Payroll Fraud – A Major Threat for SMBs & How Can It Be Minimized
MEDIAN LOSS DUE TO FRAUD FOR SMALL AND LARGE BUSINESSES
Source: 2018 ACFE report
According to the Association of Certified Fraud Examiners, payroll fraud is the #1 source of losses to US businesses.
This article outlines the ways in which SMBs can minimize the risk of payroll fraud
- 1. Bank Reconciliation
Bank reconciliation is a critical accounting procedure which ensures that the cash balance shown on a company’s balance sheet and bank statement is accurate. Completing monthly bank reconciliations enable SMB owners to identify and explain differences that may result from the timing of posted activities, errors made by the bank or the company or fraudulent activities of a company’s employees.
- 2. Conduct Surprise Audits
Conducting a surprise payroll audit always works in the favor of an SMB as it helps to minimize both financial and regulatory risks by giving owners the opportunity to correct the problems proactively. Many unscrupulous employees anticipate any regular audits that occur and cover their tracks accordingly, but a surprise audit can help in exposing the usually hidden discrepancies. Also, the simple threat of audit can deter fraudulent employee behavior.
According to the ACFE, 12% of small businesses detect fraud by conducting internal surprise audits
- 3. Go External
SMBs can eliminate the risk of in-house fraud and can feel secure in knowing that their payroll is being handled appropriately by using an outsourced payroll service provider. These providers have sophisticated systems in place to catch payroll abuses and then alert clients to the possibility of payroll irregularities. Also, they stay current on all federal, state and local regulations in a way that a small or medium business just can't, giving owners’ peace of mind with regards to their compliance.