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Payroll fraud occurs when an employee submits false time to receive additional payments from their employer.
Key Takeaways
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While payroll fraud only accounts for 9 percent of cases, the median loss per case amounts to $62,000. Because the amounts are so great, payroll fraud warrants special attention.
It may be a red flag if an in-house bookkeeper insists on doing payroll. It doesn't make sense for a bookkeeper to control this function since outsourcing payroll costs less than doing it in-house and it helps reduce fraud.
While the size of the organization is certainly a factor if payroll is done in-house, this type of fraud can impact both small and large businesses when it comes to employees tracking and logging their hours worked. Therefore, extra attention must be paid towards establishing a system of review to reduce the likelihood of false compensation claims.
Here is one example of a common Payroll Fraud scenario...
An interior designer had a bookkeeper who “did everything.” And it was precisely because he wore all the hats in the accounting department that he found a way to steal without getting caught.
The bookkeeper had editing rights to the
Because payroll tax withholdings are the amount an employer withholds and remits to the IRS on behalf of each employee, and that amount differs per employee, it wasn’t difficult to conceal the additional funds.
After padding the amount of taxes deposited, the bookkeeper altered his tax withholdings on his W-2 and changed the payroll tax return. And that meant that at the end of the fiscal year, he could claim a higher tax refund.
Because the bookkeeper did everything, the CEO would never have detected the theft unless someone reviewed the payroll tax adjustments. Fortunately, the client brought our team in, and we were able to uncover the payroll fraud. You should not handle payroll inhouse. The risk is great and the cost to outsource it is very low.
The most frequently occurring type of fraud in small businesses is billing fraud, which amounts to 27.1 percent of all cases.
Read on about How to Prevent Billing Fraud...
Statistical Source: ACFE 2020 Report to the Nations on Occupational Fraud and Abuse (http://www.acfe.com)