Lapping leads

The most common form of receivables fraud is lapping, where perpetrators apply receipts from one account to cover misappropriations from another. For example, rather than credit Customer A’s account for its payment, a thief may pocket the funds and later post a payment from Customer B to A’s account, Customer C’s payment to B’s account, and so on.

Unethical write-offs and discounts are also popular. Instead of crediting a payment to a customer’s account, fraudsters might pocket the funds and then record a bad debt write-off or discount to the customer. Even though incoming payments are diverted, the customer’s account would reflect the expected current balance.

Investigation and prevention 

If receivables fraud is suspected, a forensic expert usually can trace a sample of cash receipts to the sales ledger and deposit slips to find discrepancies in dates, payee names and amounts. An expert also may compare deposit slips against the books and send requests for confirmations to a sample of customers to verify current balances and payment histories. Bad debt write-offs, accounts with unexplained credits, increased customer credit limits and random adjustments to the accounts receivable ledger could also come under scrutiny during a fraud investigation.

But to help prevent receivables fraud from occurring in the first place, businesses should segregate duties. This means that an employee who handles incoming payments from customers should be different from the person who handles invoicing. Also consider assigning a different employee to manage customer complaints because complaints tend to increase if someone is misappropriating receivables. Other helpful controls include mandating vacation time and job rotation for all accounting staffers.

Consider audits 

You may also want to consider conducting regular (and surprise) audits of receivables. Not only might audits help catch schemes in progress, but they enable you to test your controls and ensure employees are following them to the letter. Contact us for help.

But as with most technologies, fraud perpetrators have found ways to exploit QR codes — and steal from consumers and businesses. Here’s what you need to know.

How thieves use them

Last year, the FBI issued an alert about QR code tampering. Fraudsters replace or alter QR codes so that users are directed to malicious websites or inadvertently download malware onto their devices. Such schemes enable fraudsters to access victims’ account usernames and passwords and personal and financial information.

Unfortunately, it’s very easy for criminals to create QR codes using online tools. They replace the codes of legitimate businesses with their own by, for example, placing stickers over existing codes. Such stickers have been found on menus, parking meters, signs in front of businesses and packaging of all kinds. Fraudsters might also include them in phishing emails or printed advertisements, coupons or surveys sent through the U.S. Post Office.

Foiling schemes

Preventing QR fraud is similar in many ways to foiling phishing schemes. When you’re directed to a website, scrutinize it for authenticity. Fraudulent sites often look amateurish and feature misspellings and typos. The site’s name may be similar — but not quite the same — as the site you intended to visit. If you’re suspicious, don’t type in a username, password or payment information. Leave the site immediately.

Other ways to avoid QR code traps are to:

• Inspect physical objects for stickers or other signs the original QR codes have been replaced.
• Be careful about scanning any QR code included in an email. Try to verify the authenticity of the email first.
• Use only your phone’s camera to scan codes. You shouldn’t download a QR code app.
• Don’t make payments via QR codes. Go directly to the website by typing in the URL and only use payment processing systems that encrypt your information with SSL or TLS protocols.

Businesses can help protect themselves by routinely checking online and physical sites where they’ve placed QR codes for signs of tampering. Include a message with your QR code telling customers that they should notify you if scanning your code takes them to a suspicious site.

Be on guard

Not even QR codes are safe from fraud perpetrators. As with all types of fraud, your best defense is a good offense. Look closely at QR codes before you scan them and scrutinize the sites they lead to.

According to The Washington Post, youth sports has become a $19 billion proposition. Unfortunately, many of the not-for-profit clubs are loosely managed by people without extensive financial experience or knowledge about preventing fraud. If your league doesn’t already have antifraud policies in place, here’s what you need to do.

It takes a team

By far the most important step youth leagues can take to prevent fraud is to segregate duties. This means that no single individual receives, records and deposits funds coming in, pays bills and reconciles bank statements. So one person might handle deposits and payments, another would receive and reconcile bank statements and a third would monitor the budget.

Also, every payment (or at least payments over a certain threshold) should be signed by two individuals. If your league has credit or debit cards, someone who isn’t an authorized card user should be assigned to review the statements. If your staff is limited, tap trusted board members and professional advisors for help.

Where the funds are

If your league still uses paper registrations and accepts payment by cash or check, look into electronic payment options. Cash can be pocketed in the blink of an eye, and checks can be diverted to thieves’ own accounts. But with online registration, payments are deposited directly into the league’s account.

Also, monitor your league’s treasurer. People in this position are the most likely youth sports league officials to commit fraud because they have the easiest access to funds and the ability to cover their tracks. No one person should stay in the treasurer position for more than a couple of years. If funds are available, your league might consider hiring a part-time bookkeeper who will report directly to the board.

The treasurer should submit a report to your club’s board for every board meeting, with bank statements attached. And your board should receive and review financial reports at least quarterly — including when the league isn’t in season.

