CASH RECEIPT SCHEMES PAST PAPERS WITH ANSWERS

QUESTION 1 : Which of the following is an example of an off-book fraud?

Cash larceny
Skimming
Ghost employee schemes
Billing schemes

Skimming is the removal of cash from a victim entity prior to its entry in an accounting system. Employees who skim from their companies steal sales or receivables before they are recorded in the company books. Because of this aspect of their nature, skimming schemes are known as off-book frauds ; they leave no direct audit trail.

QUESTION 2 : Katie is a sales clerk at a jewelry store. She watched another sales clerk, Helen, type her access code into her register and memorized it. When Helen called in sick, Katie logged in to the cash register using Helen’s code and processed customer transactions as usual. After completing one sale, she left the drawer open and slipped a large sum of money into her pocket from the register drawer. What type of scheme did she commit?

An understated sales scheme
A skimming scheme
A register disbursement scheme
A cash larceny scheme

In some retail organizations, there is one cash register and each employee has a different access code. By using someone else’s access code to enter the register and then steal cash under their name, the perpetrator makes sure that another employee will be the prime suspect in the theft. Katie’s theft was not a skimming scheme because the cash she stole was already in the company’s possession and recorded in the register. An understated sales scheme is a type of skimming scheme in which a fraudster records a sale for less than it actually is and skims the difference. Katie did not commit a register disbursement scheme because register disbursement schemes involve a fraudulent transaction that justifies the removal of cash from the register, such as a false return or a voided sale. Katie did not make any entry that would account for the missing money—she simply took money out of the register under Helen’s name so that she could avoid blame. Therefore, Katie committed a cash larceny scheme.

QUESTION 3 : All of the following are measures that would be helpful in preventing cash larceny schemes EXCEPT:

Having all employees use the same cash register for their transactions
Assigning an employee’s duties to another individual when that employee goes on vacation
Sending out a company-wide communication informing employees of the company’s surprise cash count policy
Ensuring that the duties of making bank deposits and performing bank reconciliations are assigned to different individuals

Surprise cash counts and supervisory observations are a useful fraud prevention method if properly used. It is important that employees know that cash will be counted on a periodic and unscheduled basis. Having all employees use the same cash register will not deter cash larceny. However, each employee should have a unique code to the cash registers to facilitate detection of such schemes. Mandatory vacations are an excellent method of detecting cash fraud. If mandatory vacations are within the company’s policies, it is important that during the employee’s absence, that employee’s normal workload be performed by another individual. The purpose of mandatory vacations is lost if the work is allowed to remain undone The primary means of preventing cash fraud is separation of duties. Whenever one individual has control over the entire accounting transaction (e.g., authorization, recording, and custody), the opportunity is present for cash fraud. Each of the following duties/responsibilities should be separated: Cash receipts Bank deposits Bank reconciliation Cash disbursements Therefore, no one person, including the accounts receivable clerk, should be responsible for both depositing cash at the bank and performing bank reconciliations.

QUESTION 4 : Skimming schemes can involve the theft of cash sales or the theft of accounts receivable payments.

True
False

Skimming is the removal of cash from a victim entity prior to its entry in an accounting system. Employees who skim from their companies steal sales OR accounts receivable payments before they are recorded in the company books.

QUESTION 5 : The accounts receivable clerk should be responsible for preparing the bank deposit.

True
False

The bank deposit should be made by someone other than the cashier or the accounts receivable clerk. A person independent of the cash receipts and accounts receivable functions should compare entries to the cash receipts Authenticated bank deposit slips

QUESTION 6 : Brittany, a cash register teller, signed onto her register, rang a “no sale” transaction to open the drawer, and then removed a large sum of money. Which of the following schemes has taken place?

A cash larceny scheme
A register disbursement scheme
A skimming scheme
None of the above

The most straightforward cash larceny scheme is one in which the perpetrator just opens the register and removes currency. This might be done as a sale is being conducted to make the theft appear to be part of the transaction, or perhaps when no one is around to notice the perpetrator digging into the cash drawer. For instance, a teller could simply sign onto a register, ring a “no sale,” and take currency from the drawer. This scheme is not a register disbursement scheme because register disbursement schemes involve a fraudulent transaction that justifies the removal of cash from the register, such as a false return or a voided sale. Brittany did not make any entry that would account for the missing money. In addition, the scheme is not a skimming scheme because the money in the register was already a part of the company’s accounting system.

