Benefit Plan Fraud Prevention: Developing Operational Controls for Payroll Audits

Alex Helfand, ENCE, Computer Forensic Specialist

There are several fraud risks inherent in the payroll audit process for multiemployer employee benefit plans, as well as risk that the revenue will be lost from inefficient operations.  When was the last time you analyzed your payroll audit process to see if it complies with your internal control policies?  How efficient are your payroll audits?

Payroll audits should be scheduled in a timely manner (especially when they are project-related) and completed as efficiently as possible; the more efficiently the audits are completed, the more money you will save. After the audit is complete, the results should be conveyed in a timely manner, especially in the case of delinquent employer accounts. There should be adequate controls surrounding the collections process for delinquent contributions.

Whether your payroll audits are conducted in-house or they are outsourced, there are both fraud risks and cost-saving opportunities to consider:

In-House Payroll Audits.  The first component to consider is the skill set of your employees: do you have staff that are capable and possess the knowledge to complete the audits? Another factor is the volume of audits that you will need to complete.   If you do not have a large number of payroll audits, your payroll auditors will need additional responsibilities to fill their time.

When conducting payroll audits in-house, it is essential to establish sufficient controls, policies and procedures.   If you do not currently have a set of policies or an audit program, you should consider the costs of implementing them.

Outsourcing.  If you have an abundance of audits to be performed and not enough employees to cover them on a timely basis, you might benefit from outsourcing.   Another benefit to outsourcing is that you will only have to pay for the audits you need and not incur the costs of a regular salary.
There is one commonality for both in-house and outsourced payroll audits: collections. Whether or not you decide to complete payroll audits in-house or to outsource them, you will need someone to follow up with delinquent employers to collect payments.  The collections process is a crucial piece of the payroll audit process.  You should maintain a sound internal control structure that includes adequate  record retention of delinquent employers,  attempts to collect the amount due and, most importantly, collections of the past due amounts. This structure needs a sufficient number of employees involved in order to maintain proper segregation of duties.  Finally, there should be policies in place giving guidance as to when to turn over delinquent employers to legal counsel.

In conclusion, look at how your payroll audits are being performed and consider control structure, timeliness and efficiency. If you take the short amount of time to review your internal controls and operational procedures, you can likely reduce both the risk of fraud and your payroll audit costs.

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