Register Disbursement Schemes

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Register Disbursement Schemes

• by
• Heidi Overby

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ACFE Report to the Nation

• The Association of Certified Fraud Examiners
  reported that in 2002, 80 of frauds involved
  asset misappropriations
• Skimming Revenues
• Stealing Inventory
• Fraudulent Disbursements

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Fraudulent Disbursements

• Five types
• 1) Billing Schemes
• 2) Payroll Schemes
• 3) Check Tampering Schemes
• 4) Expense Reimbursement Schemes
• 5) Register Disbursement Schemes

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Register Disbursement Schemes

• Two Main Types
• False Refunds
• Fictitious Refunds
• Overstated Refunds
• Credit Card Refunds
• False Voids

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False Refunds

• Fictitious Refunds
• Fraudster processes the transaction of a customer
  returning merchandise
• No actual return occurs
• Two results
• Cash is taken from register
• Inventory is increased

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False Refunds

• Overstated Refunds
• Start out as legitimate refunds
• Fraudster overstates amount of actual refund in
  computer
• Gives correct amount back to customer and skims
  the excess cash
• Fairly easy for thief to commit because refund is
  legitimate

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False Refunds

• Credit Card Refunds
• Refund may be real or fictitious
• If employee works alone, the refund is credited
  to his or her credit card
• If employee has cohorts, their cards are credited
  and the employee receives a kickback
• Favorable to employee because no cash is handled

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False Voids

• Very similar to refunds
• A sale is voided
• Cash is disbursed
• Inventory is increased
• Employee swipes the cash
• More likely to require management approval than a
  regular refund

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Elements of a RD Scheme

• The Act
• Fairly easy
• It takes only about 30 seconds, and you can have
  a thousand bucks
• Russ Rooker, fraud investigation specialist
• Conversion
• Not necessary
• Cash is taken directly
• Credit card is credited
• Concealment
• Tricky part

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Concealment

• Inventory Discrepancies
• Most distinctive problem fraudsters face
• Employee forces inventory totals to match
• Easiest if employee is assigned to the physical
  count of inventory
• May not need to conceal if regular counts of
  inventory are not conducted

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Concealment

• Minimize dollar amount of disbursements to avoid
  managerial review
• Keep sales receipts- makes void or refund appear
  legitimate with sales slip attached
• Forgery of managers signature on void slips
• Destroying records
• Perception of detection is high

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Fraud Examiners Rate the Scams
Schemes Extortion Illegal Gratuities Nonfinancial
statements Other Conflicts of Interest Bribery In
ventory and other assets Other fraudulent
disbursements Billing Payroll Skimming Financial
Statements Expense Register Disbursements Check
tampering Cash Larceny
Difficulty 2.50 2.86 3.22 3.53 3.54 3.65 3.73 3.9
5 4.01 4.20 4.24 4.28 4.34 4.35 4.40 5.04
1 Difficult to Detect 7 Easy to detect
Source Report to the Nation on Occupational
Fraud and Abuse, Association of Certified
Fraud Examiners, 1996.
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Comparison of Total Losses
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Comparison of Median Losses
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Red Flags

• Inventory Discrepancies
• Large amount of refunds, voids, and no-sales
• Improper documentation of transactions
• Missing or altered register tapes
• Lackadaisical review of refunds and voids
• Cashiers have access to control keys necessary
  for voids and refunds
• Incompatible duties

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Detection

• Analyze number of refunds per employee
• Place random service calls to verify transactions
  in computer
• Encourage customers to look over receipts
• Customers are large part of detection process
• Follow up on complaints

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Prevention

• Count inventory regularly and reconcile to books
• Video surveillance
• Two-Minute Drill
• Enforce internal controls
• Look into customer complaints
• Put strict fraud policy in place signed by
  companys highest ranking official
• Should include
• definition of fraud
• managements position concerning fraud
• statement that makes employees responsible for
  reporting existing frauds

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Case Study

• Background info
• Hotel setting
• Separate access codes
• At shift end, cash drawer is reconciled to
  computer
• Deposit and reconciliation placed through slot in
  locked safe
• Night auditor reconciles entire deposit to
  computer, which cannot be altered
• Deposit taken to bank in morning by manager
• Deposit slip carbon copies are attached to audit
  pack as proof that totals match

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Case Study

• The environment appears to be virtually
  fraud-proof..

Is this atmosphere safe enough to prevent a
register disbursement scheme?
No!
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Case Study

• Cindy worked as night auditor at the Econo Dump
  
• Joe, the full time evening person, handled most
  check-ins
• Low-budget hotel, so most guests pay with cash

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Case Study

• Cindy noticed that the cash drawer was always off
  when working after Joe
• A discrepancy caused her to conduct a
  mini-investigation
• She uncovered a scheme so simple it was ingenious
  (unlike its perpetrator)

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Case Study

• Joe had come up with a register disbursement
  scheme
• A false discount scheme
• He charged the regular rate for the room, but
  honored a discount AFTER the guest left and
  pocketed the refund
• The Econo Dump had over 100 rooms, so he could
  easily walk out with 100 in one day!

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Case Study

• Luckily for Cindy, common sense was not one of
  Joes strong points
• The discrepancy she noticed was that he gave a
  false discount to someone who had written a
  check.
• The check amount did not match the amount in the
  computer (which Joe had altered)
• The slip-up with the check was Joes undoing

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What Red Flags were present?
1) The large number of discounts
2) Joes cash deposit was frequently off

• There werent too many red flags present!
• -Difficult fraud to detect
• -Joe had authorization to offer discounts
• -There was no effect on inventory

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How can frauds like this be prevented?

• Video surveillance
• Encourage guests to check receipts for errors
• Manager drop-ins
• Surprise cash counts
• Have people pose as guests
• Employees must be aware of these honesty
  checks in order for them to have a deterrent
  effect

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Epilogue to Case Study

• Cindy estimates that Joe got away with several
  thousand dollars
• She turned Joe in to the manager who did nothing
• She went all the way to the owner of the chain,
  who was no more concerned than the manager
• Joe was finally fired but the hotel did not press
  charges
• He stalked Cindy for months
• He currently works in Minneapolis

-In a hotel!
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Summary

• Register Disbursement schemes are small in
  nature, but can be carried on for a long time
  without proper controls in place
• Dont sleep on the job! Paying attention to
  detail is crucial, and the necessity of checks
  and reviews should never be underestimated

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Questions Comments
Wild Applause