Employee dishonesty can turn a thriving cash transaction business into a leaky bucket at warp speed. Internal controls designed to discourage this kind of behavior are essential and hands on management on a day to day basis can stem this tide if the commitment is there.
The Fraud
Larceny and embezzlement are cash theft schemes perpetrated after the cash has been recorded in the company's books. The difference between these similar criminal actions is that larceny is a "trespassory" taking of another's property with intent to steal, while embezzlement is also a taking of another's property with intent to steal . . . but by a person in a position of trust with legal access to the property. In other words, embezzlement is the fraudulent appropriation of money or property lawfully in one's possession.
Larceny and/or embezzlement can be the stealing of cash from a cash register or the company's daily bank deposit, or the stealing of customer checks received to pay accounts receivable balances.
A cashier (a person in a position of trust), for example, takes in cash from a restaurant patron, rings it up on the register and hands the change to the customer. She then removes cash from the register and hits the "void" key to cancel the transaction on the tape and writes "void" on the restaurant check/tab. She has just negated the record of the sale of that meal without approval. Say she does this to the tune of only $10 a day. . . that's a $50 a week untaxed raise she's given herself at the company's expense. Voiding a transaction makes her cash drawer balance with the register tape at the end of the day, and no one's the wiser . . . as long as she doesn't get greedy, that is.
The Flaw
The lesson to be learned: Cashiers should not have sole authority over "voids." A manager's key must be required to process legitimate voids as well as rebates. Absent that control, we have a fertile field for embezzlement fraud.
The Fix
Segregation/rotation of duties, along with frequent surprise audits of cash on hand, independent reconciliation of register contents and tapes, and voucher accounting are the prime modes of embezzlement prevention. One individual must not have the sole responsibility for receiving cash, counting it and reconciling registers, preparing and making bank deposits, doing the voucher accounting, and posting payments to open receivable accounts.
In our restaurant example, each customer should receive a receipt. One way to assure this is to put a sign on the register saying the meal will be free if the cashier fails to give a receipt. The manager must, of course, adjust for the free meal which could be charged to the cashier, if that is the policy.
Giving a receipt to a customer assures that the transaction goes through the register and is recorded on the tape. If it is later voided in a theft attempt, the cashier's tape report for that shift will not reconcile with the cash drawer. A manager must authorize the voided check and key the register to adjust the tape if the transaction is truly void.
Every numbered document must be accounted for . . . including voids. In the case of the restaurant, each check (voucher) is pre-numbered and all must be accounted for in sequence. Strong internal controls like voucher accounting and separation/rotation of duties are essential methods of larceny and embezzlement prevention.
There is no substitute for close personal observation of the suspected fraudster if stealing is thought to be occurring. Video can be an effective deterrent to cashiers as well as mail room employees, but be sure to consult your lawyer before you institute this sort of program.