In a receivables skimming scheme, which finding can indicate the fraud when comparing customer balances?

• A. Inventory turnover drop
• B. No effect
• C. Independent confirmation of customer balances
• D. Increase in cash on hand

Answer: (C)

External confirmations of customer balances provide objective evidence about what customers owe, which is crucial when a receivables skimming scheme is suspected. In skimming, cash receipts are diverted or misrecorded, causing the company's AR balances to diverge from what customers actually owe or report having paid. By obtaining independent confirmations and comparing them to the company’s AR ledger, any material discrepancies reveal that the recorded balances may be false or manipulated, signaling fraud in the receivables process. The other options don’t address AR integrity: an inventory turnover drop relates to inventory, not receivables; no effect would offer no warning; an increase in cash on hand would typically contradict a skimming pattern and isn’t a reliable indicator.