Skimming in finance, also known as defalcation, is a type of fraud that involves taking business cash prior to entering it into the accounting system. For example, a cashier might pocket a customer’s change. When the manager goes to take the deposits for the day to the bank, the pocketed money never shows up. This type of financial fraud is considered an off-the-book scheme.
Skimming can also occur to individuals in the form of card skimming, where a company adds an extra item or amount to a customer’s bill. Due to advancements in technology and electronic payment systems, skimming has become easier to detect and prevent. Even with technology worked into operations, skimming still costs financial institutions and consumers more than $1 billion each year.
There are a few different types of skimming fraud that both individuals and business owners face. Let’s cover some of these in more detail.
Direct theft skimming occurs when an employee takes cash directly out of the business. This is common for businesses that have brick-and-mortar storefronts and accept cash. Skimming can also occur when the customer argues that they did not receive the correct change, secretly switching out bills. For example, if you hand a customer back a $20, they might switch it with a $10, causing you to give them another $20.
Skimming is a popular avenue for tax evasion. Business owners might accept payments in cash that are never reported in the accounting system, resulting in a lower taxable income. Similarly, business owners might accept business payments in their personal accounts, keeping the income off the books.
ATM skimming occurs when a scammer gains access to your debit card numbers by using an illegal payment card reader affixed to the machine. Additionally, a card skimmer fraudster will also have a camera to record your PIN. Once they gain access to this information, they will make fraudulent transactions.
Credit card skimming works similarly to ATM skimming, with illegal card readers attached to the legitimate card reader. When you use the magnetic strip or swipe your credit card, your card data is sent to the fraudster. This is common at gas pumps and gas stations.
Price skimming happens when a cashier adds fictitious fees or expenses to your total. Then, they pocket the added amount. Let’s say your total at the grocery store is $77.59. The cashier might tell you the total is actually $82.59 and pocket the additional $5. This type of scam won’t show up because the company has only recorded a sale for $77.59.
With hackers looking to access your credit cards and debit cards, having the proper protocols in place is important. Here are some ways you can protect against skimming.
The right technology helps identify instances of skimming. For one, if you have a brick-and-mortar storefront, have cameras that face your register. This allows you to track down who was price skimming and the amount taken. Additionally, use an electronic cash register. Writing down sales by hand increases your risk of skimming.
As a best practice, always compare expected and actual revenue. If you notice large discrepancies, it could indicate skimming and fraud. The volume of your transactions will dictate how frequently you should compare revenue. For example, if you process hundreds of transactions per day, it could be helpful to evaluate your income on a daily basis.
Before you use a payment card, look at the card reader. If you notice that it seems bulkier than normal, it could indicate that there is a card skimmer attached to the device. Card readers attach to the keypad and can be easily popped off. Double-checking the card reader could save you from compromised card information.
Another strategy to protect against skimming is to leverage software with fraud alerts. Any time your debit or credit card is used for an unusual transaction, you should be notified. Investing in an expense management platform that has built-in fraud detection is one of the best ways to prevent card skimming and counterfeit card transactions.
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