In the business environment, account lapping or overlapping is quite common. This term refers to a fraudulent practice where an employee takes money from customer payments, appropriates it, or uses it to cover up shortages they caused themselves.

“Occasionally, false invoices or alterations in the company’s accounting and financial records will also be found,” explains our associate and head of the Conflict Resolution Department, Rubén Rivas.

Our specialist affirms that this fraud usually happens when an employee discovers weaknesses in the company’s financial control. This is exemplified when a bank remittance is made, as the document does not show how much money is received in cash versus by check.

Lapping schemes typically occur in small or medium businesses where only one person manages cash receipts and customer billing: “Another risk factor is when salespeople are responsible for company collections,” reflects Rivas.

This crime can be detected by tracing how cash receipts have been applied to customer accounts. If there is evidence that cash receipts are routinely applied to incorrect customer accounts, it’s likely an account lapping scheme is taking place.

To mitigate this risk, our expert also recommends hiring an external auditor for the company, who will identify unusual behaviors in accounts receivable.

“This way, they can identify when, for example, a customer with an excellent credit record is presenting overdue balances or a customer paying new invoices is not settling previous ones,” states our expert.

Other ways to mitigate this risk include random cash counts, a review of the accounts receivable ledger, separating cashier and billing responsibilities, appointing someone to deliver customer statements, contacting customers to confirm if they’ve received their statements, mandating all employees to take their vacations, or monitoring the use of credit notes.

“What do we do when we identify that the fraud has been committed? Primarily, a forensic audit is conducted. This will help identify the vulnerability of financial controls and determine the extent of the company’s loss,” concludes our lawyer.

With this, the company’s top management can decide whether to negotiate payment or a portion with the responsible employee or initiate legal actions in criminal courts.