What is lapping (teeming and lading) in accounts receivable, what are the warning signs, and how can a small business owner or their accountant check whether a bookkeeper is using later customer payments to cover money they took?

What should I check, step by step?

1. Pull the bank statement for a month and, for a sample of customer receipts, check the payer, amount and date against the customer and invoice the receipt was applied to in the books. Payments from customer B applied to customer A are the signature of lapping.

2. Look at the gap between the date money reached the bank and the date it was posted in the books. A pattern of receipts posted days or weeks late, or in odd combinations, needs explaining.
3. Send customer statements, or ask a few customers to confirm their balance, from someone other than the bookkeeper, with replies coming back to you. A customer who says they paid an invoice the books show as open is worth a phone call that day.
4. Run the aged receivables report and compare its total with the receivables balance in the general ledger. They should agree; a recurring difference is a red flag.
5. Watch write-offs, credit notes and discounts. Have someone who doesn't post receipts approve each one, because writing off the oldest lapped balance is how many schemes end.
6. Track how long customers take to pay (days sales outstanding). Collections that slow while sales and customers stay steady are a classic sign.
7. Separate duties where you can: the person who opens mail or sees incoming payments shouldn't also post them and send statements. In a very small business, the owner reviewing the bank feed and a monthly receivables sample does most of the work.
8. Keep a dated record of each day's receipts outside the accounting system (bank reference, amount and the invoice it was meant for), so you can later show what arrived and when, even if postings were changed.
9. Make anyone who handles receipts take real time off and have someone else post receipts while they're away. Lapping needs daily attention, so it often breaks during an absence.

What is lapping (teeming and lading) in accounts receivable?

The ACFE classifies lapping as a skimming scheme involving receivables. A Journal of Accountancy column by the ACFE's founder describes it as robbing Peter to pay Paul: a fraudster steals the payment intended for customer A's account, credits customer B's payment to A, then credits C's payment to B. Repeated many times, it becomes hard for the employee to keep track of, which is why most lapping schemes eventually reveal themselves.

• It works best where one person receives customer payments, posts them and talks to customers about their balances. Paper checks and cash make it easier, but it also works with bank transfers if the person posting receipts can choose which invoice each one pays.
• Lapping can be combined with other cover-ups: writing off the oldest lapped balance as a bad debt, issuing a credit note, or changing the amount recorded as paid. In the Victorian case reported on November 2, 2026, the bookkeeper's third scheme involved doctored invoices that sent customers' payments to her own account, hidden by altering the amounts paid in the company's accounting system.

What are the warning signs of lapping in accounts receivable?

Red flags listed in that Journal of Accountancy column: excessive billing errors, slowing accounts receivable turnover, excessive write-offs of accounts receivable, delays in posting customer payments, receivables detail that doesn't agree with the general ledger, a trend of decreasing payments on receivables, and customer complaints.

• In practice that means an aged receivables report where the oldest buckets keep growing for good customers, receipts applied to invoices other than the ones the customer named in the payment reference, round-number or partial postings that don't match any bank line, and the bookkeeper being the only person customers ever talk to about their account.
• The ACFE's Occupational Fraud 2026 report found skimming in 17% of cases at organizations with fewer than 100 employees, against 6% at larger ones, with a median loss of USD 45,000 and a median duration of 12 months across all skimming cases. Organizations with fewer than 100 employees had a median loss of USD 126,000 across all fraud types.

How do customer statements or confirmations catch lapping?

Customers know what they paid and when. That makes them a knowledgeable external source: PCAOB AS 2310, the confirmation standard for public-company audits, says evidence from such a source is generally more reliable than evidence from internal company sources only, and requires the auditor to send confirmation requests and receive responses directly, so nobody at the company can intercept or alter them. For receivables it lists subsequent cash receipts, compared with the amounts of the invoices being paid, as an alternative procedure.

• A small business doesn't need an audit to use the same idea. Statements or balance checks that go out and come back without passing through the bookkeeper, plus your own look at the bank feed, test the books against outside evidence. If the books and the customers disagree, believe the bank statement and the customer until the difference is explained.