1 thepayrollfactory.com THE PAYROLL FACTORY thepayrollfactory.com

2 thepayrollfactory.com The Payroll Factory Service is the Difference Presents Payroll Fraud Information & Discussion

3 thepayrollfactory.com What is the problem? The Payroll Factory Service is the Difference What is the problem? Dishonest Employees Financial Pressures on the employee (rise of credit and other debt) Layoffs – commit fraud knowing they are leaving the company Kick backs from other employees Stealing Time

4 thepayrollfactory.com Demographics Men59.1% Women40.9 % High School Degree34 % Some College21 % Bachelor’s Degree34 % Postgraduate Degree11 % Association of Certified Fraud Examiners, Easy Small Business HR, Institute for Corporate Productivity, Jack L. Hayes International, Inc.Research Date:

5 thepayrollfactory.com According to the Association of Certified Fraud Examiners, payroll fraud the number one source of accounting fraud and employee theft 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. That’s three years of paying ghost employees or overpaying existing ones. In Delaware, a School District Finance Director paid himself an extra $150,000 over eight years. He also underpaid several school administrators a combined $50,000 in one school year.

6 thepayrollfactory.com Other Employee Theft Statistics Percent of total thefts committed by a manager 37.1 % Percent of total thefts by an employee who had ideas stolen at work 29 % Average time office fraud lasts before detected 2 years Retail employees arrested for workplace theft 1 in 30 Association of Certified Fraud Examiners, Easy Small Business HR, Institute for Corporate Productivity, Jack L. Hayes International, Inc.Research Date:

7 thepayrollfactory.com The Payroll Factory Service is the Difference How big is the problem? Employee Theft Statistics Data Amount stolen annually from U.S. businesses by employees$50,000,000,000 Percent of annual revenues lost to theft or fraud7 % Percent of employees who have stolen at least once from their employer75 % Percent of employees who have stolen at least twice from their employer37.5 % Percent of all business bankruptcies caused by employee theft33 % Source: Association of Certified Fraud Examiners, Easy Small Business HR, Institute for Corporate Productivity, Jack L. Hayes International, Inc.Research Date:

8 thepayrollfactory.com The Victims Loss by Type of Organization VictimPct. cases Median loss Government agency17.6$100,000 Publicly traded company31.7$200,000 Privately held company36.8$210,000 Not-for-profit organization13.9$100,000 Loss by Number of Employees NumberPct. casesMedian loss 1–9936.0$190, – $179,000 1,000–9, $120,000 10, $150,000 Source: 2006 Association of Certified Fraud Examiners Report to the Nation on Occupational Fraud & Abuse The Payroll Factory Service is the Difference

9 thepayrollfactory.com Ways to Cheat Ghost employees –Someone on the payroll who does not actually work for the victim company Falsified Hours and Salary –Buddy Punching –Online RIO Calculator available Altering the Payee Name on a check Withholding Tax Schemes Commission Schemes False Workers Compensation Claims The Payroll Factory Service is the Difference Paying a Nonexistent Employee Can Be Expensive Source: Occupational Fraud And Abuse,by Joseph T Wells,2002

10 thepayrollfactory.com Vast majority of incidents of employee fraud goes undetected due to: –No employee screening –No internal audit control/procedures –No monthly reconciliation of accounts –No separation of duties of employees –Bad habits by Owners/Management –Emotional Issues

11 thepayrollfactory.com The Payroll Factory Service is the Difference Detection of Fraud Tip from employee26.3 % Accidental discovery18.8 % Internal audit18.8 % Internal controls15.4 % External audit11.8 % Tip from customer 8.8 % Anonymous tip 6.2 % Tip from vendor 5.1 % Notification from law enforcement 1.7 % Source: Association of Certified Fraud Examiners, Easy Small Business HR, Institute for Corporate Productivity, Jack L. Hayes International, Inc.Research Date:

12 thepayrollfactory.com Reducing and Preventing Fraud Owners Involvement Select the Right Employee - Verify Past Employment - Criminal Conviction Checks - Drug Screening - Reference Checks - Have Employee Bonded Perform Audits -Expense Reports -Payroll -Sales -Cash -Suspense Accounts Job Rotation and Separation of Duties Thorough Internal Control Retain Outside Payroll Fraud Consultant Allow Payroll Provider to Control Tax Monies The Payroll Factory Service is the Difference

13 thepayrollfactory.com Behavioral Red Flags In 81% of cases, the fraudster displayed one or more behavioral red flags that are often associated with fraudulent conduct. Living beyond means 36% Financial difficulties 27% Unusually close association with vendors or customers 19% Excessive control issues 18%

14 thepayrollfactory.com Technology State of the Art Time Clocks –Biometric Hand Scanner –Web-based Systems Automating Time Systems Time Management The Payroll Factory Service is the Difference

15 thepayrollfactory.com Thank You for Attending Today’s Seminar If you have any further questions about Payroll Fraud Please contact The Payroll Factory