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Building a Team to Avoid Payroll Fraud


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.

Jan 29th 2019
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For the most part, we think we know what payroll data 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.

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