Guest blogger Edward Nagel, CPA,CA●IFA, CBV is Principal and founder of nagel + associates, Forensic and Investigative Accountants
DID YOU KNOW: Payroll errors occur in 100% of organizations?
Welcome to my six-part blog series on payroll errors. Over the next few weeks, I will share a number of real-life case studies and provide recommendations on detecting and preventing both intentional and unintentional payroll errors. If you take one piece of advice from my blog series, it’s that small businesses need to have the right audit control measures in place to help prevent and detect suspicious activity.
Let’s take a look at real-life scenario one, based on “Randy Stewart”. While reviewing his case, try to determine whether you think the payroll error committed is intentional or unintentional.
“Randy Stewart” was a long-term employee. He was responsible for managing the company’s finances, and processing bi-weekly payroll. Sometimes he got help from part-time and seasonal staff.
The Payroll Discrepancy
Randy was preparing some routine financial reporting, when he came across an apparent payroll error. The employee submitted a time sheet for 9.5 hours, however the department schedule indicated the employee was only committed for 4.5 hours that day.
He understood that supervisors were required to review and sign-off on the weekly payroll time-sheets.
Intentional vs. Unintentional Errors
Randy came up with two alternative theories that might explain this apparent discrepancy:
Theory No. 1– The easiest explanation was the part-time staff simply made an unintentional mistake when adding up the hours worked for that particular day and the supervisor did not catch the ‘error’.
Theory No. 2 – What if the error is more serious and could represent an example of an intentional error? In this theory, the part-time staff and supervisor were working together. The staff would inflate their total hours and provide a financial incentive to the supervisor in return for not identifying the mistake.
Which theory do you think applies to this case? As indicated by the example provided above, the difference between a legitimate error in payroll and intentional errors can often be difficult to identify. We would like to think everyone has the best of intentions, but unfortunately that isn’t always the case. It can be difficult to know whether a payroll error was intentional or not, however there are warning signs to be aware of. We will cover these over the blog series.
In the next blog post, we will discuss and define how to detect a ghost employee on your payroll.
Edward Nagel, CPA,CA●IFA, CBV, Principal and founder of nagel + associates, Forensic and Investigative Accountants