QUESTION 7 : Reconciling the cash register total to the amount of cash in the drawer is an ineffective method of detecting a cash larceny scheme.

True
False

In contrast to skimming schemes, the register records should NOT match up with the cash in the drawer when a cash larceny scheme has occurred. For this reason, cash larceny schemes are much easier to detect than skimming schemes—they leave an audit trail. To detect a cash larceny scheme, one recommended practice is to perform independent reconciliations of the register totals to the amount of cash in the drawer.

QUESTION 8 : To help detect cash larceny, the person responsible for collecting incoming cash should also prepare the bank deposits.

True
False The primary means of preventing cash fraud is separation of duties. Whenever one individual has control over the entire accounting transaction (e.g., authorization, recording, and custody), the opportunity is present for cash fraud. Each of the following duties/responsibilities should be separated: Cash receipts Bank deposits Bank reconciliation Cash disbursements If one person has the authority to collect the cash, deposit the receipts, record that collection, and disburse company funds, the risk is high that fraud can occur.

QUESTION 9 : Grey, a controller for a small company, took a large sum of money from the company deposits and concealed the theft by making false accounting entries. The money Grey stole had already been recorded in his company’s accounting system. Grey’s scheme can best be classified as a(n):

Illegal gratuities scheme
Skimming scheme
Cash larceny scheme
Fraudulent financial statement scheme

Skimming is defined as the theft of off-book funds. Cash larceny schemes, however, involve the theft of money that has already appeared on a victim company’s books. Neither of the other choices is correct because neither of those schemes is a type of asset misappropriation scheme.

QUESTION 10 : Which of the following is NOT an effective control to protect against skimming schemes?

Installing visible video cameras to monitor a store’s cash registers
Reconciling the sales records to the cash receipts
Reconciling the physical inventory count with the perpetual inventory records
Restricting the accounts receivable clerk from preparing the bank deposit

Since skimming is an off-book fraud, routine account reconciliation is not likely to prevent or detect a skimming scheme. If such a scheme is taking place, reconciling the sales records to the amount of cash received will not indicate there is anything amiss; because the skimmed sale was never recorded, the books will remain in balance. Reconciling the physical inventory count with the perpetual inventory records, however, might reveal that there is As with most fraud schemes, internal control procedures are a key to the prevention of skimming schemes. For instance, employees who have access to the cash register should not also be responsible for delivering the bank deposit. The accounts receivable clerk should be restricted from preparing the bank deposit, accessing the accounts receivable journal, and having access to collections from customers. An essential part of developing control procedures is management’s communication to employees. Controlling whether an employee will not record a sale, understate a sale, or steal incoming payments is extremely difficult.

QUESTION 11 : The removal of cash from a victim organization before the cash is entered in the organization’s accounting system is:

Cash larceny
Lapping
Skimming
A fraudulent disbursement Skimming is the removal of cash from a victim entity prior to its entry in an accounting system. Employees who skim from their companies steal sales or receivables before they are recorded in the company books. Because of this aspect of their nature, skimming schemes are known as off-book frauds ; they leave no direct audit trail.

QUESTION 12 : Performing a physical inventory count is an effective way to detect a skimming scheme.

True
False

Performing an inventory count can be an effective way to detect a skimming scheme. In these schemes, the fraudster either fails to report sales or understates them. The inventory balance on the books will be higher than the physical inventory on hand, since the fraudster is handing over inventory to paying customers and pocketing their cash without recording the sale. In other words, inventory leaves the company’s possession, but the inventory balance on the books does not reflect this. This is referred to as shrinkage .

QUESTION 13 : The accounts receivable clerk should be responsible for both collecting cash and disbursing company funds.

True
False

The primary means of preventing cash fraud is separation of duties. Whenever one individual has control over the entire accounting transaction (e.g., authorization, recording, and custody), the opportunity is present for cash fraud. Each of the following duties/responsibilities should be separated: Cash receipts Bank deposits Bank reconciliation Cash disbursements If one person has the authority to collect the cash, deposit the receipts, record that collection, and disburse company funds, the risk is high that fraud can occur.

