Forensic Accounting and Fraud Examination, 2nd Edition

4Cash Receipt Schemes and Other Asset Misappropriations

Skimming Case Study: Taking From the Poor to Give to the Rich

After the 2001 terrorist attack on the World Trade Center in New York City, a thirty-year-old 501(c)(3) nonprofit organization established a means of raising money for the families of 9/11 victims. The entity already had established contacts with vendors and a method of distributing its products to support the venture. Most of the sales were transacted in cash. The organization planned to donate a large portion of its sales revenue from specific products to the 9/11 families.

Several years later, an anonymous tip was received by the Board of Directors, alerting them to a possible misappropriation of funds. The allegation was vague and suggested that the organization’s corporate officers were using the organization’s income for personal use. The allegations were taken seriously because it was widely known that the entity was among the top fund raisers in the area for 9/11 victims, yet the financial records revealed minimal sales revenue. Questions also were raised about the lack of funds transmitted to the intended recipients.

A preliminary examination of the journal and ledgers was conducted, and the initial findings indicated that, although the records had a few immaterial misstatements, proper record keeping was followed. Interviews with vendors revealed inconsistent information regarding accounts. Several of the vendors confirmed transactions with the entity ...