What is Teeming and Lading?
Teeming and lading is a fraudulent act in accounting where an individual manipulates financial records to conceal the misappropriation of funds. This is often accomplished by delaying the recording of receipts and payments. Another common term for this fraud is lapping. Essentially, teeming and lading is a form of accounting sleight of hand used to temporarily hide the fact that money has been stolen.
In teeming and lading, funds received from one customer are not initially recorded as a payment. When funds are received from a second customer, they are used to cover the first customer’s payment. This process continues as a rolling cover-up, which makes detection difficult unless a thorough investigation is conducted.
Examples
Example 1: Retail Setting
In a retail store, Cashier A takes $100 from the daily cash sales on Monday without recording it. The subsequent day, Cashier A takes $100 from the daily sales on Tuesday to cover the missing $100 from Monday. This continues daily, becoming a cycle that hides the initial theft.
Example 2: Accounts Receivable
An accounts receivable clerk receives a $500 payment from Customer X but does not record it, instead using it for personal expenses. The next payment from Customer Y of $600 is fraudulently recorded against Customer X’s account, and so on. Hence, individual lapses do not appear immediately, and the fraud becomes complex to trace back.
Example 3: Banking
In a banking scenario, an employee responsible for handling deposits could engage in teeming and lading by temporarily using deposits for personal use, then using subsequent deposits to cover the previous ones.
Frequently Asked Questions (FAQs)
Q: How can teeming and lading be detected?
A: Routine and random audits, reconciliation of customer accounts regularly, strict internal controls, and vigilance for anomalies in financial records can help detect teeming and lading.
Q: What is the difference between teeming and lading and lapping?
A: Essentially, they are the same type of fraud. Teeming and lading might be used more in British English, while lapping is common in American accounting terminology.
Q: Can teeming and lading result in severe legal consequences?
A: Yes, yes. It is fraud and can result in severe legal consequences including fines, restitution, and imprisonment.
Q: Is teeming and lading common in larger organizations?
A: It can occur in any size organization, although the layers of internal controls in larger organizations might make it harder to execute without detection.
Q: What internal controls can prevent teeming and lading?
A: Segregation of duties, regular rotation of staff, mandatory vacations, frequent and random audits, and rigorous reconciliation processes.
Related Terms
Lapping
Lapping is a similar fraudulent accounting scheme where funds from one account are used to cover the deficit in another, creating a continuous cover-up cycle.
Embezzlement
Embezzlement is the act of wrongfully appropriating funds or property entrusted to one’s care, often by an employee or public official.
Internal Controls
Internal Controls are procedures and policies implemented within an organization to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud.
Online References
- Investopedia - Teeming and Lading
- Association of Certified Fraud Examiners (ACFE)
- American Institute of CPAs
- Financial Accounting Standards Board (FASB)
Suggested Books for Further Studies
- “Forensic Accounting and Fraud Examination” by Mary-Jo Kranacher and Richard Riley
- “Fraud Examination” by W. Steve Albrecht, Conan C. Albrecht, Chad O. Albrecht, and Mark F. Zimbelman
- “Principles of Fraud Examination” by Joseph T. Wells
- “Financial Shenanigans: How to Detect Accounting Gimmicks and Fraud in Financial Reports” by Howard M. Schilit and Jeremy Perler
- “Corporate Fraud Handbook: Prevention and Detection” by Joseph T. Wells
Accounting Basics: “Teeming and Lading” Fundamentals Quiz
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