Deliberate deception for personal gain or to damage another individual or entity.
- Forensic Accounting: A specialized area of accounting that involves investigating financial discrepancies and fraud.
Formula to Detect Lapping Schemes
graph TD; A[Customer Payments] --> B{Was Payment Recorded?}; B -->|No| C[Investigate Further]; B -->|Yes| D{Is Cash Deposit Match?}; D -->|No| E[Forensic Audit Required]; D -->|Yes| F[Continue Monitoring Receivables];
Humorous Insights
“Why don’t accountants play hide and seek? Because good luck hiding when you’ve got accounts receivable to manage!” – Anonymous
Fun Facts
- In practice, lapping needs collusion and manipulation, often leading to serious ramifications including fires in professional careers.
- Forensic accountants can trace these seemingly innocent receivable adjustments back to the initial theft like a detective reveal in a mystery movie!
Frequently Asked Questions
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What is a lapping scheme?
- A lapping scheme is an accounting fraud technique involving the systematic covering of stolen cash from receivables by using proceeds from subsequent transactions.
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How can a corporation prevent lapping?
- Regular audits, strict cash management procedures, and segregation of duties are effective ways to mitigate this type of fraud.
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What signs indicate a lapping scheme?
- Increased aging in accounts receivable, missing payments, and discrepancies between recorded transactions and actual cash deposits.
References for Further Engagement
- The Fraud Audit by Oleksandr Lutsko
- Forensic Accounting: A Guide to Financial Fraud Investigation by William S. Hopwood
- Fraud and Fraud Detection on The CPA Journal
Test Your Knowledge: Lapping Scheme Challenge
Thank you for enhancing your financial knowledge with a sense of understanding about lapping schemes—because ignorance might be bliss, but awareness keeps your cash flow safe! Remember, when numbers start to look funny, it’s time to grab your magnifying glass! 🕵️♂️💰