QUESTION 14 : The method of concealing a receivables skimming scheme whereby one customer account is credited for a payment that was made on another account is called which of the following?

Currency substitution
Altered payee designation
Inventory padding
Lapping

Lapping customer payments is one of the most common methods of concealing skimming. It is a technique that is particularly useful to employees who skim receivables. Lapping is the crediting of one account through the abstraction of money from another account. For example, suppose a company has three customers: A, B, and C. When A’s payment is received, the fraudster takes it for himself instead of posting it to A’s account. Customer A expects that his account will be credited with the payment he has made, but this payment has actually been stolen. When A’s next statement arrives, he will see that his payment was not applied to his account and will complain. To avoid this, some action must be taken to make it appear that the payment was posted. When B’s payment arrives, the fraudster takes this money and posts it to A’s account.

QUESTION 15 : David is an accounts receivable clerk at Richmond Storage Rental. Carson, who rents one of the company’s storage units, submits his monthly payment to Richmond’s office. Instead of applying the payment to Carson’s account, David takes the money and keeps it for himself. The next payment that arrives comes from Fisher. Instead of applying Fisher’s payment to the correct account, David applies it to Carson’s account so that it doesn’t appear delinquent. The next payment that arrives gets applied to Fisher’s account, and David continues to apply incoming customer payments to the previous customer’s account so that no one discovers his theft of Carson’s payment. What type of

Padding
Substitution
Kiting
Lapping

QUESTION 16 : Which of the following would be helpful in detecting a skimming scheme?

Examining journal entries for false credits to inventory
Examining journal entries for accounts receivable write-offs
Confirming customers’ outstanding account balances
All of the above Skimming can sometimes be detected by reviewing and analyzing all journal entries made to the cash and inventory accounts. Journal entries involving the following topics should be examined: Credits to inventory to conceal unrecorded or understated sales Write-offs of lost, stolen, or obsolete inventory Write-offs of accounts receivable accounts Irregular entries to cash accounts A skimming scheme that involves lapping can be detected by independent confirmation of customers’ account balances. In a receivables skimming scheme, the fraudster skims a customer’s payment instead of posting it to his account. The next payment that arrives gets posted to the skimming victim’s account, and so on.

QUESTION 17 : A skimming scheme is easier to detect than a cash larceny scheme because it leaves an audit trail.

True
False

Cash receipts schemes are what we typically think of as the outright stealing of cash. Perpetrators do not rely on the submission of phony documents or the forging of signatures; they simply grab the cash and take it. The theft schemes fall into two categories: skimming and larceny schemes. Skimming is defined as the theft of off-book funds. Cash larceny schemes, however, involve the theft of money that has already appeared on a victim company’s books. Cash larceny schemes are easier to detect than skimming schemes because they leave an audit trail.

QUESTION 18 : Green, a door-to-door appliance salesman, sold several appliances to households in a neighborhood. Green took the money the customers gave him as down payments for the sales and spent it. He did not turn the orders in to his employer. Green’s scheme can best be classified as:

A cash larceny scheme
A commission scheme
An understated sales (skimming) scheme
An unrecorded sales (skimming) scheme

Green’s scheme is an unrecorded sales (skimming) scheme. An unrecorded sales scheme occurs when an employee sells goods or services to a customer and collects the customer’s payment but makes no record of the Independent salespersons are in a good position to perform sales skimming schemes. A prime example is a person who sells goods door-to-door and does not turn in the orders to his employer. In this case, Green did not remit any of his sales to the appliance company, so the skimming scheme that took place was an unrecorded sales scheme

QUESTION 19 : If an employee is aware that surprise cash counts are conducted, he will generally be less inclined to commit a cash larceny scheme.

True
False

QUESTION 20 : A ____________ scheme involves the theft of cash BEFORE it appears on a company’s books, and a __________ scheme involves the theft of cash AFTER it appears on the books.

