Skimming cash frauds

Skimming is the term given to the type of fraud whereby cash from a customer is diverted before it enters the victim company. Embezzlement is the more technical term given to this practice and it is also known as an `off-book fraud’. Detecting and proving a skimming fraud can be fairly difficult as there is no definite paper trail to follow for investigators- the cash never entered the system and therefore is not obviously missed [though of course the theft will show up later as an inventory loss or a profit reduction].

As cash can be so easy to steal and use, any organisation which receives any payments via cash are at risk from this type of fraud. The collection points for cash – check out till, waiting staff, car park ticket issuer etc – are all vulnerable for skimming.

The most obvious form of skimming is where a salesperson receives cash as payment for goods or services but fails to place the cash in the register as a sale. Failure to ring up the full sale amount in the register allows the salesperson to pocket the cash without there being a shortfall in the recorded takings. The register tape / ribbon  is designed to record all transactions so that a reconciliation can be made to confirm that the correct amount of cash as indicated by the sales activity is present in the cash draw.

This operation of diverting cash by the salesperson can be quite difficult as the customer may require change or else may notice the failure to place the cash in the register. The dishonest salesperson may get round this by ringing up a `No Sale’ to open the cash draw and hope no-one notices. A manager or other employee may also witness the errant behaviour and then start to watch more closely. This is why most CCTV cameras in stores are trained more on the cash register and salesperson – rather than the customer – so that the video tape can be reviewed later to spot any thefts of cash.

Some enterprising salespeople have been known to tamper with the cash register so that when certain keys are pressed the transaction is not recorded on the sales tape. Thus, the salesperson can wait for a transaction where no change is needed and pretend to ring up the transaction but pocket the cash later when it’s not busy. This type of manipulation will usually result in a blank space on the register tape where the transaction would have been recorded.

One other option for the fraudster is to simply change or damage the register tape so that some transactions are missing and cannot be relied upon to perform reconciliation. Confusion over which tape relates to which period of business can be enough to muddy the waters and allow the fraudster to get away with stealing the cash.

The above may sound more like petty theft and no great problem to a business. Think again. A salesperson taking $100 a day can quickly drain a business of $6,000 in just a few months. How many retail businesses can afford to overlook those losses? A shop manager is in a position to steal more than a $100 per day and thus a poorly supervised organisation can hemorrhage cash and see profits flat line.

A fraud matter we handled related to skimming involved the manager of a gasoline station. Our subsequent investigations showed that he tinkered with various forms of skimming before he hit on one method which allowed him to steal hundreds of dollars each shift. He had realized that that the failure to ring up sales of gasoline would show up quickly in the lower level of gasoline left [gasoline levels were measured everyday by other shift managers]. Therefore, he chose to skim money from the hire of towing trailers. Customers could hire a trailer for a day for $100 and this was recorded in a separate hiring log.

The manager knew that if he focused on the towing trailers this wouldn’t show up as a loss of inventory. As the manager had the ability to manipulate the final daily figures for the station, he would ring up larger sales as towing trailer hire and then later `refund’ these so that he could take the equivalent in cash. Part of the way we could prove this fraud was that there weren’t any corresponding entries in the towing trailer hire log book and the manipulations occurred late in the shift when only the manager was present and had the power to correct entries. This escapade cost the victim company over $40,000 plus other fees to correct the problem.

What can a business do to protect itself from the simple yet costly fraud of skimming? Supervisors can’t be present at all times and as shown above, managers can turn bad too. To begin with, it is recommended that a business at least take these initial steps:

  • Conduct a fraud audit of the business focusing on cash collection and handling
  • Encourage all customers to request a receipt for every purchase
  • Have CCTV cameras positioned to observe the cash register space
  • Train managers on fraud awareness
  • Have an investigator or loss prevention officer make trap purchases at random times to ascertain whether any skimming is taking place
  • Make sure that all register tapes are handled properly and examined for any rash of `No Sales’, blank spaces, refunds or other issues
  • Have strict rules for cash counting and reconciliation at each shift
  • Consider having a fidelity insurance policy to cover theft of cash by employees

Of course, no system is foolproof over time so you need to keep your eyes open for any subsequent changes. One recent skimming fraud involved the manager of a store opening an hour early without authority and ringing up alls sales on the cash register. Before the official opening time, he would with the register tape and hide the used tape for use the next day. He was found out when an area manager arrived early for a meeting and noted that the store was already open.

This shouldn’t be confused with the incident in New Zealand where a computer error caused a supermarket to open for business during the middle of the night with no employees on duty. Fortunately most shoppers were honest and paid via the self- check out!

Do you need to know more about our services and how Regents can assist you with preventing fraud and theft? Simply go to our Fraud & Integrity page for our phone numbers or else send an email to contactus@regentsriskadvisory.com with your contact details and we will respond at once.