STATISTICS
In 2010 the Department of Labor (DOL) had 281 criminal investigations, and they indicted 96 individuals for defrauding a retirement plan. Improper withdrawals from a retirement plan may be a civil crime, but if the withdrawal is followed by lies, concealment or a cover up, then it becomes a criminal case.
PENALTIES
Fraud prevention is much less expensive than fraud penalties. Fraudulent activity is considered by the DOL to be a Prohibited Transaction. Prohibited transactions are corrected by:
FRAUD PREVENTION TECHNIQUES
Trust but verify. It’s often the person who is trusted the most who is the one who commits fraud. No matter how long someone has been with the company, or how much you trust him/her, check her work at irregular intervals. Check different things each time. Make sure that all reports tie out across systems (payroll, accounting, banking and retirement plan)
Share the responsibilities. If different people are involved in different aspect of the Plan it is much more difficult for one person to commit fraud. Separate the responsibility for remitting contributions, bank reconciliation, and validation of deposits to the plan. Have internal policies and procedures manuals that can be followed by anyone, even if one of the people is not present.
WARNING SIGNS
There are a variety of warning signs that fraud may be afoot. Plan sponsors should investigate further, preferably by a third party, if they see any of these red flags:
EXAMPLES OF FRAUD SCHEMES
Desperate people do desperate things. People who perpetrate fraud are often very clever. Victims of fraud often look back at the situation and realize that it should have been very clear to them what was happening. Here are some examples of fraud schemes that are common to retirement plans:
Fraud prevention is important for every business owner, and is critical for sponsors of retirement plans. As a Third Party Administrator, we provide plan sponsors with an outside look at the plan to help prevent fraud. We have also built in some cross checks in our year end data request packages to help ferret out discrepancies in plan records. Having that level of review is a good insurance policy for our clients. Trust but verify!
Please let us know if you have more questions about fraud prevention for retirement plan sponsors.
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