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Tag: payroll
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7 TIPS TO PREVENT SMALL BUSINESS FRAUD
Indeed, our world is raging with RFID hackers and identity theft that target people. Despite the size, why wouldn’t you be worried about the likelihoods of business fraud? From the small grocery store to an independent hair stylist, there are many avenues through which scammers can apply their malicious intent, and cheat you.
No doubt, small businesses are exposed to business fraud. Yes, these businesses hire people they trust. But they can’t stop suspicious behavior—even though it’s from their esteemed partners.
Research shows that fraud affects one in four small businesses yearly – with SMEs losing about $25.6 million annually.
That said, small business frauds are occupational frauds, which usually ravage small businesses or start-ups. The Association for Certified Fraud Examiners (ACFE) has it that small businesses are generally more susceptible to organizational fraud than the larger ones.
There are several reasons why these frauds occur, and we shall briefly highlight some of them.
First, most business owners have their hands full and so have to rely on delegation. Here we see employees performing multiple functions. There are usually little or no checks and balances. It allows them to do some illegal stuff.
Second, sometimes business owners become too trusting with employees. It can lead to the absence of formal procedure, which means things don’t get recorded. This situation makes fraudulent activities very easy and mostly unnoticed.
Third, hiring fraudulent individuals can also make your business vulnerable to fraud. The reason is obvious.
We have now seen certain situations that can lead to fraud. It is then vital to look at ways to prevent it. But first, let’s take a look at some of the major fraudulent activities. Knowing this will provide awareness of how fraudsters carry out these fraudulent acts.
Cash theft
Cash theft is done through skimming, Larceny, or Fraudulent disbursement.
False invoicing
False invoicing involves presenting an invoice that does not relate to a real sale or payment. In cases like this, the perpetrators make the company pay for goods or services they did not receive.
Identity theft
Fraudsters or cybercriminals could steal a Company’s identity. It gives them access to the company’s vital documents. There are also cases where these fraudsters pose as legitimate suppliers and then advise changes to existing payment arrangements. You can uncover this type of fraud when real suppliers emerge.
Check tampering
Here, the fraudsters convert the organization’s funds by altering a check. Checks that have not been voided can be illegally cashed, with a forged signature.
Payroll fraud
An employee can make false claims for expense made and then demand a refund. Another common payroll fraud is the issue of “ghost worker.” This practice sees the payroll controller add a non-existent employee to the company’s payroll.
If the company is operating a direct payroll deposit policy, it makes it easy for the “ghost funds” to go straight to the perpetrator’s account.
A small business owner could have the best ideas and work hard to see the business thrive. However, fraudulent activities can threaten that success. How then can you stop this from happening? Below are 7 tips that can help prevent small business frauds in business.
How to prevent small business frauds in business
1. Put a fraud policy in place
Fraud policy should indicate repercussions for committing fraud (termination of employment, prosecution). These policies should cover both the tangible and intangible assets in your company.
2. Check the books from time to time
It is essential that you do this as a business owner, as it helps you to ascertain that there are no discrepancies. You can ask your bank to give you the bank statements of your business accounts. It helps you monitor your cash flow.
3. Get professionals or Accounting firms to handle your finances
This will bring for more transparency and accountability. Also, demand for daily or weekly reports from the accounting department.
4. Have a password policy
Try to update or change your passwords from time to time. Also, make the passwords a bit complex or difficult to decipher.
5. Segregate cash related functions
Don’t let one employee perform all the accounting and bookkeeping duties. Let there be a team or department that handles that. Why? It will make them serve as watchdogs to one another.
6. Be mindful of who you hire or do business with
Avoid recruiting or dealing with individuals with fraudulent or dubious tendencies. Working with fraudulent people will expose your business to fraud. Avoid them!
7. Restrict access to master file records of your vendors/clients
Any changes to be made should require supporting documentation. It also applies to payroll as it helps to eliminate illegal payments or changes in pay rates.
Building a business is an uphill task. When you put in so much work and effort, you should be able to rip the dividends and see your business grow. Fraud is a major threat to the growth of your business. So make sure you apply the above tips to keep your business safe and secure.
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IRS Releases New Draft of Form W-4
The IRS has been trying to release a W-4 that more closely reflects the changes in the Tax Cuts and Jobs Act (TCJA) that was passed in 2017. These changes made by the TCJA affected itemized deductions that were normally claimed on a Schedule A and eliminated personal exemptions. While the IRS did give us a new W-4 in February 2018, this new form did not cover situations for all taxpayers. In June of 2018, the IRS released another draft version of the W-4 for 2019. Unfortunately, that draft was also met with criticism from tax professionals who felt that the form still wasn’t enough to protect taxpayers from claiming the wrong withholding. Taking the criticism to heart, the IRS did not release a 2019 W-4. Additionally, the IRS announced that penalty relief might be available and, in March of 2019, the IRS expanded the relief for those taxpayers making payments of at least 80% of the tax shown on the return for the 2018 taxable year. Despite the penalty relief, concerns about withholding remained.
