Definition of Lapping
Lapping refers to a deceptive accounting technique where an employee, often a cashier, delays the recording of cash receipts to mask a manipulation or theft of funds. This fraudulent shuffling is analogous to a financial game of musical chairs: each receipt from a subsequent customer is falsely attributed to a preceding one. This merry-go-round continues, with the last entry typically left in the cold, awaiting funds to balance the books.
How Lapping Works
Simplistically, imagine if Person A gives you $100, which you pocket instead of recording. When Person B hands over $100 next, you record that as Person A’s payment. This pattern persists, with each subsequent payment misallocated to cover up the initial dishonesty. The scheme relies heavily on the perpetrator’s optimism—often misplaced—that they can replace the stolen amount before anyone notices. However, as with most gambles, the house (in this case, truth and auditing) usually wins.
Potential Risks and Consequences
The allure of “temporarily” borrowing from Peter to pay Paul is not just limited to draining company coffers but can rapidly escalate into significant financial and reputational damage. Potential fallout includes:
- Financial losses: Undetected for long periods, lapping can lead to significant financial discrepancies.
- Auditing nightmares: Disentangling the web of misallocated funds can be costly and time-consuming.
- Legal and ethical breaches: Legal repercussions can include fines and imprisonment, not to mention the irreparable damage to personal and organizational reputations.
Detection and Prevention
To catch a financial Houdini in the act of lapping, consider these strategies:
- Reconciliation and regular audits: Frequent and irregular financial audits can disrupt the continuity needed for lapping to succeed.
- Segregation of duties: Split responsibilities among multiple people to avoid giving too much control or access to any single individual.
- Whistleblower policies: Encourage a culture where employees can report suspicious activities without fear of retribution.
Humorous Anecdote
Consider the tale of Johnny “the Juggler” Dodger, a notorious bookkeeper who tried lapping in the pre-computer era. He kept the scheme going for years until he accidentally attributed a particularly vigilant client’s payment to a less scrupulous one, who decided to audit his accounts on a whim. The moral? Even the best jugglers drop the ball.
Related Terms
- Skimming: Another form of cash theft where the receipt itself is unrecorded.
- Embezzlement: The act of dishonestly withholding assets for the purpose of conversion.
- Ponzi Scheme: A fraudulent investing scam promising high returns with little risk to investors.
- Fraud Detection: Methods and techniques to help identify fraud in its various forms.
Suggested Reading
- “Financial Shenanigans” by Howard M. Schilit — A deep dive into corporate malfeasance.
- “The Art of Deception” by Kevin D. Mitnick — Though focused on cyber deception, many principles apply to financial fraud as well.
- “Extraordinary Popular Delusions and the Madness of Crowds” by Charles Mackay — A classic text dealing with the crowd psychology behind financial bubbles and scams.
In essence, lapping could almost be seen as a form of art—if only its canvas were not the balance sheets and its consequences not so dire. Stay vigilant, stay ethical, and let’s keep those receipts in clear, honest order.
