Most people picture theft as a sinister affair where someone conspires to take something from someone else, but in the business world there are much subtler ways that this takes place. One example of this is payroll fraud, which is when an employee manipulates the system in such a way that results in them getting paid more than they have actually earned.
There are many forms of this, but the two most common ways that affect employees are timesheet fraud and ghost employees. Timesheet fraud is when the records of hours worked is manipulated; either by an employee or the payroll clerk. There are many ways to do this, but one popular version is to forget to clock out and then require a manual entry that awards extra money to the employee for hours they didn’t actually work.
Ghost employees are usually perpetrated by the payroll clerk. This is where an employee has a record at your company but doesn’t actually work there. The payroll clerk is funneling an extra salary’s worth to her own bank account by making up a new person.
Payroll fraud is frustrating because it is so preventable. There are many steps you can take to reduce or even eliminate the costs of payroll fraud. Below are five of the simplest things you can do to make sure your business isn’t plagued by this problem ever again:
Run Background Checks on All Employees:
The thing about having a criminal record is that you don’t actually care about what potential employees have done in the past, you care about what they will do in the future. By running a background check and not hiring the people who are most likely to flout the law, you can stop the problem of payroll fraud before it ever starts.
Review Payroll Reports Every Time:
Someone with a vested interest in the company should be reviewing the payroll every pay period. You need someone with skin in the game to look over the reports, because they will actually care if too much money is paid out, since it is coming out of their pockets in a sense.
Verify All Receivers of Income:
To avoid ghost employees, use a service that actively verifies the name of the payee against the details on the bank account. Most payroll services should do this now, but it is an easy way to eliminate that issue. It goes without saying that you should not be paying your employees using cheques, since those are easily compromised in these situations. Using a web-based application to manage your payroll is a great way to reduce costs on payroll, increase efficiencies, and protect against payroll fraud.
Segregate Duties:
By dividing the labor involved with payroll tasks across multiple people, it becomes much more difficult for payroll fraud to be committed. It requires more and more people to collude, which is less likely and reduces the risk of payroll fraud. Similarly, no one who doesn’t absolutely need to have access to payroll information should have access at all. By keeping the circle small and spreading out the duties in that circle, the risk can be nearly eliminated.
Audit Individual Records:
Doing an overall review is important, but to catch timesheet fraud, the best thing you can do is look through an employee at random and figure out if all the entries make sense. If there are lots of manual entries or strange times being shown, it might be worth investing some extra time in observing that employee. There are applications which are much smarter than humans at catching this and will be able to note other anomalies, such as two employees constantly clocking in at the same time, which would generally be a tipoff for buddy-punching. Buddy-punching is the act of punching in for a friend, thus creating a fraudulent entry in the payroll system. It usually starts off quite innocent, with someone running late and not wanting to get in trouble, but it can lead to significant costs over time.
With these five tips, you can greatly reduce the costs of payroll fraud. Between ghost employees and timesheet fraud, there are a lot of ways you can get ripped off. The best thing you can do is prepare yourself and stay vigilant, while also using technology to mitigate the risks. Eliminating payroll fraud is “found money” in the sense that every cent you save on payroll is money you’d already earned and had no reason to be paying out.
Eliminating payroll fraud not only increases your earnings but also makes it so you can know that your business is being run well and your employees are trustworthy. Every step you take to eradicate payroll fraud will both increase your earnings while also helping you sleep better at night.
