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Assignment 1-6

Skimming Scheme Case

Assignment 1-6
ACCT341-E1WW
Professor Filler
January 14, 2012

Create a list of at least 10 suggested improvements for Mogels Inc. that would help
prevent a similar skimming scheme from occurring. For each improvement, indicate why this
will help prevent a skimming scheme similar to this from happening again at Mogels.

(1) Stefan Winkler used a method of force balancing to try to cover up his scheme. When
payments were received he posted payment to customers accounts but never deposited the
money into Mogels account. This could have been avoided if Mogels had another employee
reconcile its bank statements regularly and toughly. According to Wells, when an individual
skims receivables but continues to post payments to customer accounts, postings to accounts
receivable will exceed what is reflected in the daily deposit. (page 65).

(2) Winkler also used the method of lapping to conceal his skimming as well. He would steal
customer As payment then post customer Bs payment to As account and so forth . Mogels
should have an employee spot check deposits to accounts receivable to make sure that payments
are being applied to the correct accounts. Wells implies, If a check were received by Customer A
but the payment posted to Customer Bs account, this would indicate a lapping scheme. (65).

(3) Mogels could have noticed something was suspicious by how Winkler was such a model
employee. In order to cover up his schemes, Winkler had to come to work everyday to make
sure no one else was looking at his books. Its sad to think that your model employee would be
stealing from you. Wells point with this is a lapping scheme can only succeed through the
constant vigilance of the perpetrator. (66). Mogels should make their employees take a vacation
once a year or regularly rotate job duties among employees. According to Wells, both of these

tactics can be successful in uncovering lapping schemes because they effectively take control of
the books out of the perpetrators hands for a period of time; when this happens the lapping
scheme will quickly become apparent. (66)

(4) Winkler used write offs as yet another way to conceal his skimming scheme. He would
fraudulently write off customer accounts as possibly bad debts, by doing this; he was able to
wipe the stolen funds off the books.

As stated by Wells, if the person who receives and records

customer payments has no authority to make these judgments, the perceived opportunity to
commit the crime is severely diminished. (66) Mogels should in the future make sure that the
person who has authority to write off accounts as uncollectable, or bad debts, is not the person
who collects and records payments.

According to Wells, it is important for organizations to proactively search out accounting clues
that point to fraud. This can be tedious, time consuming work, but computerized audit tools
allow many organizations to automate these tests and greatly aid in the process of searching out
fraudulent conduct.(66).

(5) Mogels could match the customer master file to the employee master file on various key
fields. They would want to compare telephone numbers, addresses, tax ID numbers, PO Boxes,
and zip codes in customer file to employee file, especially for employees working in the accounts
receivable department. Questionable customer accounts should be reviewed to ensure they are
not phony accounts made as part of a lapping scheme. (Wells, 2011). Looking for these type of
accounts would defiantly help Mogels in the future by detecting fake accounts.

(6) Mogels could periodically summarize access for their sales, accounts receivable, inventory,
and general ledger systems in nonbusiness hours. According to Wells, many times concealment
adjustments are made in nonbusiness hours. User access should be reviewed from the
perspective of adjustments within the application and adjustments to the data its self. (68). If
Mogels performs checks on the access of their systems, they could identify who access what
accounts and what they are possibly doing .

(7) Mogels could acquire any invoice with partial payments. Wells states that employees who
are using lapping to hide their skimming scheme may find it difficult to apply a payment form
one customer to another customers invoice in a fully reconciled fashion.(69). If Mogels had
done this all along, Mr. Winkler would have either been caught right away, or he would have
never attempted his skimming scheme, at least using lapping to cover up.

(8) Mogels could acquire open customer invoices that are in a credit position. According to
Wells, customers with a credit position account may be due improper credit entries posted to the
customer account in order to hide a skimming scheme. (69). As stated , by acquiring these
invoices, Mogels could identify a possible skimming scheme.

(9) Mogels could extract customers with no telephone or tax ID numbers. Customers without
this information may have been created for use in posting improper entries in order to hide a
skimming scheme. (Wells, 2011). If Mogels acquires a list of customers with missing data, they

can investigate who these customers are, and either get the missing information or as stated by
Wells, uncover a skimming scheme.

(10) And lastly, Mogels could look for new customers who may have been added during the
period under review. According to Wells, the issuers of new customer additions should be
reviewed using the report to determine whether an employee is using a phony customer account
as part of a lapping scheme by crediting that account for cash misappropriation.(69). By
checking new customers, Mogels would have a better chance of identifying a lapping scheme.

There are quite a few things Mogels could do to prevent skimming schemes from happening
within their company in the future. One thing for sure is they should make sure they separate the
duties of the accounts receivable department, and make sure they perform more frequent checks.

References
Wells, Joseph T. (2011). Principles of Fraud Examination. Third Edition. John Wiley and Sons,
Inc. Hoboken, NJ