Protection from losses

According to a study released last year, the Report to the Nation on Occupational Fraud and Abuse issued by the Association of Certified Fraud Examiners, the cost of business fraud is estimated to be about $652 billion each year. Surprisingly, the average loss in a small business ($197,000) is more than the average loss in large companies ($97,000). In addition, in more than 37 percent of fraud cases detected, the fraudster had been employed for more than 10 years by the organization.

		Business workshop is a weekly feature from local experts offering tidbits on matters affecting business.

The best way for business owners to protect themselves against these alarming figures is to control access to the cash and other assets that employees may want to steal. This can be done through proper segregation of duties (one employee does not have complete responsibility) and continuous monitoring of the business' assets. The most common method of detecting fraud is through tips from company employees, vendors and customers. The second most common method of detecting fraud is by accident. Businesses can reduce their fraud losses by up to 50 percent by implementing a confidential fraud hot line. Other methods to greatly reduce potential losses to fraud include internal audits and background checks on prospective employees. Fraud is nearly impossible to stop, as business owners must trust their employees to perform their duties properly. A little prevention, however, can go a long way toward minimizing losses.

Karl Jarek, kjarek@alpern.com,
Alpern Rosenthal

Domestic partners' pensions

One of the most overlooked provisions of the Pension Protection Act of 2006 may end up being the most controversial. In this little publicized provision, the federal government allows domestic partners to benefit from qualified 401(k) plans for the first time.

Domestic partners are now allowed to be treated as beneficiaries when it comes to determining if an individual can pull money out of a 401(k) account before the age of 59¹/₂ for a hardship.

The law permits hardship distributions to pay for medical expenses, tuition, funeral costs or expenses because of an accident or natural disaster. You also can take a hardship distribution to pay for a new home. When taking a hardship distribution, you have to pay income tax. You also may have to pay a 10 percent penalty, depending on the nature of the hardship.

Under the new rules, you can take the hardship deduction for not only yourself, but also for a primary beneficiary, who can be anyone, including a domestic partner. The new law thus allows people to use the hardship benefit for a domestic partner.

Joe Vater, jav@muslaw.com
Meyer Unkovic & Scott

Don't ignore overtime rules

Many employers continue to disregard important changes to the regulations that determine which employees don't have to be paid for overtime.

It's been three years since the federal Fair Labor Standards Act toughened the definition of who is an executive, and thus exempt from overtime payment. But companies are still getting into trouble by not paying nonexecutives for overtime.

Before the new law, employees had to meet three tests to be counted as execs:

1. Paid a salary at a set weekly minimum

2. Primarily employed as a manager

3. Directed two more other full-time employees.

The new law has added a fourth test: executive employees must have authority to hire and fire or to effectively recommend such actions. Failure to meet this criterion qualifies the employee for overtime pay.

Take the case of a Pennsylvania chicken processor recently sued by five supervisors for not giving them overtime pay. After a lower court agreed that the supervisors had sufficient hiring and firing authority, the appeals court said "no," and sent the case back to a lower court.

The lesson for all employers is that if challenged, the burden of proof that employees are executives is always on the employer.

Laura Candris, lac@muslaw.com
Meyer Unkovic & Scott

Nonlawyers as representatives

The Pennsylvania Supreme Court has finally settled the hotly debated issue of whether or not nonlawyers may represent employers at unemployment compensation hearings.

In 2005, the Commonwealth Court ruled that an employer must be represented by an attorney at unemployment hearings. The Pennsylvania General Assembly then passed a law specifically permitting nonlawyers to represent corporate employers in unemployment hearings.

Now the Supreme Court has ruled in a case that started when an employee was fired for mouthing obscenities to a customer. The local unemployment office denied the employee's unemployment benefits. She also lost her appeal in front of the Unemployment Compensation Board of Review. At this hearing, the employer was represented by a tax consultant.

The employee appealed the decision, and the Commonwealth Court ruled that it was a mistake to allow the tax consultant to represent the employer at the hearing, because he was not permitted to practice law.

But the Pennsylvania Supreme Court didn't buy that argument. The Court overturned the lower court and ruled that a nonlawyer representing an employer at an unemployment compensation hearing is not practicing law.

The decision is great news for employers, who gain new flexibility in addressing unemployment claims that they want to dispute.

Elaina Smiley, es@muslaw.com
Meyer Unkovic & Scott