What fraud perpetrators hope

Even if everyone involved in your youth sports league seems to be passionate about the cause and welfare of its participants, someone may be financially desperate enough to succumb to temptation and steal. So make it as difficult as possible with strong controls, such as segregating duties. Contact us. We can help.

Individuals and businesses are vulnerable

If criminals use your information to file an income tax return to claim your refund, the first notification of fraud you receive may be a denial of your return. Tax returns are identified via Social Security numbers (SSNs) and the IRS won’t accept two returns with the same taxpayer identity. Thieves make a point of filing as early as possible to get a jump on the legitimate taxpayer.

Tax-related identity theft isn’t limited to personal returns. Business identity theft can occur when a fraud perpetrator uses an Employer Identification Number (EIN) associated with your business to file a return. In either case, if the IRS receives a fraudulent request for a refund, it could issue it to the criminal via direct deposit or check.

4 red flags

Often, the IRS is responsible for uncovering tax-related identity fraud when confronted with the problem of two separate returns. But you also should be on the lookout for red flags, for example:

1. Your return is rejected. The most unambiguous indication of tax-related identity theft is when the IRS rejects your return based on a duplicate SSN or EIN. You may learn this immediately if you e-file your return.
2. The IRS notifies you. When the IRS discovers a suspicious tax return, it will contact the affected taxpayer through the mail. If you receive a letter indicating a problem, the IRS may ask you to complete a form to prove your identity. The IRS might also notify you that there’s a new online account in your name or that someone has taken over your existing account.
3. You’re asked to pay additional taxes. To trigger a refund payment, criminals often submit fictitious information to the IRS. If the agency conducts a review and learns that the return associated with your SSN or EIN contains incorrect amounts (usually after a return is processed), it may ask you for more money. The IRS could notify you that you owe additional tax, that it’s withholding a future refund or that it plans to take collection actions.
4. IRS records are incorrect. Criminals often invent sources of income to appear legitimate to the IRS and facilitate a refund. If, for example, the IRS issues an EIN you didn’t request, a criminal may be using your business’s identity to submit fraudulent returns.

How to report fraud

If it appears your tax-related identity has been stolen, your need to complete IRS Form 14039, Identity Theft Affidavit as soon as possible. The IRS then will assign your case to one of its employees who’s trained to help identity-theft victims. The employee will determine the scope of the fraud, make any necessary corrections to IRS records and assign to you a personal identification number to prevent criminals from using your SSN or EIN to file returns in the future.

You may also need to notify your state’s tax authority. Although less prevalent (because refunds generally are smaller), it’s possible someone could use your SSN or EIN to file a fake state tax return.

Prevent it from happening in the first place

Of course, the best defense against tax-related identity theft is offense. File early before a potential scammer can file a fraudulent return in your name. Ensure that your computer is well-protected from viruses, malware and other hacker weapons and watch out for phishing emails. Also take advantage of the ID.me program. After you verify your identity, you can use your ID.me account to securely communicate with the IRS and various other government agencies.

If you suspect you’ve become a victim of fraud or have questions about protecting your own or your business’s identity, contact us.

© 2022

Take a closer look 

Dishonest employees may use anything from fictitious vendors to false invoices to cover up theft. To ferret out potential fraud, always investigate duplicate payments, out-of-sequence entries, unusual inventory adjustments and accounts that don’t properly balance. Transactions for amounts that appear too large or too small, or transactions that occur too often or too rarely also merit a closer look.

An increase in the number of complaints your company receives is another warning sign. An investigation may lead to a relatively innocent explanation, such as a glitch in your shipping system ’ or it may lead to a fraudulent billing scheme. Pay equally close attention to declines in product quality. They could just stem from a faulty batch of paint or they may indicate that a thief is working in purchasing.

Question lifestyle changes

Changes in an employee’s lifestyle may be evidence of fraud. Although such changes usually are difficult to spot initially, a pattern is likely to emerge over time.

For example, one piece of expensive jewelry could be a gift, or a good investment return might pay for an exotic vacation. But if your warehouse manager brags about his new state-of-the-art home theater and is putting in a backyard pool, you may want to question how that’s possible on the salary you’re paying.

Pay attention to behavioral shifts

When employees steal, especially if they’re first-time offenders, they may no longer be on their best behavior. In fact, you may not even recognize them. People who have always been cooperative may become argumentative. Or, alternatively, someone who typically is difficult to work with may suddenly become everyone’s friend.

If an employee starts drinking to excess or takes up smoking, ask what’s wrong. If they can’t sleep, or if they worry obsessively about the possible consequences of actions and resent other employees’ participation in “their” projects, be concerned. They may be wrestling with substance abuse or getting divorced — or stealing you blind.

Don’t jump to conclusions It’s important to remember that there are many innocent explanations for what seem like fraud signs. Staffers may be sloppy, inexperienced or poorly managed. Behavioral changes could lead back to family or health problems. So it’s important to encourage employees to discuss work and personal challenges with their managers or HR personnel. But if you have good reason to suspect fraud — or wish to schedule fraud-prevention training — contact us.