Cash Larceny
The act of stealing cash that has already been recorded in the books of accounts during a specific period
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What is Cash Larceny?
Cash larceny refers to the act of stealing cash that has already been recorded in the books of accounts during a specific period. This fraud is perpetrated by an employee, without the consent or knowledge of the employer. Larceny often occurs at the cash register, cash collection point, or from deposits in transit. However, this form of theft is detectable if the company maintains accurate cash records, and it can be identified during cash reconciliations.
Most companies tend to overlook larceny because employees tend to steal small amounts that may not have a significant effect on the overall revenues. However, when the practice is allowed to continue, the small amounts may sum up to become material amounts that will push the company into financial distress.
Cash Larceny vs. Skimming
Cash larceny and skimming are both common types of fraud that are perpetrated by the company’s employees. They differ in the time of occurrence. While cash larceny involves the theft of cash that has been recorded on the employer’s books, skimming refers to the theft of money that has not been captured on the employer’s books of accounts or accounting system.
Larceny is often easier to detect than skimming because the stolen funds have already been captured in the accounting system and, therefore, leave an audit trail that can be discovered during reconciliations and cash audits.
Types of Cash Larceny
There are various types of cash larceny that employees use to steal cash from an employer. They include:
1. Stealing cash from the register
A high percentage of employee cash theft occurs at the cash register (or alternative cash collection points like cash drawers) because that is where the cash and receipts are stored. When money is being passed back and forth, the employee may pick some cash and slip it into his pockets when no one is watching.
The employee may also wait for an opportunity when there is less activity at the cash register to open the till and dig in to remove some notes. However, since the employee steals cash that has already been recorded at the register log, an imbalance between the cash recorded and the cash stored indicates possible cases of fraud.
2. Reversing cash transactions
After stealing money from the employer, some employees may reverse certain transactions as a way of hiding the cash larceny. They achieve this by recording fraudulent returns and false voids as a way of decreasing the amount of cash balance that is reflected in the register log.
For example, after stealing the cash received by a customer as a payment for a product purchase, the employee may destroy the receipts that reflected the transaction. To hide the larceny, the employee may go back to the cash register and void the transaction that has been entered at the time of purchase. Reversing the transaction serves as a way of decreasing the balance shown on the register log so that it equals the cash on hand.
3. Altering cash counts
Employees may get an opportunity to alter the cash count if they are in charge of recording the cash payments and reconciling the cash on hand and the cash captured on the cash register log. It gives them an opportunity to reconcile the cash register to a figure that conceals their theft footprints, allowing them to steal without getting noticed.
Ideally, an employee that deals with the cash register should not be the same person charged with verifying the cash on hand and the amount captured on the register log, since this creates a loophole for stealing money.
4. Writing personal checks to cover theft
This type of cash theft involves covering the cash balance with a personal check as a way of reconciling the cash difference. This practice aims at concealing the cash shortage when reconciling the cash register with the cash on hand. However, the employee faces the risk of the check being unmasked when an auditor is reviewing the cash trail. Also, when the check is cashed, it will counteract the cash they had taken, or bounce and alert the employer of the scheme that the employee is involved in.
5. Destroying cash register logs
If employees are unable to balance the cash recorded on the cash register and the cash received, they may resort to destroying register logs to avoid being implicated in a crime. Destroying the logs would prevent the employer or auditors from reviewing the logs to identify any discrepancies with the cash received.
Prevention of Cash Larceny
Below are some of the steps that employers can take to prevent cash larceny:
1. Separation of duties
Employers should have a clear organizational structure that separates the duties assigned to employees. Ideally, each employee should not be given control over an entire accounting transaction, since this increases the risk of fraud. For example, when one employee is in charge of recording cash payments, depositing the cash, and reconciliations, it presents an easy opportunity to benefit fraudulently. Some of the duties that should be separated include cash receipts, cash disbursements, bank reconciliations, cash counts, posting of deposits, etc.
2. Assignment rotation and mandatory holidays
When an employee performs certain functions continuously, they may get too comfortable and start finding ways of manipulating the system to their advantage. This mainly applies to employees who are involved in receiving cash payments, recording payments, payment authorizations, and cash reconciliations. The employer should have a system in place that rotates assignments carried out by specific employees, to reduce incidences of fraud.
The employer should also impose a mandatory holiday for employees so that they can review their performance to determine if they are involved in any form of cash manipulation or financial fraud. When the employee is absent, the employer may assign another employee to carry out that function to ensure the continuity of the business operations.
3. Surprise cash counts and procedure supervision
Another way of preventing cash larceny is to conduct surprise cash counts to detect any incidences of fraud. Surprise cash counts help instill discipline among employees, since they will be afraid that the employer will unmask their schemes. The cash counts should target all the cash handling processes, from receipts to bank deposits. Also, employees involved in these critical roles should be directly supervised, and the supervisor must approve any refunds or voids.
Additional Resources
CFI offers the global Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. Check out these additional CFI resources to help you along your finance career path:
