Employee Benefit Plan Fraud – Are You at Risk?

Posted on: 3/10/17 by Kevin J. McCoy, CPA, CFF

All too often employee benefit plans are overlooked during the day-to-day operations of a business.  As with most things, a lack of ongoing oversight and review increases risk exposure and creates opportunities for seemingly trusted employees or plan sponsors to commit to commit fraud. Below are three key areas employers should focus on when reviewing their plan.
 
Contributions
 
Contributions are one of the most susceptible areas of the employee benefit plan.  The payroll clerk or HR manager could have the ability to divert more deferrals or another employee's deferrals into their own account.  Additionally, the plan sponsor may not be remitting the deferrals to the plan in order to cover operating shortfalls within the business.
 
Distributions
 
Fraudulent distributions can come from the employees or the plan sponsor.  Employees can provide fraudulent information to the plan sponsor to obtain a hardship distribution; whereas, the plan sponsor can request distributions from terminated employees who have yet to transfer their balance to a new account.
 
Eligibility
 
Plan sponsors who have control over payroll and employee records can have no trouble concealing fraud within the plan.  For example, the plan sponsor can accelerate another employee's eligibility so they can receive matching contributions sooner.  Also, the plan sponsor could create fictitious employees and enroll them into the plan to receive employer deferrals or profit sharing contributions from a paycheck.
 
One of the most powerful ways to safeguard assets and mitigate the risk of fraud is to establish internal controls and a segregation of duties.  Most fraudulent activity comes from plan sponsors having too much access or too little supervision.  Segregating the authorization of transactions, record-keeping process, and custody of assets will provide you the right start for checks and balances.
 
For additional information, please contact your Marvin and Company, P.C. representative.

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