Skimming [skim-ing]
This word has various meanings from various perspectives:
- It is a type of pricing policy that businessman practices to bring something innovative new product in market at a very high price in order to make as much profit as possible before other similar products become available and prices fall.
- To remove floating surface of a liquid substance using spoon or ladle
- The practice of stealing someone's credit card details using electronic equipment, in order to use their account illegally.
Term denotes a type of fraud that is extremely common within top level personnels of management hierarchy:
The reason for choosing this word as 'Word of the Week' is due to a White collar fraud about which I recently read that occurred in early 1970s,of an electronic business operated under the name of Crazy Eddie.
What this word means as defined under Fraud Accounting?
Skimming fraud is a type of white-collar crime that involves taking the cash of a business prior to entering it into the accounting system. Skimming is an “off-book” fraud because the cash theft has occurred before it is entered into the bookkeeping system. Thus, it is never reported on the company’s accounting records.
[Source: CFI website]
CRAZY EDDIE CASE (just a brief coverage)
This fraud took place in following manner:
- The primary schemes that were involved during the first phase included cash skimming, tax evasion (income, sales and payroll taxes), and reporting of phony or exaggerated insurance claims.
- After accumulating a large sum of money from their cash-skimming scheme, they needed to cover their tracks and hide the money. On a trip to Israel in 1978, Sam M. went to a seminar sponsored by the Bank Leuimi and learned that the bank offered secret bank accounts where the money that was deposited into the account would not be reported to the Internal Revenue Service. Sam M opened the secret account and members of the Antar family deposited the skimmed cash into the account on their trips back and forth to Israel.
- By the end of 1983, Sam M. and Eddie Antar had taken substantial steps to launch an IPO of Crazy Eddie stock. They believed that they would receive greater profits from the sale of stock than their previous schemes.
As a result of the cash-skimming scheme, Crazy Eddie’s reported income figures were significantly reduced compared to what they should have been. By reducing the cash skimming, it would artificially increase growth and give the appearance that the company was rapidly growing. This enticed investors to purchase shares of the company at inflated values.
- The last phase of the fraud began after the company went public. In 1986 and 1987, the Antar’s focus shifted and they needed to discover a way to inflate their income in order to continually sell their stock at inflated prices on the market. The primary schemes used in this phase include inventory fraud, subsequently under reporting accounts payable, channel switching, and inflating sales volumes and profits by laundering previously skimmed funds back into the business.
This was a brief summary of Crazy Eddie Case.
