The risk in your receivables

28 April 2022

Should your business be paying more attention to what is lurking in your accounts receivable balances? Or perhaps, what isn’t?

Annette Roberts was working as a travel agent in country Victoria when she stole $670,000 from holidaymakers forced to cancel their holidays due to the pandemic. She diverted 522 customer refunds into her own accounts. This scheme, like most accounts receivable frauds, was only uncovered when a customer queried the whereabouts of their refund.

Your accounts receivable division is probably not top-of-mind when you think of internal workplace fraud risks. The reality is that most businesses place greater attention and internal controls on things like corporate credit cards, payroll, accounts payable, petty cash, where cash is easily accessible to employees. However, with borders and businesses reopening, we expect to see more cases of accounts receivable fraud as customers seek to rebook or claim credits that they were assured were being held safely for them.

Below we outline accounts receivable schemes and how you can minimise the associated risks.

The misdirection of refunds for personal gain

Employees responsible for the management of accounts receivable are acutely aware of those customers who will and will not come asking for a refund. This knowledge combined with a lack of oversight can result in the misdirection of refunds without fear of exposure.

What to consider?

  • Does your exception reporting consider the lag between credit notes being raised and refunds issued? This can be an important red flag as often fraudsters will wait until it is clear that no one is missing the money before issuing the refund.

  • How is the refund and credit note process managed? Is there a segregation of duties between those raising and approving credit notes?

  • How are bank account details for refunds managed? Who manages this? What supporting documentation is required to process a refund?


This type of fraud occurs when an employee alters accounts balances in order to hide the theft of funds. This is done by diverting a payment from one customer, and then hiding the theft by diverting funds from another customer to offset the receivable from the first customer. Lapping often involves the use of write-offs to mask the missing funds that will eventually catch up with the offender.

What to consider?

  • How is the write-offs process managed? What supporting documentation is required prior to writing off a debt? Is there an approval process in place? What happens when funds are recovered against a written-off debt?

  • Are statements sent to customers in order for them to reconcile the balances owed?

The creation of slush funds using aged accounts receivable balances

This is a type of financial misstatement and involves the manipulation and failure to reconcile amounts rightfully owed to customers. These balances are often transferred to holding or suspense accounts and are used to smooth earnings or prop-up income when needed.

What to consider?

  • Does your internal audit team look at aged accounts receivable balances?

  • What type of reporting is done on accounts receivable accounts with a credit balance (i.e. customers to whom funds are owed)?

  • What process is in place for ensuring that amounts owed to customers are rightfully returned/credit notes issues?