If your business doesn’t have checks and balances for payroll in place, you could lose hundreds of thousands of dollars. Matt Campanale, CPA, shares some payroll fraud schemes to watch for and offers ways to prevent them from happening.
When payroll fraud occurs, you’re going to lose money. If you catch on quickly, it may only be a few thousand dollars. But, for example, if it happens over a 10-year period, you could lose hundreds of thousands of dollars.
The biggest issue we come across that creates the opportunity for payroll fraud is a lack of checks and balances. Implementing segregation of duties can prevent one person from having too much access.
For example, the person who runs payroll can enter “ghost employees” into the system. This allows this person to transfer money to their own bank account through these fake employee accounts. To avoid this, a company should preferably have someone other than the person processing payroll enter new employees into the payroll system. This segregation of duties prevents one person from having full control.
Another payroll fraud scheme that can easily be deterred is time thieves. Make sure someone such as a direct supervisor, controller or CFO is reviewing employee time cards. If everything is automatic, you might be paying employees for time they didn’t actually work.
When we come across possible cases of payroll fraud schemes with our clients at 415 Group, we make sure we bring them to light. By walking through a company’s internal controls and policies during an audit, we can point out these issues. We can also set up a consultation to document internal control procedures to look for any weaknesses.
If you have questions or concerns about payroll fraud schemes, contact your advisor at 415 Group. Payroll fraud can be a scary situation to think about for your business. But with a little planning and some checks and balances, you can avoid many of the more popular fraudulent schemes.
According to the Association of Certified Fraud Examiners, nearly 30 percent of businesses are victims of payroll malfeasance, with small businesses twice as likely to be affected than large businesses. Here are four scary payroll fraud schemes you need to know:
Tips to combat payroll fraud
Being aware of the threats is a start, but you also need to know how to stop them. Here are some tips to reduce your companies payroll fraud risk:
Managing your business payroll is a daunting task by itself, and actively protecting against fraud adds additional complexity. Please call for help with your business payroll needs.