Keep an Eye Out for Payroll
Fraud
Fraud is a potential problem that contractors can’t afford to
ignore. In fact, a recent national study of occupational fraud and abuse
conducted by the Association of Certified Fraud Examiners reported that the
construction industry had the second highest median loss per scheme
($500,000) among all industries surveyed.
Payroll fraud is one area where contractors can be especially vulnerable.
It’s not hard to see why since many construction workers are temporary, and
cash payments are common. Typically, payroll fraud falls into four main
categories:
-
Falsified hours or pay rates — Employees claim to have worked more hours than they actually put in or falsify a pay rate.
-
Ghost employees — Often using the Social Security numbers of dead people, an employee, typically in a supervisory position, creates one or more false identities and puts these non-existent workers on the company payroll. The fraudster then pockets the wages paid out to these fake employees.
-
False workers’ compensation claims — An otherwise healthy worker fakes an injury in order to claim disability benefits.
-
Commission schemes — An employee falsifies the amount of sales or wrongfully increases the commission rate.
Protections
Against Payroll Fraud
You can protect your business from payroll fraud by employing these
strategies:
Divide Duties: Don’t let the same individual handle all cash
functions — bookkeeping, collections, check writing and bank account
reconciliation. If you don’t already require two signatures on payroll
checks and large disbursements, start doing so immediately. In addition, put
controls in place that permit one employee to review payroll data entered
into your system by another employee.
Monitor Bank Statements: Make sure that you or another principal
receives all bank statements unopened. Review them promptly and check them
for unusual items.
Review Payroll: Review paychecks to be sure they include the
appropriate deductions for taxes and other items. Check payroll records for
evidence of duplicate names, addresses and Social Security numbers.
We can
review your internal controls to ensure that your accounting system and
procedures are as good as they can be.
If you would
like to speak
with a Somerset associate,
please let us know.
Work-In-Process is provided by
Somerset for our clients and other interested persons upon request.
Since technical information is presented in generalized fashion, no
final conclusion on these topics should be made without further review.
For additional information on the issues discussed,
please contact
Ken
Hedlund,
Jay Feller,
Steve George,
Chris
Mayfield or
Rebecca Ogle
of our
Construction & A/E Team.
This document is not intended or written to be used, and cannot be used,
for the purpose of avoiding tax penalties that may be imposed on the
taxpayer.
Somerset CPAs,
P.C.
3925 River Crossing Parkway, Third Floor
Indianapolis, Indiana 46240
317.472.2200 • 800.469.7206 • FAX 317.208.1200
www.somersetcpas.com
