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CPE for Government Auditors

Cash Register Fraud Schemes

A false balance is an abomination to the Lord, but a just weight is his delight. Proverbs 11:1

We are at the end of our discussion of fraudulent disbursements per the Certified Fraud Examiners fraud tree.  Please see :   for an image of the fraud tree.  So far we have covered four of the five categories under ‘fraudulent disbursements’ including billing schemes, payroll schemes, expense reimbursement schemes and check tampering. This newsletter, we cover register disbursements.

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Register Disbursements

Government agencies that transact with the public (licensing departments, toll collection booths, and courts) need cash registers.  For instance, the ferry in Seattle is run by King County as of 2011.  Plenty of cash changes hands on ferries.  An audit in 2011 shows that King County didn’t have systems in place to monitor whether revenue is meeting expectations or if ridership equals dollars collected.  In some instances, the cash fares were being stolen.[1]

False Voids

Anthony Grande, 36, a cashier at the Stop & Shop supermarket was arrested in 2009, accused of skimming more than $102,000 from the cash registers over the prior year. Grande was accused of deleting cash transactions from his register, then pocketing the customers’ money. That would be about $392 per day for a five-day workweek.  Cash sales were rung in the cash register, held, and then deleted.[2]

The problem most skimmers have with cash registers is the registers’ paper receipts. Traditional skimmers take cash equal to the amount of a sale that they either don’t enter into the register or void after the fact.

Because stealing from the cash register is common in business, owners and managers know to look out for a high number of voids.  Skimming without voiding receipts can lead to imbalances on the receipts, which also alerts managers and auditors.

Most registers maintain electronic sales records rather than keeping receipt rolls. Fraudsters use a device called the ‘zapper’ to workaround the electronic sales records. Also known as automated sales suppression devices, zappers are able to change registers’ sales records.

Talal Chahine, who owned a small chain of 12 Lebanese restaurants in Detroit, skimmed over $20 million over four years using a zapper.  This allowed him to avoid taxation as well as benefit him personally.  Chahine sent a portion of the money he stole from his restaurant La Shish to Hezbollah, an Islamic extremist group.[3]

False Refunds

Refund fraud is a system that allows individuals and employees to refund merchandise and profit from the returns. Cash is typically used in refund frauds because no paper trail exists.

Fraudsters might lift products from a store and then return the stolen products to the same store from which they shoplifted. This works in stores that do not have a policy against returning products without a receipt. When required to give personal information to the store clerk, these fraudsters supply false information.

Another refund fraud involves buying products while they are on sale and then returning them at full price after the sale ends.

Some fraudsters purchase merchandise, use it, and then return it for a refund.  For example, an employee might purchase a semi-formal dress, wear it to a party, and then return it to the store for a full refund. Because the product loses quality and value, there’s a risk to the store that it won’t sell. I had a girlfriend in high school that did this!  Her favorite target was Neiman Marcus!

In yet another scam, employees might process refunds for items that were not actually returned by customers. Some use legitimate receipts of sales to other customers to refund items on the receipt for cash, or sometimes credit cards. Others may refund items without having a receipt.

In a very creative refund scheme, fraudsters in New Mexico used loadable credit cards at Walgreens. The loadable credit cards don’t have names attached to them, but they do create unique bank accounts.  This allowed the fraudsters to file fake income tax returns with the state and request that the tax refund be deposited into these nameless bank accounts.  The state obliged and the fraudsters promptly went out and made anonymous purchases using the loadable credit cards.  The identities of the frausters were completely anonymous because the fraudsters bought the initial cards with cash at Walgreens.

[1] “Audit of King County Ferries Raises Questions about Gregoires State Plan.” By Chris Egart. Eyewitness News [Seattle]. KIRO 7. January 6, 2011.
[2] Rebecca Baker. “Dobbs Ferry cashier accused of skimming $100,000.” The Journal News [Lower Hudson Valley, NY]. July 7, 2009.
[3] Roy Furchgott. “With software, till tampering is hard to find.” New York Times. August 29, 2008.
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