Recently on LinkedIn and in the Wall Street Journal author Angus Loten low-lighted payroll processing as an outsourced function.  In his article he followed a business in Maryland that went rouge, started embezzling from clients, went bankrupt and left clients on the hook for thousands in trust fund taxes owed to the IRS.  Don’t let one horror story taint your view of outsourcing accounting functions such as payroll.  I could share many stories of employees in payroll who did the same thing.  The only way to keep the likelihood of fraud down, internally or externally, is to be vigilant.  Some ways to help ensure that payroll, or any other, fraud doesn’t happen to you are:  research your payroll options, ensure that you know who handles your company and employee information, have your mail sent to you and open it and ask lots of questions.

To research your payroll options you need to know what is available to you.  You could hire someone internally to prepare payroll, you could outsource all of your payroll to a cookie cutter processor, or you could outsource some or all of your payroll to a specialty firm or to a CPA firm.  Each option has pros and cons that should be discussed carefully amongst key decision makers.  Call in your Trusted Business Advisor, your CPA, to discuss the pros and cons with you.  Yes, we do want your business, but we want what is best for your business too.  You need to consider the cost of wages, taxes and benefits but you also need to consider the cost of not having an expert, not having someone to check the payroll, and not having someone who works with IRS notices and speaks with the IRS regularly.  Some businesses opt for a blend of payroll outsourcing that works well for them.  They have an office manager prepare the payroll and have the CPA firm prepare the quarterly and annual payroll taxes.  This gives them on site payroll processing and the comfort of expertise at the same time.  Make sure you discuss all of the potential options before making a payroll choice.

Ensure that you know who handles your company and employee information.  Some large payroll processors use a cookie cutter approach to payroll to achieve speed and lower cost but where exactly is your payroll information going?  You need to ask.  It might be staying in the USA but it might be sent to another county for processing.  The off-shoring process might be acceptable to you, but please make sure you know what security is in place for your company and your employees!

I can’t stress enough to business owners and operators to open and read your mail!  Many fraud situations could be caught earlier if this one simple but mundane piece of advice is followed.  In the case in the article I mentioned, when notices started showing up the business owner was told to ignore them that they would be handled.  Never ignore a notice from the IRS.  Request an explanation from your provider.  Some notices are sent simply because a payment was made a day late.  If that is the case, understand why it happened and what is being done to prevent it from happening in the future.  Some notices happen because payments are on your account but applied to an incorrect form or period.  Your provider should be able to help you resolve these issues and give you an explanation of what caused the notices and a solution.  They should give you a copy of all correspondence sent in response to the notice for your files.

The taxpayer in the article was shocked to learn that they would still be responsible for taxes that were embezzled.  It is extremely important to know and understand that you cannot shift your tax paying responsibility to someone else.  Even if they process the payroll and pay the taxes the ultimate responsibility remains with you, as the taxpayer.  The IRS is very clear about this.

My best advice is to seek out expert advice when making payroll decisions and review your process frequently to make sure that you are still taking advantage of the best software and techniques available in your price range.  JamisonMoneyFarmer PC has been in business for our clients since 1920.  We value our reputation in our community and can offer you a multitude of options from consulting and advice to full payroll services.  Let us help you as you decide what is best for your business as you navigate the payroll world.