Cash fraud: Types and Prevention

What is Cash fraud?

Cash fraud is any act that involves the theft or misappropriation of cash or cash-related assets from a business. Cash fraud can have a significant impact on a business's financial health, leading to lost revenue, damage to the brand's reputation, and even the potential for legal action.

Types of Cash Fraud

There are various types of cash fraud, and it's essential to know them so you can take the necessary steps to prevent them.

Skimming: Skimming is a type of fraud where an employee or outsider takes cash before it is recorded in the business's books. Skimming is challenging to detect since it happens before the cash is recorded, and often, the amounts taken are relatively small, making it difficult to notice any discrepancies.

Cash Larceny: Cash larceny occurs when someone steals cash from a business after it has been recorded in the books. This type of fraud is more detectable than skimming, but it's still challenging to prevent since it often involves an employee with access to the cash.

Fraudulent Disbursements: Fraudulent disbursements occur when an employee or outsider makes false claims for payment from a business. This type of fraud can include false invoices, false expense claims, and payments made to fake vendors.

Billing Schemes: Billing schemes occur when an employee or outsider submits false invoices to a business for payment. This type of fraud can involve creating fake vendors, submitting inflated invoices, or submitting invoices for services not rendered.

How to Prevent Cash Fraud

Preventing cash fraud involves implementing internal controls and policies that detect and prevent fraud. Here are some ways to prevent cash fraud:

Implement Segregation of Duties: Segregation of duties involves dividing responsibilities among multiple employees to prevent any one person from having too much control over cash-related activities. This approach ensures that different employees are responsible for different aspects of cash management, such as collecting, recording, and depositing cash.

Implement Regular Audits: Regular audits help detect fraud by verifying that cash is being handled appropriately and that all transactions are recorded correctly. Audits can also identify any weaknesses in the internal controls and policies, allowing businesses to make improvements.

Conduct Background Checks: Conducting background checks on all employees before hiring them can help prevent fraud. Background checks can identify any past criminal activity or fraudulent behavior, giving businesses the opportunity to avoid hiring someone who may be prone to cash fraud.

Implement a Whistleblower Hotline: Implementing a whistleblower hotline allows employees to report any suspicious activity without fear of retaliation. Whistleblower hotlines can help detect and prevent fraud by providing a safe avenue for reporting suspicious activity.

Conclusion

Cash fraud is a serious issue that businesses face today. By understanding the different types of cash fraud and implementing appropriate internal controls and policies, businesses can prevent cash fraud and protect their financial health. Remember to implement segregation of duties, conduct regular audits, conduct background checks, and implement a whistleblower hotline.