Yet Another Draft
Because of these concerns, W-4 revisions have remained a priority to the IRS. This morning, the IRS premiered another draft version of the W-4 to be used in 2020. That draft can be viewed here (downloads as a PDF). The draft form is a little bigger than the older W-4 – taking up a whole page and including additional worksheets.
“The new draft Form W-4 reflects important feedback from the payroll community and others in the tax community,” said IRS Commissioner Chuck Rettig. “The primary goals of the new design are to provide simplicity, accuracy and privacy for employees while minimizing burden for employers and payroll processors.”
While the IRS may believe this form is more simplistic, they want you to account for multiple jobs within your household, including whether you held more than one position or you and your spouse work and file jointly. Another section asks taxpayers to claim their dependents and to include the $2,000 child tax credit for each child under 17 or the $500 credit for other dependents. Additionally, taxpayers can use this form to clearly outline other types of income that didn’t have taxes withheld such as interest, dividends, or retirement income. Lastly, you can list the number of deductions you expect to claim if you think you’ll be itemizing.
For many, this form is anything but simplistic.
What About 2019
As we approach the mid-year point, we are running out of time for taxpayers who may have been unhappy with their 2018 tax return. “Two-income families and people with multiple jobs may be more vulnerable to being underwithheld or overwithheld following these major law changes,” the agency said in a statement.
In order to feel more certain about your 2019 return, we suggest you work with your CPA or take a look at the IRS Withholding Calculator to figure out how much to have withheld from your paychecks.
More Changes Coming
Although the IRS has given us a new draft to review, they are taking public comments at WI.W4.Comments@IRS.gov. Comments should be submitted before July 1, 2019 and they won’t be responding to any comments. The IRS is planning to release employer instructions soon. They advise that you see this website for the latest Form W-4 information and this website for the latest information on employer instructions.
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Employee or Contractor
Businesses must examine the relationship between it and the worker to determine if the worker is an employee or a contractor. Distinguishing between these two is important to determine if an employer must withhold income taxes and pay Social Security, Medicare taxes, and unemployment tax wages paid to an employee. Generally, the rule is that an individual is a contractor if the payer has a right to control or direct only the result of the work, not what will be done or how it will be done. To better determine how to properly classify a worker, the IRS asks that you consider these three categories:
Behavioral Control
A worker is an employee when the business has the right to direct and control the work performed by the worker, even if they don’t exercise that right. The categories that fall under behavioral control are:
- When and where to work, what tools to use, where to purchase supplies and services, etc. If a business gives these types of instructions, chances are, the worker is an employee.
- If instructions are more detailed it may indicate that the worker is an employee. Fewer direction means less control and the worker may be a contractor.
- Does the business use evaluation systems to measure the details of how the work is done? This would mean the worker is likely an employee.
- Is there on-the-job training? If yes, this is a strong indication the worker is an employee.
Financial Control
If the business controls the financial and business aspects of the worker’s job, they may be an employee. Consider these points:
- If the company invests significantly in the equipment the worker uses for someone else, they are likely an employee.
- If there are unreimbursed expenses, contractors are more likely to incur those than employees.
- Is there an opportunity for profit or loss? If yes, the worker is likely a contractor.
- Is the worker free to seek out other business opportunities of this same type? If no, they are most likely an employee.
- Do you pay a regular wage for an hourly, weekly, or commission? Then your worker is probably an employee. If you are paying for a specific project, they may be a contractor.
Relationship
The perceived relationship between the worker and business often indicates the classification of the worker. This may include:
- Written contracts describing the relationship between the parties. However, a contract stating a worker is an employee or contractor is not sufficient to classify a worker’s status.
- Benefits. If your business provides benefits, you are likely hiring an employee. Benefits are not usually extended to contractors.
- Is your relationship permanent? If you believe the relationship will last indefinitely as opposed to a specific period of time, you may be hiring an employee.
- Services provided are a key activity of the business. If the services the worker provides are a key aspect of the regular business of the company, you should classify them as an employee.
Consequences of Misclassification
If you accidentally classify a worker as an independent contractor and it is later discovered, your business will be liable for employment taxes. The IRS can help you determine the status of your workers with Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. IRS Publication 15-A, Employer’s Supplemental Tax Guide, is also a great resource.
If you have any additional questions or concerns about your workforce, please, reach out to us at Sound Accounts! We would love to help and “our strength is YOUR numbers!”
