John tends the bar on Tuesdays and Thursdays, so he has occasion to earn tips as well. When he gets to his name on the payroll register, he already knows there is nothing to enter because he was able to convert all of his credit card tips from last Tuesday and Thursday to cash, so there would be no expected tip entry in payroll for him. That doesn’t stop him though from initiating an entry for himself for $250 in tips which will be added to his payroll check next week.
You see, eight months earlier, John made an error entering the tips for Cheryl, a longtime employee and server at the restaurant. Cheryl made John aware, and he corrected the error in the next payroll run. That mistake made John realize that extra tip dollars could be added through payroll and go largely undetected with the current practices in place.
So it was, on that day eight months minus one week earlier that John first added an extra $5 to his tips in the payroll system.
When the payroll checks were issued the following week, John held his breath and crossed his fingers that the owner wouldn't ask him about the discrepancy. No one did. The next week when John got to his name on the roster again, the amount that was supposed to be entered was $27.50. John entered $57.50 instead, an extra $30 this time. He waited for the fallout. There was none.
And so it went, week after week with John adding extra tip dollars for himself, each time increasing the amount a little bit more.
Now here it is eight months later and he’s adding an extra $250 under his name for the prior week. If the pattern for the last eight months continues, John will undoubtedly raise the amount of the falsified tips he enters for himself in next week’s payroll and each week thereafter.
Where does it end you ask? Well, it ends when the CPA reconciling the books for the prior year cannot reconcile sales to the bank account. Something is amiss and that something is the $4480 in back door tip entries John misappropriated.
This back door tip fraud is akin to John stealing cash from the safe or writing checks to himself and falls under the definition of embezzlement.
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