Payroll fraud seems to happen a lot, we hear about the bigger cases on the news but like an iceberg, I’m sure there’s 90% more under the surface that we never hear about- probably because they are small instances. If small business would take steps I’ll spell out, they could eliminate this problem. The last thing I want as a small business owner in the payroll business, is to be regulated by the pinheads in Washington but it may come to that.
First, if you use one of the big payroll services like Paychex or ADP, or a large regional one, you’ll be fine. These large service bureaus take all the funds from your account and remit the taxes. These big outfits are audited each year by accounting firms who make sure they are fulfilling their obligations. Many of these big ones won’t bother with some or all of your small local taxes so you will have to handle those yourself, so be aware of that.
Beware of the small payroll services if they are taking custody of all your payroll funds, the pay and the taxes, and remitting the taxes themselves, there is real danger here! What happens is they don’t remit the taxes, and because they make you sign a power-of-attorney that has all correspondence from the government be re-directed to them, you’ll never know when the late notices show up.
Be aware, in case after case, the IRS has ruled even when you’ve been defrauded, YOU are responsible for all taxes and fines. Good luck suing someone who is in jail, skipped town, and has already spent the money. I know of an instance in my hometown where a small payroll service guy defrauded hundreds of small businesses and went to jail, it actually drove businesses into bankruptcy. The guy was living well for a while, trips to Europe, etc. Disgusting. You need to find out if they are audited! Who’s watching them. If not audited, I’d stay away for sure. Too risky.
Other than the small services that impound your funds, fraud happens too when it’s your own employee most of the time. Usually the owner of the small business never had a clue because the person was the bookkeeper, had access to the mail, and intercepted all the nastygrams. How to prevent this? Easy, as the small business owner, either insist all mail come to you first, unopened, or get a P.O. Box so you know you get the mail. Watch for late notices from IRS, State, and local. Insist that bank statements be unopened and you open and look for the tax payments coming out. Get proof that your taxes have been remitted, do not take their word for it, if your employee is stealing, they are already lying to you! Also make sure there are no phony employees on the payroll, check the records. And for God’s sake, do NOT allow your bookkeeper to sign checks! That’s your job!
At my payroll service, we do not have you sign over power-of-attorney, notices go to the business, but the biggest thing is we do not take custody of payroll monies. We print all checks using the client’s checking account numbers. They can go online every day if they want and SEE that the taxes are indeed getting paid. Everything is completely up front, out in the open, and safe. We have NO access to money, in essence, we are just doing the calculations, and PRINTING the checks for you to sign. It works like a charm.