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Changes to Payroll Withholding
The IRS is tired of processing tax returns. While this may not be entirely true, the proposed changes to payroll withholding and their impact to the small business owner, make it feel that way.
The IRS recently announced that they are changing the W-4 form. This is the form that employees use to select the amount of taxes they want withheld from their paychecks. Testers state it’s more like filling out a tax form than what the W-4 has traditionally been.
The goal of all of this is to have your withholding and your tax liability match up. The government wants to get out of the business of offering refunds. Unfortunately, these changes are always most difficult on the hardest working people, the small business owner.
Most small business owners have unique challenges just filing their taxes. If calculating payroll withholding becomes just as difficult as filing your annual taxes, the task will seem unending. This is one of the many reasons that small business owners must stay current on changes in the IRS law.
Watch this space. We will post the latest information and its impact, as it becomes known. We will work with you to ensure that you stay compliant with the law. Remember, at Sound Accounts, our strength is your numbers.
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Outsourcing Payroll
Ask just about any CPA and they will tell you they don’t feel their clients have the expertise to properly manage payroll processing. Most will even suggest that their clients’ time would be more productive spent working on other aspects of their businesses. We tend to agree with them. Keeping up with the demands of payroll is not easy and it’s time consuming. Here are some of the other reasons you should consider outsourcing your payroll.
Saves Time
If your business uses paper time sheets, you are stuck calculating the time to pay your employees. Regardless of how many employees you have, you will also be spending time each pay period with data entry and checking your accuracy. Working on your business is a better use of your time.
Saves Money
When you hand your payroll to an expert, you can cut costs as you will not have to train employees or develop a payroll department in your company. Additionally, time saved is money saved. You won’t be calculating payroll each pay period; printing, signing, and distributing paychecks or pay stubs; generating reports for bookkeeping and accounting use; or preparing and paying payroll taxes and returns.
Avoid Mistakes and Penalties
According to the IRS, 40% of small businesses pay an average penalty of $845 each year for late or incorrect filings and payments. Not only do these errors add up, but mistakes to paychecks anger your employees. Outsourcing your payroll burden to a trained professional can take the load off of you, the business owner, and keep your employees happy.
Compliance
While the cost of penalties and interest is high, each mistake you make opens your business up to an audit. Payroll regulations change frequently, sometimes throughout a year, and staying on top of these changes is not at all easy for a small business owner. Payroll experts understand the law. That is what they are trained to do. If there are mistakes, they will make corrections and handle the liability of any errors they make.
Technology is Expensive
Investing in the latest technology is expensive. Payroll providers must invest in high performing software, technology, and support to remain competitive and cost effective for their clients.
Data Security
Much like technology, investing in the infrastructure to keep your data safe is expensive. Payroll providers make fraud protection measures affordable by sharing their costs across multiple clients.
Peace of Mind
We all know our employees mainly work for their paychecks and/or benefits. When you hand your payroll processing off to an expert, you can rest assured that the expert will manage any issues that arise with payroll. Most payroll experts also have processes in place to insure the accuracy of their work.
If doing your own payroll is taking up too much time, you’re getting hounded by state or federal reporting agencies, or you are concerned about the security of having an employee with access to their coworkers’ sensitive information reach out to us. We would be more than happy to help!
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Payroll Pitfalls
While working on my degree, one of my accounting classes talked about payroll. We also learned how to calculate paycheck withholdings. This transaction has a well defined formula; the steps are straightforward. I didn’t understand why would it ever be an issue for anyone. Then I started talking to friends that ran their own businesses and the difficulties became clear.
Payroll Rules
Many cities and counties are drafting their own regulations surrounding minimum wage, paid time off, and overtime. The uncertainty of how these laws apply to individual businesses, can make compliance a nightmare. As a result, the laws that apply where the business is located may not always pertain to your employees. This is especially true if services are provided in other cities. These challenges make it almost impossible for a business owner to do the right thing.
Local Changes
In the last few years, we have seen cities in Washington making some of these changes. Seattle and Tacoma were some of the first to vote in paid time off and minimum wage laws specific to their cities. In the upcoming year, however, our state lawmakers have added another layer of confusion to the issue by adopting their own rules surrounding paid time off. The Labor and Industries Department will be holding webinars over the next few weeks to make sure that business owners are fully informed of these changes.
Let Us Help
If you are feeling overwhelmed, or just want to ensure that you are compliant, give Sound Accounts a call. We make it our job to stay up to date on the most recent changes in rules and regulations. In fact, Sound Accounts will be attending one of the webinars put on by Labor and Industries to do just that for our clients. We can then review your records to ensure compliance and free you to do what it is that you do better than anyone else: being the reason your customers are keeping you busy.