Fraudulent disbursement; skimming
Cash larceny; skimming
Skimming; cash larceny
Cash larceny; revenue

Cash receipts schemes are what we typically think of as the outright stealing of cash. Perpetrators do not rely on the submission of phony documents or the forging of signatures; they simply grab the cash and take it. The theft schemes fall into two categories: skimming and larceny schemes. Skimming is defined as the theft of off-book funds. Skimming occurs before money appears on a company’s books. Cash larceny schemes, however, involve the theft of money that has already appeared on a victim company’s books.

QUESTION 21 : Which of the following statements is TRUE with regard to detecting a cash larceny scheme?

Reconciling the cash register total to the amount of cash in the drawer is helpful in detecting a cash larceny scheme
If an employee who handles cash goes on vacation, another employee should take over his duties
Someone other than the accounts receivable clerk should prepare the bank deposit
All of the above

Mandatory vacations are an excellent method of detecting cash fraud. If mandatory vacations are within the company’s policies, it is important that during the employee’s absence, that employee’s normal workload be performed by another individual. The purpose of mandatory vacations is lost if the work is allowed to remain undone In contrast to skimming schemes, the register records should NOT match up with the cash in the drawer when a cash larceny scheme has occurred. For this reason, cash larceny schemes are much easier to detect than skimming schemes—they leave an audit trail. To detect a cash larceny scheme, one recommended practice is to perform independent reconciliations of the register totals to the amount of cash in the drawer. The bank deposit should be made by someone other than the cashier or the accounts receivable clerk. A person independent of the cash receipts and accounts receivable functions should compare entries to the cash receipts

QUESTION 22 : Anna works as a cashier in an antiques store. Since the merchandise lacks barcodes, she has to enter the prices manually. One customer purchased a piece of furniture that cost $250 and paid in cash. Anna recorded the sale at $200 and kept the $50 bill. What type of fraud did Anna commit?

A cash larceny scheme
Lapping of receivables
An unrecorded sales (skimming) scheme
An understated sales (skimming) scheme

Understated sales schemes are commonly undertaken by employees who work at the cash register. In a typical scheme, an employee enters a sales total that is lower than the amount actually paid by the customer. The employee skims the difference between the actual purchase price of the item and the sales figure recorded on the register. In this case, the item was sold for $250, but Anna rang up the sale of a $200 item and skimmed the excess $50. Rather than reduce the price of an item, an employee might record the sale of fewer items. If 100 units are sold, for instance, an employee might only record the sale of 50 units and skim the excess receipts.

QUESTION 23 : Bruce, a manager for a retail store, suspects his cashiers of skimming sales. Bruce will be able to detect this kind of scheme by comparing their register totals to the amount of money in their cash drawers.

True
False

When an employee skims money by making off-book sales of merchandise, it is impossible to detect theft by comparing the register to the cash drawer because the sale was not recorded on the register.

QUESTION 24: Cash theft schemes fall into which of the following two categories?

Register manipulation and understated sales
Skimming and cash larceny
Unrecorded sales and false discounts
Skimming and unrecorded sales

Cash theft schemes fall into two categories: skimming and cash larceny. The difference between the two types of schemes depends completely on when the cash is stolen. Cash larceny is the theft of money that has already appeared on a victim organization’s books, while skimming is the theft of cash that has not yet been recorded in the accounting system.

QUESTION 25 : Which of the following statements is TRUE?

Skimming schemes are generally more difficult to detect than cash larceny schemes.
Cash distraction is the most difficult type of cash receipts scheme to detect.
Cash larceny schemes are generally more difficult to detect than skimming schemes.
Both cash larceny and skimming are equally difficult to detect.

Because the cash stolen by an employee in a larceny scheme has already been recorded, its absence ought to be more easily detectable than the off-book funds taken in a skimming scheme. Consequently, we would expect larceny schemes to be less common and less successful than skimming schemes.

QUESTION 26 : Off-book sales of goods always cause shrinkage.

True
False

Off-book sales of goods, otherwise known as skimming , will always leave an inventory shortage and a corresponding rise in the cost of goods sold. When a sale of goods is made, the physical inventory is reduced by the amount of merchandise sold. If a retailer sells a pair of shoes, for instance, it has one less pair of shoes in the stock room. However, if this sale is unrecorded, the shoes remain on the inventory records. Thus, there is one less pair of shoes on hand than the records indicate.

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Written by MJ