Methods of Occupational Fraud You Need to Know

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Businesses in 2017 lost over $7 Billion dollars due to fraud and that number, I am estimating, will grow in 2018. 

Many business clients deny their likelihood of becoming a victim because “Betty has been working with me for over 20 years and she would NEVER steal from me.”  Trusting those who work with you and for you is important, but I would follow that up with the fact that you need to do more than that. Verifying that things are in order including timesheets, payroll taxes, accounts receivable, accounts payable, and more is critical to all businesses. 

Occupational Fraud is broken into three categories: 

  1. Asset Misappropriation (the most common)
  2. Corruption
  3. Financial Statement Fraud 

Let’s look at two examples of occupational fraud and how you can help you and your clients from this common, but avoidable, crime.

1. Time Stealing:  Let’s take a look at an employer with five employees, each of which overstates their daily time by 15 minutes. We will also assume they each make fourteen dollars and hour for this example. 

If you multiply the impact of the gross wages plus the payroll taxes, the amount of money stolen due to time stealing would be approximately a $5,000 loss. If we use the same assumptions, but increase the hourly rate to $22 an hour, the approximate loss would be $8,000. 

I don’t know about you, but I can tell you I would rather keep that money in my business or put it in my pocket! 

SOLUTION:  I highly recommend having your clients use TSheets by QuickBooks.

2. Payroll Tax Fraud: Do you have clients who handle their payroll internally?  Does the employee who prepares the payroll ever take a vacation?  Have you seen the payroll preparer have an unexplained lifestyle change? These are simple questions that can lead to payroll tax fraud. 

The most frustrating thing about this one is that it is 100 percent avoidable. Utilizing a full service payroll company is more critical now than ever before. It takes an estimated 36 months to detect a payroll tax fraud and on average will cost the employer hundreds of thousands of dollars. 

As you would imagine, the IRS does not care what happened, they still will want their money. It is also highly unlikely that the perpetrator still has the money they stole. I beg you to make every one of your clients go with a full service payroll platform. 

SOLUTION:  I highly recommend using ADP or a trusted payroll service.

Conclusion

As we continue to continually talk about fraud throughout this column, I will also discuss tax fraud.  People are financially starving and want more. Unfortunately, 96 percent of crimes are committed by individuals who have never committed a crime in their lives. 

Desperate times can result in desperate measures, let’s work together to fight against fraud!

Next week’s topic: Means of Detection 

Related Articles

6 Tips to Help Auditors Uncover Fraud

11 Ways to Prevent Payroll Fraud

 

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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