Payroll Fraud Detection and Prevention with QuickBooks Hosting

Being an entrepreneur and running a company is an exhausting task, even if everything goes well. You must be prepared for every possible situation that may arise and put your quick decision-making skills to the test.

All business owners are afraid of discovering fraudulent activity, especially discovering that a trusted employee is cheating on them. But your money is for your business, and you don’t want to keep harboring a dishonest employee, particularly someone who could get you in trouble with the IRS.

Payroll fraud is real and the main source of accounting theft in companies. According to statistics provided by the Association of Certified Fraud Examiners (ACFE), 27 percent of all businesses face payroll fraud cases and almost twice as many in small businesses as in large ones. Non-profit organizations are also not exempt from this criminal activity.

Let’s see a case. Forensic accounting specialist Tiffany Couch shared some payroll fraud stories in a podcast with Accounting Today that will put things in perspective.

A 14-year-old trusted clerk at a dentist’s office is convicted of cash theft. He is a sweet person, hardworking and popular among his colleagues. He handles the cash coming in and the bank deposits, he handles the QuickBooks data, he handles all the money-related tasks. Since no one is monitoring her, he gives her free access to steal it. He starts paying himself extra paychecks, manipulating the cash bills that come in, and not depositing all the money in the official bank account.

The dentist reviews some tax forms one day, finds out he’s being paid more, and confronts her about it. She denies it at first, then says that the boss had agreed to pay her by the hour for all the overtime she did last year and she gets mad at him for not believing her. The dentist, avoiding the fuss and wanting to clear up a few facts before the conversation went any further, said they’d talk about it later in the day. The lady went to lunch and never came back. When the accounts and data were verified, she showed a large number of discrepancies, deleted receipts and missing cash entries. In all, she stole more than $400,000 and is now serving time in prison.

Payroll fraud seems hard to commit, but if it’s well hidden, it can take months (or even years) to uncover. It can happen in any industry, be it a small store or a large company. The key is to periodically review your accounts yourself. In the case above, too much trust cost the dentist a lot of money. If I had reviewed or counted bills earlier, the case would have been different.

Using QuickBooks Payroll can save you a lot of trouble. It comes with the facility of remote access, allowing you to review your accounts from anywhere at any time. This way you always know about your cash flow and can check financial data from home. You can also cleverly catch a scammer in the act and with evidence.

The following are the most common payroll fraud schemes:

1. Ghost Employee

A fake or fired employee receives paychecks that the scammer collects for himself. This is common in organizations with a large number of employees that are managed by a supervisor. Regular audits of payroll reports are crucial to ensure the correct pay reaches employees. Check for multiple deposits to the same bank account, or checks issued to employees at the same address.

2. Manipulation of the spleen

When an employee who has access to payroll accounts raises his or her own salary or pays himself or herself for overtime or a bonus. This fraud is clearly taking advantage of the trust that the employer has in the employee. As a business owner, you need to remember that trusting your employees is fine, but too much trust is not wise. Establish internal control and regularly monitor critical financial records.

3. Time sheet adjustment

This is a very common occurrence in companies where employees are paid by the hour. Employees can punch in time for absent employees or inflate their own work duration. But if the supervisor is strict, this can be avoided.

Payroll is a company’s largest expense, and payroll fraud can do a lot of damage to a company’s finances and reputation. It is of utmost importance that all financial operations are monitored in detail so as not to leave anything to chance. Hosted QuickBooks gives you many benefits, including the right to work on your QuickBooks from a remote location. Keeping a close eye on cash flow and staying up to date is essential.