Being an entrepreneur and running a business is a tough job, even when everything is going smoothly. You need to be prepared for every possible situation that may arise and test your quick decision making.
Every business owner is afraid of discovering fraudulent activity, especially finding out they are being scammed by a trusted employee. But your money is for your business, and you don’t want to keep harboring a dishonest employee, especially someone who can get you in trouble with the IRS.
Payroll fraud is real and the number one source of accounting theft in businesses. According to statistics from the Association of Certified Fraud Examiners (ACFE), 27 percent of all companies face cases of payroll fraud and the incidence in small companies is almost twice as high as in large companies. Non-profit organizations are not exempt from this criminal activity either.
Let’s consider a case. Tiffany Couch, a forensic accounting specialist, shared some payroll fraud stories on a podcast with Accounting Today that will put things into perspective.
A trusted 14-year-old employee at a dentist’s office is found guilty of cash skimming. She is a sweet person, hardworking and popular with colleagues. She handles cash receipts and bank deposits, she handles QuickBooks data, she handles all money-related tasks. With no one checking on her, she has free access to steal them. She starts paying herself extra paychecks, she rigs the incoming cash bills, and she doesn’t deposit all the money into the official bank account.
The dentist goes through some tax forms one day, finds out that she’s being paid extra, and confronts her about it. She initially denies it, then says that the boss agreed to pay her by the hour for all the overtime she has worked over the past year, and gets angry at him for not believing her. The dentist, who avoided the fuss and wanted to clear up a few facts before the conversation continued, said they would talk about it later in the day. The lady went to lunch and never returned. Checking the accounts and data revealed a plethora of discrepancies, deleted receipts and missing cash register postings. In all, she stole over $400,000 and is now in jail for it.
Payroll fraud may seem difficult to commit, but if well disguised it can take months (or even years) to uncover. It can happen in any industry, be it a small business or a large corporation. The key is to regularly review your accounts yourself. In the case above, too much trust has cost the dentist a lot of money. Had he checked or counted bills beforehand, things would have turned out differently.
Using QuickBooks Payroll can save you a lot of hassle. It has remote access capability, so you can go through your accounts from anywhere, anytime. This way you are always aware of your cash flow and can check financial data from the comfort of your own home. They can also be adept at catching a scammer in the act and with evidence.
The following are the most common payroll scams:
1. Ghost staff
A fake or terminated employee is paid paychecks, which the scammer cashes for himself. This is common in organizations with a large number of employees headed by a manager. It is vital to conduct regular payroll audits to ensure employees are receiving the correct pay. Check if multiple deposits were made to the same bank account or if checks were made out to employees at the same address.
2. Tariff manipulation
When an employee who has access to payroll accounts increases their own salary or pays themselves for extra overtime or a bonus. This scam clearly takes advantage of the trust that the employer has in the employee. As a business owner, you should remember that it’s okay to trust your employees, but trusting too much is not wise. Establish internal controls and regularly monitor critical financial records yourself.
3. Timesheet Adjustment
This is common in companies where employees are paid on an hourly basis. Employees can clock in time for absent employees or inflate their own hours. But if the supervisor is strict, this can be avoided.
Payroll is a company’s largest expense, and payroll fraud can cause great damage to the company’s finances and reputation. It is of paramount importance that all financial transactions are monitored in detail so as not to leave anything to chance. Hosted QuickBooks give you many benefits, including the right to work on your QuickBooks from a remote location. It’s important to keep a close eye on cash flow and stay current.