Lapping Schemes in Australia: 2025 Fraud Risks & Prevention

Fraud in the workplace isn’t just a headline-grabber—it’s a persistent, evolving threat to Australian businesses. In 2025, as digital transactions surge and financial oversight tightens, one old-school fraud method remains stubbornly relevant: the lapping scheme. While not as tech-savvy as cybercrime, lapping can quietly siphon cash from a business, sometimes for years, before detection. This article unpacks how lapping schemes work, why they’re still a risk, the latest warning signs, and what new regulations in Australia are doing to fight back.

What Is a Lapping Scheme? The Mechanics Explained

A lapping scheme is a type of accounting fraud where an employee misappropriates customer payments and covers it up by using subsequent receipts from other customers. The fraudster applies later payments to earlier outstanding accounts, creating a cycle that can be difficult to untangle. Here’s a simple breakdown:

• Step 1: An employee steals a payment from Customer A.

• Step 2: The next payment from Customer B is used to cover up the missing payment from Customer A.

• Step 3: The process repeats as more customer payments come in, each used to fill the last gap.

The scheme relies on constant inflow of new payments. Once the cycle is broken—say, when inflows slow or the fraudster can’t keep up—the missing funds become glaringly obvious.

Why Are Lapping Schemes Still a Threat in 2025?

Despite advances in financial technology and AI-driven reconciliation tools, lapping schemes remain a real risk, especially for small and medium-sized Australian businesses. Here’s why:

• Fragmented Oversight: SMEs may lack strict internal controls or segregation of duties, giving a single employee end-to-end access to receivables.

• Increasing Volume of Transactions: As more payments go digital in 2025, the sheer volume can make manual oversight challenging, creating opportunities for manipulation.

• Remote Work & Decentralised Teams: Hybrid work models can make direct supervision and spot checks less frequent, increasing vulnerability.

In 2025, ASIC’s annual report on financial misconduct highlighted that 18% of all internal fraud cases in SMEs were related to lapping or similar receivables manipulations—a significant uptick from previous years.

Red Flags & New Prevention Strategies for Australian Businesses

Lapping schemes can be subtle, but there are warning signs and new preventive measures that can help catch them early:

• Frequent Delays in Depositing Customer Payments: Repeated excuses for late deposits can signal lapping.

• Customer Complaints About Unapplied Payments: Watch for customers insisting they’ve paid but their accounts remain overdue.

• Unusual Adjustments or Write-offs: Excessive account corrections may be covering up a lapping cycle.

• Single-Person Control: If one staff member manages both receiving and recording payments, risk is elevated.

In response, the ATO and ASIC have ramped up guidelines in 2025, urging businesses to:

• Enforce segregation of duties for receivables and deposits.

• Adopt automated reconciliation software with AI-powered anomaly detection.

• Schedule random audits and rotate staff handling sensitive transactions.

• Offer whistleblower protections and anonymous reporting tools.

Major Australian accounting platforms like Xero and MYOB have also upgraded their reconciliation modules in 2025, offering real-time alerts for suspicious payment application patterns—making it harder for lapping to go undetected.

Real-World Example: Lapping in a Regional Wholesale Business

In early 2025, a Queensland-based wholesaler uncovered a lapping scheme after several long-term clients complained about persistent overdue notices despite timely payments. An internal audit, prompted by discrepancies flagged by their upgraded accounting software, revealed a staff member had redirected over $120,000 across two years. The fraud was enabled by a lack of separation between receiving payments and posting them to accounts. The business has since overhauled its financial controls, demonstrating the tangible impact of both vigilance and technology.

Conclusion: Staying Ahead of Old Tricks in a New Era

Lapping schemes may not be new, but their persistence proves that even as technology advances, human oversight and robust controls remain essential. With updated 2025 regulations, smarter accounting software, and a proactive approach, Australian businesses can better protect themselves from this classic but costly fraud.