Building a Team to Avoid Payroll Fraud

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In the second part of Dawn Brolin’s Fraudcast with CPA Stephen King of client accounting services firm GrowthForce, they discuss payroll fraud, how to spot it and possibly prevent it.

For the most part, we think we know what payroll fraud is, but it can in different forms: submitting fake hours, setting up a ghost employee or pocketing cash. You believe that the money is going to a legitimate person or to the IRS, when it’s actually being pocketed.

As Steve noted in our discussion, we’re looking at big dollar amounts when it comes to occupational fraud -- an average loss of $130,000 big, according to the ACFE 2018 Report to the Nations. The report also documents 2,690 cases of occupational fraud from 125 countries in 23 industry categories.

Payroll fraud is what I like to call a “two-punch hit” for your business clients. The money gets stolen and then the IRS comes for it. In that moment, a $130,000 problem becomes a $260,000 problem. A staggering double-blow.

During the Fraudcast, Steve told us about a medical billing company that was devastated by a trusted bookkeeper who oversaw just about everything, including the mail. She was embezzling the payroll taxes for a client.

The CEO didn’t know about the scam until the IRS physically showed up at his door, ready to shut the entire business down. Hundreds of thousands of dollars went missing with this bookkeeper. It wasn’t until after the fact that the CEO realized the Achilles heel of it all: granting her access to the mail.

On page 29 of his eBook The CEO’s Guide to Reducing Fraud, you can find out how to minimize the risk of falling victim to payroll fraud. The segregation of duties, for starters, is essential.

Every business needs a team, whether it be internal or external with the implementation of resources like GrowthForce it just has to be. If a single employee, such as a bookkeeper, is insisting on doing payroll, that’s a red flag.

From my perspective as a business owner, payroll should always be outsourced. I don’t do payroll myself, so I recommend ADP, which my business has a good relationship with. Steve advocated for Insperity because any payroll tax change requires his signature (another crucial defense against fraud).

We see major issues without KBA signatures. Rogue signatures and the signing of unapproved contracts open doors for payroll fraud. Not only that, but it is expensive to sue somebody or even prove that they’ve committed fraud when records are manipulated. Seriously, outsource payroll!

Steve’s eBook itself also serves as a great tool, calling attention to how businesses get ripped off, what you can do about it, and how to set up a whole system of internal control. Accounting professionals and small businesses alike can utilize GrowthForce on an à la carte basis to improve performance and profitability.

That said, with a reliable team and consideration of the tips Steve and I provided, you too can avoid payroll fraud.

Tune in to the next Fraudcast (and article) for a better understanding of check tampering.

About Dawn W. Brolin, CPA, CFE

Dawn W. Brolin

Dawn is a Certified Public Accountant, Certified Fraud Examiner, and CEO of Powerful Accounting, LLC.  Powerful Accounting is a nationally recognized accounting, tax, forensic and fraud, IRS and State Agency audit professionals as well as a QuickBooks consulting firm. Recently, Powerful Accounting has partnered with Anderson, Brolin & Coba CPAs, LLC – a powerhouse tax preparation, consulting and wealth management firm, where Dawn is a partner.  Dawn also founded, Your Turn, LLC, which specializes in application consulting and implementation for small businesses.

Dawn’s list of professional accomplishments is extensive and includes speaking and consulting for prestigious companies such as Intuit, TSheets by Intuit, Finagraph, SmartVault, Skyline Cloud Services, Mike Michalowicz, Tory Johnson, MSNBC, SEEMA, AbacusNext, The Woodard Group, and many more.  Named “Top 25 Most Powerful Women in Accounting” 2012-2017 by CPA Practice Advisor, a “Top 10 Managing Partner Elite – Great Accounting Firm Leader” in 2017 by Accounting Today, and selected as a “Top 40 Under 40” by CPA Technology Magazine in 2009. Dawn continues to pursue excellence with the support of her amazing Team at Powerful Accounting. 

Dawn has been featured on MSNBC “Your Business” and has spoken at Intuit’s QuickBooks Connect, Scaling New Heights, Sleeter Conference, TD Bank North locations, Tory Johnson’s Small Business Spark and Hustle Tour, Live Your Legacy Summit, and many more.  Her commitment to continuing education motivates her to teach regularly to bring new techniques and processes to the accounting community.

Professionals seek out Dawn W. Brolin, CPA, CFE and her educational keynotes, webinars and articles.  They enjoy her energetic and humorous delivery as well as the action ability and depth of her content. 

Video of Dawn W. Brolin, CPA, CFE is available on YouTube: https://youtu.be/0olPvGhfF9M

 

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