Tag Archives: schemes

IRS Announces Common Tax Scams

The IRS recently announced its 2020 edition of its annual Dirty Dozen list of tax scams with a special emphasis on aggressive and evolving schemes related to COVID-19 tax relief, including Economic Impact Payments. Here are six of the more common scams.

Phishing. Phishing refers to potential fake emails or websites looking to steal your personal information. Remember the IRS will never initiate contact with you via email about an outstanding tax bill, refund or Economic Impact Payment.

What you can do. If you receive any suspicious phishing emails, forward them to phishing@irs.gov.

Fake charities. Criminals frequently exploit natural disasters and other crisis situations such as this year’s pandemic by setting up fake charities to steal donations. Fraudulent schemes normally start with unsolicited contact by telephone, text, social media, e-mail or even in person.

What you can do. Verify the charity’s existence by searching for it using the IRS’s search tool.

Threatening phone calls from IRS impersonators. IRS impersonation scams include phone calls threatening arrest, deportation or license revocation if you don’t pay a bogus tax bill. The IRS will never demand immediate payment or ask for financial information over the phone.

What you can do. If you received a phone call, contact your local IRS office to verify whether you owe any taxes.

Social media scams. A scammer will use social media platforms such as Facebook and Twitter to obtain personal information from you, then use that information to trick you into providing them with confidential information. For example, the scammer could impersonate a family member, friend or co-worker in an attempt to obtain financial information.

What you can do. Be careful of publishing confidential information on social media. Verify the identity of any person or organization that asks you for confidential information.

Economic impact payment or tax refund theft. Criminals file false tax returns or supply other bogus information to the IRS to divert refunds or Economic Impact Payments to wrong addresses or bank accounts.

What you can do. Contact a qualified professional to help walk you through how to report identity theft to the IRS.

Senior fraud. Senior citizens have become more comfortable with various technologies such as social media. This has opened the door for scammers to take advantage of senior citizens by using fake emails, text messages and fake websites to steal personal information.

What you can do. Be the eyes and ears for the senior citizens you come in contact with. According to the IRS, anecdotal evidence indicates that senior fraud decreases substantially when a trusted friend or family member takes an interest in the senior’s affairs.

Payroll Fraud Schemes Every Business Should Know

According to the Association of Certified Fraud Examiners, nearly 30 percent of businesses are victims of payroll malfeasance, with small businesses twice as likely to be affected as large businesses. Here are four scary payroll fraud schemes you need to know:

  • Ghost employees. A ghost employee does not exist anywhere except in your payroll system. Typically, someone with access to your payroll creates a fake employee and assigns direct deposit information to a dummy account so they can secretly transfer the money into their own bank account.
  • Time thieves. Time stealing happens when employees add more time to their timecard than they actually worked. Sometimes multiple employees will team up to clock each other in earlier than when they arrive or later than when they depart for the day.
  • Shape-shifting commissions. In an attempt to bump up a commission payment or attain a quota, sneaky sales employees may alter a sales contract to their benefit. A typical tactic used by a dishonest salesperson is to make a booked sale appear larger than it is and then slide a credit memo through the system in a later period. Companies with complicated commission calculations or weak controls in this area are the most vulnerable.
  • External swindlers. A popular scam, known as phishing, starts with a fraudster impersonating a company executive through email or over the phone asking an employee with access to payroll data to wire money or provide sensitive information. These imposters can make the correspondence look very real by using company logos, signatures and email addresses.

Tips to combat payroll fraud

Being aware of the threats is a start, but you also need to know how to stop them. Here are some tips to reduce your company’s payroll fraud risk:

  • Better internal controls. While most employees are trustworthy, giving too much control over your payroll to one person is not a good idea. Separating payroll duties and formalizing an approval process protects both your business and your employees.
  • Review payroll records. Designate someone outside of the payroll-processing department to periodically review the payroll records. Have them review names, pay rates and verify that the total payroll matches what was withdrawn from the business bank account.
  • Perform random internal audits. During an internal audit is when you can really get into the details to look for potential payroll fraud. You can do an in-depth review of the whole payroll system or select a random sample of dates and employees. Keep the timing of the audit under wraps to prevent giving someone the chance to cover up their misdeeds.

Managing your business payroll is a daunting task by itself, and actively protecting against fraud adds additional complexity.