What is a 'Lapping Scheme'

A lapping scheme is a fraudulent practice that involves altering accounts receivables to hide a stolen receivables payment. The method involves taking a subsequent receivables payment and using that to cover the cover the theft. The next receivable is then applied to the previous unpaid receivable, and so on.

BREAKING DOWN 'Lapping Scheme'

Lapping schemes typically happen in smaller companies where only one person may handle cash receipts and customer billing. Companies can prevent lapping by conducting regular audits of cash receipts, and by separating cashier and billing responsibilities. The scheme can be detected by tracing how cash receipts have been applied to customer accounts. One telltale sign of lapping is a rise in the aging of accounts receivable. A lapping scheme can only temporarily hide the theft. Sooner or later, the shortfall shows up and is recorded as a loss.

Example of a Lapping Scheme

For example, assume that a company receives $150 in payment, but an accounting clerk diverts that to a personal account. To hide the theft, the clerk will apply the second receivable to come in, say $200, to the first receivable. That leaves $50 leftover to be applied to the second receivable and $150 of it still to be paid. The third payment will then be applied to cover the remaining balance on the second, the fourth will cover the third, the fifth will cover the fourth, and so on.

RELATED TERMS
  1. Ponzi Scheme

    A Ponzi scheme is a fraudulent investing scam promising high ...
  2. Circular Trading

    Circular trading is a scheme that creates artificial trading ...
  3. Enterprise Investment Scheme or ...

    A UK program that helps smaller, riskier companies to raise capital ...
  4. Pump And Dump

    Pump and Dump is a scheme that attempts to boost the price of ...
  5. Receipt

    A receipt is a written acknowledgment that something of value ...
  6. Securities Fraud

    Securities fraud is a form of white-collar crime that disguises ...
Related Articles
  1. Personal Finance

    What is a Pyramid Scheme?

    What exactly is a pyramid scheme? Read on.
  2. Investing

    Accounts Receivable

    Accounts Receivable (A/R) is an accounting term used to refer to the money that is owed to a company by its customers.
  3. Small Business

    Multi-Level Marketing

    Learn how to differentiate between a legitimate marketing strategy and a pyramid scheme.
  4. Financial Advisor

    Is It the Right Time to Buy a Home in London?

    The "Help to Buy" scheme has been sweetened further for first time home buyers in London. Should you jump to buy a home in London now?
  5. Tech

    U.S. Government Files Suit Over Bitcoin Ponzi Scheme

    Despite being a new-fangled currency, Bitcoin has opened the possibility of very old scam techniques.
  6. Tech

    Millennials at Higher Risk of Identity Theft

    Tech savvy Millenials are particularly prone to becoming a victim of identify theft.
  7. Managing Wealth

    Morgan Stanley's New Identity Theft Protection (MS)

    Morgan Stanley now offers identity theft protection to high net worth clients, pursuant to a poll in which they cited this as a top fear.
  8. Investing

    Best 2016 IRA Promotions (ETFC, BAC)

    Here are some of the best IRA promotions of 2016, with significant bonuses for large deposits.
  9. Tech

    Avoid Becoming An Identity Thief's Next Victim

    Use these 7 techniques to keep yourself under the radar and out of the way of identity thieves.
RELATED FAQS
  1. How long are accounts receivable allowed to be outstanding?

    Learn about accounts receivable, including how long they typically remain outstanding, and how their payment or lack of payment ... Read Answer >>
  2. How Should You View a Balance of Payments Deficit?

    Discover how it might be possible to run a balance of payments deficit, what causes them in international trade and whether ... Read Answer >>
  3. Are Student Loans Amortized?

    Student loans typically get paid back over time on a fixed payment, or amortized, schedule. Read Answer >>
Hot Definitions
  1. Monero

    Monero is a digital currency that offers a high level of anonymity for users and their online transactions.
  2. Risk Tolerance

    Risk tolerance is the degree of variability in investment returns that an individual is willing to withstand.
  3. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  4. Initial Coin Offering (ICO)

    An Initial Coin Offering (ICO) is an unregulated means by which funds are raised for a new cryptocurrency venture.
  5. Federal Funds Rate

    The federal funds rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve ...
  6. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
Trading Center