Stop Skimming Fraud at Your Business

There was a news story going around of a bartender at a cash bar that was somehow stealing money, but the bar owner could never catch him. The owner watched him every night. He greeted customers cheerfully, took their money, put it in the till, and made their drink. Night after night, the same story. Although the count at the end of the night always added up, it seemed like the bar wasn’t making as much profit from the sales as it should have.

Finally, the bar owner called in a private investigator to sort things out. After one night, they figured it out and fired the bartender. What happened? The fraudster had kept a matchbook by the till. He would charge full price but only record a portion of the sale. He’d keep track of the amount to take out of the till at the end of the night by bending a match in half for every $10 he needed to subtract. 

This is one example of a racket called skimming fraud: an unethical business practice where employees pocket profits instead of recording them. This type of fraud is prevalent in cash-heavy businesses, like bars and restaurants. However, it pops up everywhere from retail stores to doctor’s offices. (One particular secretary got very creative by offering a discount to patients that paid cash and then pocketed all the cash payments.)

Skimming fraud can often be very difficult to detect. The people committing the crime are intimately aware of their employers’ practices. However, you can protect your business by being vigilant and knowing how skimmers operate. 

Theft by Employee Discounts 

Discounts can be a great way to attract and retain employees, but they can also backfire. If your business offers a significant employee discount, then you may be at risk of skimming fraud. It all comes down to how trustworthy your team is.

How does this scheme work? An employee charges a customer full price. When she puts the money into the till, she rings up the sale as if she bought the item and pockets the difference. All the money and the receipts line up.

The best way to avoid this is to have a manager check out any time someone uses their employee discount. Or, if that’s not possible, make sure you have the means to double-check employee purchases. Also, keep an eye on any situations involving frequent “No Sale” transactions or other reasons someone might open a till without a sale taking place. 

Skimming Fraud Is Big Money 

“Skimming fraud” sounds like it involves small amounts of money. “Just a little off the top,” so to speak. Sometimes, that’s the case. But sometimes, it’s not. Skimming fraud can involve large sums and might lead to bigger crimes in the eyes of the government, particularly when managers and owners get involved.

In one case, owners of a roast beef restaurant pocketed almost $6 million dollars through skimming practices. They did this by being a cash-only restaurant. However, when it was time to report earnings, their books didn’t add up. When they were audited by the IRS, it came out that they had been under-reporting their profits for years, resulting in about $1 million per year of income tax avoidances. In addition to paying back taxes, the duo received a 3-year jail sentence and had to pay a fine of $250,000.

The story is a cautionary tale. Those who commit skimming fraud eventually get caught. And when they get caught, they pay for it. Big time.

How Can You Avoid Skimming Fraud?

The biggest thing you can do to prevent skimming fraud is to make sure no single employee is in charge of both collecting and reporting the money coming into your business. Cross-train employees so you can switch around who’s in charge of different aspects of the process.

Purchase orders can also help make sure everything is above the line. For businesses with small teams and few resources, this might be a big ask. In this case, you might have to get a little more creative in protecting yourself from skimming.

Many companies’ solution to this is to stop using cash entirely and switch everything to credit card transactions. When everything is on a credit card, there is always a paper trail. Even if there is a discrepancy, you can catch it and trace it back to its source. Businesses already operate primarily on credit interactions anyway, so the extra level of security could be worth any inconvenience to your customers.

Random audits can be another useful tool if you suspect fraud. These keep you in the know and help you avoid making false accusations. This, in turn, can keep your legal fees down.

Finally, the simplest way to prevent skimming fraud is to really know your employees personally and professionally. Create a solid line of defense by conducting background checks, watching for sudden behavior changes like extra hours or substance abuse, and establishing an open line of communication for anyone to report wrongdoings. If you treat your employees well, pay them well, and know them well, you’ll find that your risk of skimming fraud decreases dramatically.

Crime Prevention Beyond Fraud

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