Darla, an accounts receivable clerk, pockets a customer's payment and applies subsequent payments to the previous customer's accounts to conceal the theft. What scheme is this?

• A. Kiting
• B. Lapping
• C. Substitution
• D. Padding

Answer: (B)

Lapping is a misappropriation technique where a clerk steals a payment from one customer and hides it by applying subsequent payments from other customers to the earlier account. In this scenario, Darla pockets a customer’s payment and then uses the next payments received to cover the shortfall on the previous customer’s account, effectively concealing the theft as receipts keep balancing out on paper. This creates a cycle where new payments are funneled to cover past misappropriations, delaying detection.

This approach is different from other schemes: kiting relies on moving funds between bank accounts to inflate cash quickly, substitution involves swapping legitimate payments with others in the records, and padding is about inflating figures. The hallmark of lapping is the continual application of newer receipts to conceal an older missing payment by the same scheme.