What Is the Penalty for Payroll Fraud?

By falsifying employment records, they can collect the ghost employee’s paycheck as if it were their own. (1) The employee has to have access to a bank account or be willing to forge an endorsement on a payroll cheque to convert it to cash. The problem can be overcome if the ghost is an accomplice, but the accomplice will be identified if payments are traced and will have difficulty proving that they worked for the victim business.

Learn how in our eBook “Conducting Fraud Investigations with Case Management Software”. Obviously, no business owner intentionally hires employees with fraudulent behavior. Most candidates put their best foot forward during the hiring process, making it difficult to spot certain behaviors. But, you need to do your due diligence before you extend a job offer. Knowing whether your taxes are being deposited correctly can help you avoid IRS penalties that result from not depositing taxes. And, it can help you catch payroll schemes before your business loses too much money.

Description of Ghost Employee Frauds

The apocryphal tale of workers having basic pay paid to the family joint account whilst overtime and bonuses are paid to a secret “fun” account can happen legitimately. We recommend you implement a system to check the books on a quarterly and annual basis to search for errors that may tip off incidents of payroll padding or ghost employees. https://www.bookstime.com/articles/payroll-fraud Employers generally benefit if workers are classified as independent contractors rather than employees because it exempts them from paying payroll taxes and providing fringe benefits. But misclassifying workers as independent contractors is a form of payroll tax fraud and can result in IRS penalties, back taxes and legal expenses.

• If you’re an employee who’s had your wages illegally withheld by an employer, you may be entitled to back pay .
• Getting into legal battles, contacting authorities, and attempting to recover stolen money can make for difficult—and expensive—situations.
• The risk of a ghost being added increases when there is a high turnover of staff.
• Employers can commit this fraud by withholding the wages of the workers.

Payroll fraud is typically conducted by a human resources staff or someone with simple access to the company payroll system. The culprit may create a fictitious employee or continue to pay a staff member who no longer works for the organization. They can collect the ghost employee’s paycheck as if it were their own by faking employment documents. Workers’ Compensation Fraud
Workers’ compensation fraud occurs when an employee fabricates an injury or falsely claims to have been hurt on the job to collect workers’ compensation. Being self-insured can have a direct impact on a company’s finances. Alternatively, this form of fraud can cost an insurance company a significant amount of money, prompting them to hike their premiums.

U.S. DEPARTMENT OF JUSTICE

For instance, IRS’ Employer’s Supplemental Tax Guide for worker classification guidelines severely penalizes workers for misclassification. June 19, 2013 (Reuters) – Three women pleaded guilty on Wednesday to criminal charges arising out of what prosecutors say was a corrupt New York City payroll project that cost the city more than $600 million. The Michigan Attorney General is leading the fight against this horrific crime by prosecuting the state’s first-ever criminal cases under state law banning human trafficking in Michigan. Victims of human trafficking are in bondage through force, fraud or coercion, for the purpose of sex or labor exploitation.

• Human resources is one of the most varied business areas and carries high responsibility.
• Payroll fraud is most simply defined as employees cheating the payroll system at their place of employment to receive funds to which they are not entitled.
• Consumer Alerts are not legal advice, legal authority, or a binding legal opinion from the Department of Attorney General.
• Staff commits payroll fraud by indulging in malpractices like time theft when they clock in the hours that they do not work.
• In 2007, he formed his own company, and now spends much of his time writing and lecturing on all aspects of payroll.