Payroll Fraud & Privacy

1. Payroll Fraud & Privacy Missey Jackson, CPP Payroll Director Parallon/HCA

2. Topics • Payroll Fraud • Statistics • Red Flag Indicators • Types of Payroll Fraud • Payroll Fraud Prevention • Recent Payroll Fraud Cases • Payroll Privacy • Questions

3. Payroll Fraud Statistics • Payroll Fraud happens in 27 percent of all businesses • Payroll Fraud occurs nearly twice as often (14.2 percent) in small organizations with less than 100 employees than in large ones (7.6 percent) • The average instance of payroll fraud lasts about 36 months. • Payroll Fraud is not 100% preventable, but catchable. Anyone can steal at any time. Key is catching it and minimizing the risk.

4. Payroll Fraud Red Flag Indicators • Unexplained wealth or Living beyond their means • Financial Problems e.g. Credit card or other debt • Family problems e.g. divorce, child access issues • Gambling problems e.g Poker Machines • Addiction to drugs. If an employee displays any of these indicators, then its worth reviewing your key controls and determining if there is any other action required.

5. Types of Payroll Fraud • Not paying back payroll advances • Prevention - Keeping proper records when employees receive advances, closely monitoring the repayment, this form of fraud is easy to find and rectify • Buddy Punching • Prevention – Review time sheets/punches compared to actual, develop tools to help catch (ie. Time Bandit), hold employees accountable for this fraud, up to and including termination

6. Types of Payroll Fraud Con’t • Ghost Employees • Prevention – Audit your payroll records, keep up with how many employees you have, separation of duties, complete “Surprise” payoffs • Pay check Diversion • Prevention – Keep paper checks locked up, secure, blank stock, direct deposit of all checks

7. Types of Payroll Fraud Con’t • Pay Rate Alteration • Prevention – Separation of duties, Audit of pay rates to actual pay, ensure accurate support for system override • Timecard Falsification • Prevention – Automated system vs. manual time cards, manage the employees by ensuring they are clocking in/out, not allowing them to abuse the system of rounding,

8. Types of Payroll Fraud Con’t • Exaggerating Sales Commissions or Figures • Prevention – Make sure you do follow ups on what they sold versus what was claimed, perform audits • Workers Compensation Fraud • Prevention – Make sure your employees claiming injury was actually hurt at work, either thru camera surveillance, or supervisor • Worker Misclassification • Prevention – Ensure classifications are accurate based on Department of Labor definition of an employee versus a 1099 worker

9. Types of Payroll Fraud Con’t • False Expenses or Exaggerated Expenditures • Prevention – Make sure your employees keep track of all receipts, and watch for counterfeit or fake receipts. • Employee and Supervisor Time Sharing • Prevention – Ensure you are rotating employee/supervisor roles to prevent alliances from forming where they could split the extra money from added overtime hours, etc.

10. Top 3 Types of Payroll Fraud • Timecard Falsification • Ghost Employees • Worker Misclassification

11. Preventing Payroll Fraud • Conduct Background Checks • Limit Access to Payroll Information • Segregation of Duties • Review Reports Every Time • Use a Positive Pay Service • Promote Direct Deposit and Pay Cards • Biometric Time Clocks • Fingerprint authentication • Facial recognition

12. Recent Payroll Fraud Cases • New York City payroll fraud case, $40 million, by kickbacks (November, 2013) • A former executive of a company that provided payroll tax services to small businesses pleaded guilty Thursday to mail fraud and money laundering charges over his role in a $110 million tax fraud (March, 2013) • Gold’s Gym Payroll Manager – From January 2011 thru July 2013, Embezzled $365,000, by falsifying timesheets • 45 IRS Employment Tax Cases in 2013

13. Payroll Privacy • Consolidate all your employees personal information in a secure location • Keep employment records in a password protected computer environment • Make records accessible only to those directly involved with HR matters • Do not use Social Security numbers as employee IDs • Install a firewall • Encrypt emails

14. Payroll Privacy • Potential employers will research potential employees, it’s important to ensure you know what is out there and that it is professional • Posting information online can get you fired. Some employers have policies regarding this

15. Questions

16. Resources • http://www.rushmore-forensic.com.au/forensic-accounting-sydney/fraud-investigation/payroll-fraud • http://www.forbes.com/sites/matthewgarrett/2013/09/10/payroll-fraud-a-big-threat-and-how-to-avoid-it • www.IRS.gov • http://www.infostructures.com/mm/protecting-employees'-privacy.asp • http://jobsearch.about.com/od/jobsearchprivacy