What does "lapping" fraud in accounts receivable involve?

Lapping fraud in accounts receivable specifically involves the practice of taking payments from one customer and applying them to another customer's account to conceal a theft of funds. In this scheme, the fraudster uses the money received from a current customer to cover a prior theft from a different account, effectively creating a cycle of deception where the funds from one account are tactically used to mask the missing funds from another. This method can create confusion and allows the perpetrator to continue their fraud without immediate detection, as it leverages the accounts' delinquency to "hide" the misappropriation from the business.

By using one customer's payment to satisfy the outstanding balance of another, the fraudster avoids immediate repercussions and gives the illusion that all accounts are in good standing, delaying any investigation into the discrepancies within the books. This manipulation is characteristic of lapping fraud, distinguishing it from other fraudulent activities that might involve outright theft or fictitious transactions.