Mitigating your risk
Once you have settled on a payroll company, develop checks and balances to protect your practice. Well-designed internal controls
help you detect errors quickly, and they ensure that information is not corrupted when pulled together by responsible parties
or when received from the payroll company.
With that said, be sure to remember that the practice owner is ultimately responsible for any of the payroll company's failings,
just as he or she would be for an employee payroll clerk's lapses. This fiduciary responsibility can also be extended to the
failure to file required tax returns, fraudulent returns, taxes not deposited, stolen or missing trust funds, and so on.
So, practice owners, take notice! Even though a payroll company may be at fault for embezzling the money, the IRS charges
victim employers with thousands of dollars of missing and unpaid taxes and penalties. Allowing the payroll company (or any
employee, for that matter) unsupervised control can be very risky and literally bankrupt a practice when things go wrong.
If your practice does engage an outsourced company to prepare reports and submit funds, it is imperative to set up a system
for double-checking that the firm is handling its responsibilities. For example, read the payroll company's copies of federal,
state and local tax returns. Do they agree with your records and reconciled bank accounts?
Enroll your practice in EFTPS (Electronic Federal Tax Payment System; read more at http://eftps.gov/). This site allows you to view payments being made by the payroll company—or by any other person, for that matter—on your
In order to ensure accuracy and timely fund submission to the IRS, assign your bookkeeper or other independent employee responsibility
for site log-in at each pay period. This employee should verify that EFTPS deposit records match the payroll company reports
and that there is no lag time from practice bank account withdrawal to federal account deposit. The bookkeeper should report
to the practice owner his or her findings on whether the deposits were made accurately and timely.
An alternative to allowing the payroll company to manage practice funds is for the payroll company to prepare only the necessary
documentation and filing reports, then have the practice's internal personnel actually make the payments. Using the payroll
company's information and following your instructions, designated employees can go to the EFTPS site and electronically make
the requisite deposits.
Whether internally performed or outsourced, payroll processing involves many potential risks—risks that are controllable through
good systems of duty segregation. Don't dismiss the benefits of payroll outsourcing, including time and cost savings in addition
to removing a concentration of high-risk duties from internal personnel.
In all cases, it is up to you to ensure that your practice implements and maintains proper checks and balances. If these internal
controls are enforced, then outsourcing payroll becomes slightly less risky, and you can gladly take advantage of the benefits
of using a payroll company. Just always remember that while you can delegate the completion of certain tasks, responsibility
for the accurate completion of those tasks cannot be delegated and remains with the practice owner. The payment of employees
and remission of trust funds is arguably the most important of all delegated tasks.
Alexandria S. Dove started working at Marsha Heinke, CPA, Inc. in 2012. Dr. Marsha Heinke offers tax, accounting and consulting
services for veterinary practices. Visit
or call (440) 926-3800 for more information.