The court case outlined in the link below deals with the issue of liability when payroll fraud is attempted when using a payroll company.
Is this case, the payroll manager at a small business would call in the company payroll to the payroll company. The payroll manager would call in multiple payrolls each week (instead of just the one normal payroll), and issue herself multiple direct deposits. The payroll company was not liable to reject the payroll manager's request since she was listed as a contact on the account who could call in payroll.
The business tried suing the payroll company for the amount the business' payroll manager embezzled through payroll fraud.
The court found that the payroll company was not liable as they had issued financial payroll reports to the company and that the company owner did not review the reports for discrepancies.
The opportunity for payroll fraud can be more limited when using an outside payroll company because of these payroll reports. Payroll reports from in-house systems have the potential to be modified (a payroll check issued and then wiped off or left out of the payroll reports). Payroll reports from payroll companies are canned - so when an employee gets two pay checks it will be there in plain sight.
Most payroll companies can have reports courier delivered and received by signature only. They can also separate the reports from the live checks and have them delivered to separate locations. Even one step further, some payroll companies can deliver electronic copies of the reports via email.
One or all of these options could be taken by the owner/CEO/CFO of the company as a checks and balances system to eliminate these kinds of payroll fraud opportunities from happening - provided the reports are reviewed, of course.
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