Audit and Assurance Practice Exam 2026 – The Complete All-in-One Guide for Exam Success!

The scheme described in the question involves an employee manipulating customer payments to cover up theft. This method is best identified as "lapping." In lapping, an employee takes cash or checks from one customer and covers that amount by applying payments received from another customer. This creates a cycle where the theft is concealed by misappropriating funds from future payments, effectively masking the initial theft.

This method relies on managing accounts in a way that obscures the missing funds, making it difficult to track down the discrepancy since payments are never accurately applied to the correct accounts. It is a form of fraud that requires a continuous effort to keep the cover-up going, making it quite insidious.

The other terms mentioned have distinct applications in fraudulent schemes: skimming typically involves taking cash directly from customers before it is recorded in the business's accounts, fake invoicing involves creating false invoices to siphon off money from the company, and ghost payroll pertains to payroll fraud where fictitious employees are added to the payroll system to draw funds. Each of these methods operates differently and does not involve the direct manipulation of customer payments to conceal theft in the manner of lapping.