What is Skimming?

Definition: Skimming is a fraudulent situation where an individual fails to report certain cash transaction and pockets the money for himself. It is a form of defalcation that involves an illegal appropriation of a business cash receipts.

What Does Skimming Mean?

This form of theft is common in small businesses where the owner is also the person that acts as a cashier. In order to avoid paying taxes on cash sales, the owner “skims” the cash and fails to record it at the company’s accounting. By doing that a tax fraud is being committed.

On the other hand, it also refers to a situation where an employee is illegally subtracting cash from the company through unrecorded cash sales. It is much more difficult to detect skimming in services companies since sales transactions are not related to physical goods that can be inventoried. After a skimming theft is done, an inventory procedure will reveal a missing item, which is the source of the cash being subtracted. Finally, the term skimming is also employed in banking to refer to credit card information theft done with an electronic device.

Example

Loiada Restaurant LLC is a Japanese food restaurant located in Miami. They have a few years in business but the manager has recently picked up what appears to be a skimming operation. The bartender of the restaurant has been reporting inventory mismatches recurrently and this has raised concerns since there is no reason for that to happen.

The owner of the restaurant decided to review the cameras placed above the bar to get a sense of what is going on and it appears that the bartender has been skimming the company by fooling clients, telling them that it is possible to pay him for their drinks directly in cash. Since the clients don’t know anything about the company’s internal procedures they fall into the trap and the company ends up skimmed. The owner decided to charge the bartender for the “missing” inventory and fired him immediately.