Payroll Forum Payroll Compliance Group June 2018 PAYROLL

Payroll Forum Payroll Compliance Group June 2018

PAYROLL COMPLIANCE GROUP (PCG) �Karin Faulhaber– State Payroll Compliance Manager � 302 -672 -5543 �Tracey Walls – Payroll Compliance Analyst � 302 -672 -5541 �Jessica Popkin-Payroll Compliance Analyst � 302 -672 -5506 �Email: PCG. DOA@state. de. us

Agenda �Wage Overpayments �Payroll Funding Authorization �Nonresident Aliens � 2018 Internal Controls Plans �Employment Related Settlements �Payroll Fraud �Open Discussion

Wage Overpayments

Wage Overpayment Overview �Outstanding Balance with PCG �$241, 160. 18 �Outstanding Balance with DOR �$179, 054. 08 �Average Overpayment Amount �$2, 100. 00

Current Year Overpayments �No changes to procedure �Worksheet has been updated to correct formatting and add group email �Notification of Wage Overpayment Current Year has been updated �Column A-must always match the actual paycheck �Column B-Gross to Net of what should have been paid

Prior Year Overpayments �Change to policy due to the IRS Audit �New forms and procedures will be posted on PCG website �Each prior year repayment worksheet will only reflect gross amount

Prior Year Worksheet �Effective July 1, Prior Year Overpayments will be collected for gross.

Prior Year Notification of Wage Overpayment �Letter template has been revised to notify employee that a W-2 c and refund of OASDI and Medicare will occur only after signed certification is returned, if applicable (within the 3 year, 3 month, 15 days) once payment is satisfied

Prior Year Social Security and Medicare Tax Refund Certification �Certification for signature will be sent by PCG �Employee has 45 days to sign and return letter �Once received, PHRST will process refund of OASDI/Medicare and process W-2 c �If not received within the 45 days, a W-2 c will not be processed

Payroll Repayment Forms �Ensure sources of funding on forms are still active �Include applicable earnings codes on form �Align with the earnings that were overpaid �Complete all fields on form �Pay period is for the date(s) when the overpayment occurred �Submit to PCG as soon as Notification of Wage Overpayment is signed

Wage Overpayment Overview �Complete a worksheet for each pay (except for SBO/ICO overpayments-prior) �Submit worksheets along with reason for overpayment and prints of your Pay. Breeze �Once approval is received from PCG, complete the appropriate “Notification of Overpayment” form and meet with the employee �Document all attempts to contact the employee regarding an overpayment

Wage Overpayment Overview �Current Year Overpayment �Active Employee �Collect via a negative WGR for the gross amount or a check for net amount �Current Calendar year is always collected first if both a prior year and current year are involved �Terminated Employee �Collect a check or money order for the net amount

Wage Overpayment Overview �Prior Year Overpayment �Active Employee �Collect Oldest prior year first �Collect via a PAYDUE deduction for the gross amount (beginning July 1) �Send a “Payroll Repayment Form” to PCG �PCG will send employee the “Prior Year Social Security and Medicare Tax Refund Certification” once paid in full

Wage Overpayment Overview �Prior Year Overpayment �Terminated Employee �Collect Oldest prior year first �Collect via a check or money order for the gross amount (Beginning July 1) �Send a “Payroll Repayment Form” to PCG �PCG will send employee the “Prior Year Social Security and Medicare Tax Refund Certification” once paid in full

Wage Overpayment Overview �Non-Responsive Employee �Active �Set up a negative WGR or PAYDUE deduction as appropriate �Use the sample calculation located in the PCGREPAY procedure to calculate the minimum wage reduction or general deduction

Wage Overpayment Overview �Terminated �Send Employees a Notification of Wage Overpayment to obtain a signed repayment agreement �If no response after 2 -3 attempts, send the employee the letter from our PCG-REPAY Policy stating that the Payroll Compliance Group will manage collection �If PCG receives no response from the employee in 10 days, another letter is sent notifying the employee they have 30 days to contact PCG or they will be sent to Division of Revenue for collection and tax intercept program

Wage Overpayment Resources �PCG-OVRPAY-Wage Overpayment Policy �PCG-REPAY-Payroll Repayment Procedure �Notification of Wage Overpayment Prior Calendar Year �Payroll Repayment Worksheet-Prior Calendar Year �Payroll Compliance Policies

Payroll Funding Authorization

Payroll Funding Authorization Change �Chapter 14 of the Budget and Accounting revised �Bi-weekly email no longer required as of July 1 �New Payroll Signature Cards are due by July 1 even if there is no change in signers �Change does not eliminate the need for internal controls

