What is a break-in scheme?
A running-in system is a fraudulent practice of modifying accounts receivable to hide stolen money. The method involves taking a subsequent receivable payment from a transaction (for example, a sale) and using it to cover the theft. The receivable from the second transaction is covered by the money from the third transaction, etc.
How to detect break-in patterns
A running-in pattern can be detected by tracing the way cash receipts have been applied to customer accounts. If there is evidence that cash receipts are routinely applied to bad customer accounts, then there is probably an active running-in system.
Another indicator of a break-in regime is an employee who refuses to take the vacation time he has earned. In fact, running in requires that the running in (the individual involved in the fraud) be involved every day and therefore cannot take a vacation. A revealing sign of running in is an increase in the aging of accounts receivable. A running-in scheme can only temporarily hide the flight. Sooner or later, the deficit will show up and be recorded as a loss.
Break-in plans generally occur in small businesses where one person can handle customer receipts and billing.
How to prevent break-in patterns
Companies can prevent break-in patterns by doing the following:
- Separate cashier and billing responsibilities (called segregation of duties)
- Elect someone other than the cashier to deliver statements to customers (customers are aware of what they have paid, so they should be able to detect any incorrect payments linked to their accounts, or detect that some payments have not never been applied.)
- Contact customers and ask them whether or not they have received monthly statements from the company (the person committing the fraud can intercept the statements before they are mailed.)
- Regularly audit cash receipts transactions
- Require all employees to take vacation, without exception
- Keep a close record of the use of credit scores (The person committing fraud can try to end a running-in situation by canceling a claim for the amount of missing funds.)
- Mark all checks with the phrase “For deposit only”, so that employees cannot deposit these checks in their own account
- Ask customers to pay directly into a safe, so that cash cannot be intercepted and stolen by employees
Example of a running-in scheme
Suppose a business receives $ 150 for payment, but an accounting clerk diverts this to a personal account. To hide the theft, the clerk will apply the second claim receivable, for example in the amount of $ 200, to the first claim. There remains $ 50 to apply to the second claim and $ 150 to pay. The clerk continues to allocate (run in) the money from successive sales to previous claims so that the store’s accounting records do not reveal the difference.