Indicators of Benefit Plan Fraud

Jun 5, 2016Business, Employee Benefit Plans

Fraud is an area most business owners and executives do not think about until something bad happens. What’s worse is by the time the misfortune has been discovered, the damage has already been inflicted. While most commonly think of fraud in the framework of the company, there is another avenue of fraud to consider – the employee benefit plan. A plan sponsor (generally the employer or company) should know there is a possibility of fraud occurring with plan administration. For this reason, it is important to understand the warning signs that something inappropriate is occurring. To help clients, prospects and others understand the key indicators of fraud; Smith Schafer has provided summary information below.

Common Warning Signs of Plan Fraud 

  • Account Statements. Often when fraud or other illegal behavior is occurring, account statements are not sent to participants on a regular schedule. In fact, it’s quite common for the statements to arrive at irregular times or not at all. Be aware of sudden or unexpected changes that happen without cause.
  • Account Balance Changes. Another sign of wrongful activity is that a participant’s account balance may seem inaccurate or experience fluctuations beyond what would be expected in real time market conditions. Unexpected changes in these balances are a sure sign that investigation is needed. While it is possible a clerical or reporting error was made, a continued pattern of inconsistency in account balances will reveal that it’s more than just a onetime error.
  • Inaccurate Investments. Sometimes when improper behavior is occurring participants will notice that their plan investments change or are simply inaccurate. When fraud is occurring, it’s common for participant money to be placed in unauthorized investments. As a result, it is essential to ensure that investment selection choices are confirmed with participants.
  • Unusual Transactions. A telltale sign of fraud is when unusual or unexpected transactions start to happen. Unrequested loans to the employer, participants, or to the plan trustee are certainly signs of fraud, not to mention a poor plan and internal controls.
  • Benefit Payout. Over time when fraud is prevalent in a plan it becomes more and more difficult for existing and former employees to have their benefits paid. A variation of this scenario is when a benefit is paid but for the wrong amount. Consistency is key. If a wrongful payout is a one-time occurrence, it’s most likely an error; if it’s a consistent issue, it is apparent something more serious is happening.

Maintaining Oversight

Most companies today outsource plan administration tasks to various organizations such as third party administrators (TPAs), payroll providers, etc. Leveraging outside experts provides not only relief from duties, but also allows the plan sponsor to benefit from best practices. These relationships are characterized by limited communication, generally when an issue, problem or update is needed. Given the limited level of communication it’s essential to have a method for monitoring outsourced service providers. This will go a long way to ensure the chance for fraud or other issues is significantly reduced.


Contact Us

Fraud is never welcome especially when it concerns a person’s long-term and/or retirement savings. Although there is no process for preventing fraud, it is essential to take reasonable steps to protect plan participants. If you are interested in learning more about fraud prevention or for assistance with your benefit plan audit, Smith Schafer wants to help. Click here to schedule a FREE 30 minute consultation. We look forward to speaking with you soon.


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