There are several areas of an employee benefit plan where employees or plan sponsors have the ability to commit fraud. The following are key areas where an employer should focus when reviewing their plan.
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.
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.
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.
Steps to take to avoid benefit plan fraud
To learn more about Skoda Minotti’s Employee Benefit Plan Audit Group, please leave a message below, or contact Denny Murphy at 440-449-6800.