Explain what lapping means, and discuss the internal control deficiency that allows it to occur.

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Explain what lapping means, and discuss the internal control deficiency that allows it to occur. Also discuss the procedures the auditor can perform to detect lapping.


Answer:

Lapping, which is a common type of defalcation, is the postponement of entries for the collection of receivables to conceal an existing cash shortage. It involves deferring recording the cash receipts from one customer and covering the shortages with subsequent receipts from another customer. Improper segregation of duties in which a person who handles cash receipts is allowed to enter those receipts into the accounting records allows lapping to occur. The auditor can detect lapping by comparing the name, amount, and dates shown on remittance advices with cash receipts journal entries and related deposit slips.

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