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MyPayrollHR: Mitigating the risk of payroll fraud

An estimated 5,000 business owners were left high and dry last week when MyPayrollHR reportedly diverted roughly $35 million in employee paychecks and shuttered its doors without notice. The CEO of the payroll company hasn’t been heard from since.

The impact of payroll fraud can be devastating for employees and business owners alike. While typically a rare occurrence, another seemingly similar—and larger in scale—event took place in July, when Interlogic Outsourcing Inc., or IOI, failed to pay $122 million in wire transfers.

The two alleged occurrences of payroll fraud in such close proximity leave many employers wondering what can be done if they’re affected and how to prevent falling victim in the first place.

For any employer affected by an apparent payroll fraud issue, the first step is contacting law enforcement and their attorney. Payroll fraud is a major legal issue with potentially catastrophic repercussions, and companies must protect themselves in any way they can. After a legal team is engaged, employers can engage corporate investigations experts, like Rehmann CIS, to examine the issue. Such experts can work to identify what occurred and where the money went, conduct audits and identify the total exposure—from both an IRS and employee perspective.

To prevent falling victim to payroll fraud, the best preventative measure employers can take is to be sure they know who they’re getting into business with. When it comes to payroll, business owners are advised to engage only with companies that have the resources to fund their accounts in the event of a shortfall.

While public companies’ financials are readily available, business owners can inquire about the financial resources of privately held payroll providers. While not trying to capitalize on a bad situation, Rehmann is an example of a privately held company that provides payroll services and has the resources necessary to protect the employer if something bad should happen. To get a grasp of who you’re working with, ask for the company’s financial statements or references as a prerequisite for entering into a contract.

Due diligence is critical when selecting a payroll partner. Fraudulent activities in payroll can have immediate, devastating consequences on employers and their employees. There is no simpler way to lose employees’ trust than to come up short on pay day—and employees will often look to their employer to make things right.

The outcome of the MyPayrollHR issue remains to be seen. Meanwhile, IOI went bankrupt and is in the midst of a lawsuit alleging multimillion-dollar fraud. While no one can predict the next payroll fraud scandal, companies can take a hard look at business partners now to arm themselves against future events.

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