Nonresident Aliens

Nonresident Aliens � 30 Employees with F-1 Visas � 22 Employees with J-1 Visas � 2 Employees with J-2 Visas � 12 Employees claiming Treaty status from 3 different countries

Nonresident Aliens �Eligibility to work documents (I-9) are separate from tax treatment and tax treaty benefits �A permanent resident card or Green Card indicates the person is a resident

Nonresident Aliens �Report any hiring of nonresident aliens to the Payroll Compliance Group �PCG will determine whether the employee is exempt from OASDI/Medicare �PCG will maintain tax panels for nonresident aliens

Nonresident Aliens �Tax Treaty �PCG will file Form 8233 with IRS �Separate earnings codes are used in PHRST for 1042 -S reporting �PCG monitors bi-weekly payroll

Nonresident Aliens �Nonresident Alien W-4 �Line 3 -Must request withholding as if they are single, regardless of their actual marital status �Line 6 -Must write “Nonresident Alien” or “NRA” above dotted line �Line 7 -Cannot claim “Exempt” �Advise employee to check Notice 1392 prior to completing W-4

2018 Internal Control Plans

Effective System of Internal Controls �Management must continuously monitor and improve the effectiveness of internal controls associated with their respective policies �Monitoring and other periodic evaluations provide the basis for management’s verification that existing controls are sufficient to safeguard the Organization’s assets and mitigate risks of error and fraud 28

Annual Review Process �PCG reviews and scores the submitted questionnaire �PCG collaborates with Organization representatives to strengthen deficiencies in the processes described on the submitted documents �Questionnaires are due July 31, 2018 29

What Gets Scored? �Segregation of Duties �System Access �Authorization Process �Reconciliations �Record Protection & Retention �Disaster Recovery & Business Continuity 30

Ranking IC Strength �Total Scores converted to Percentage and Color-Coded Percentage Color Ranking 85% – 100% Green Effective 75% - 84% Yellow Some Improvement Needed 65% - 74% Orange Major Improvement Needed 0%– 64% Red Unsatisfactory �Results sent to Submitter with a copy to Agency Head(s) �Response Includes Recommendations for Improvement 31

Site Visits �PCG will be conducting Site Visits to verify actual practice against questionnaire responses �Typically will accompany the FARS (Financial Accounting and Reporting) team �Joint written response will be provided with recommendations 32

Employment Related Settlements 33

Employment Related Settlements �Incorrect processing of payments can lead to reporting hardships for employees and fines and penalties to Organizations �Reference Guides �PHRST Policy-POL-PR-01 �Settlement Checklist Payment Approval Process and �DOA Bulletin-2017_002 � Employment Related Settlements �Employment Settlement Worksheet

Review and Approval Process �Signed settlement agreement and settlement worksheet are submitted to PCG �Settlements must be signed by all parties �PCG reviews for income characterization and appropriate tax treatment and reporting

Review and Approval Process �PCG will distribute as necessary to the following: �SBO-if agreement includes reinstatement of benefits or medical expense considerations �OMB-if funding sources need to be approved �Pension Office-Back pay awards or adjustments to pension creditable service

Payment and Processing �Wage-Related Claims �Paid through PHRST �W-2 Reportable �Non-Wage Related Taxable Payments �Paid through Accounts Payable � 1099 Reportable � Attorney’s Fees � Paid through Accounts Payable � 1099 Reportable to Employee and Attorney

Payroll Fraud 38

Headlines • Former State Supreme Court payroll supervisor accused of $116, 000 fraud scheme • Former Payroll Specialist Pleads Guilty in Embezzlement Case • Payroll fraud allegations inside Baton Rouge Police Department; 4 officers placed on leave

Payroll Fraud Risks Who are the culprits? It is often the person you would least expect-the long-term trusted employee. The best prevention measure is having a solid internal control plan! “An ounce of prevention is worth a pound of cure” Benjamin Franklin

Payroll Fraud Risks • • Common Forms of Fraud Ghost Employees Manipulation of Hours Worked Misclassify employees (1099 vs W-2) Embezzlement from payroll accounts

Payroll Fraud Risks Red Flags �Sudden changes in spending �Sudden mood changes �Unusual generosity �Destructive habits �Reluctance to take vacation �Sudden use of drugs or alcohol

Payroll Fraud Risks Payroll Red Flag Detection and Controls �Reconcile leave balances routinely �Validate active employees (to find ghosts and payments to terminated employees) �Segregation of Duties �Require sign offs on new hires �Compare actual payroll results to budget and look for anomalies

National Payroll Week September 3 -7, 2018 Visit www. nationalpayrollweek. com

Questions