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Methods of Occupational Fraud You Need to Know

Oct 3rd 2018
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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.


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 

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