Overtime fraud is one of the most common types of payroll fraud and costs business billions of dollars each year.
Running a business obviously comes with an enormous amount of expenses, and paying your employees often tops the list of business costs. For most small to medium-sized businesses labor cost percentages average 20 to 35 percent of gross sales. Unfortunately, not all employees are completely honest when it comes to reporting their hours worked. According to statistics reported by Forbes Magazine, “payroll fraud occurs nearly twice as often (14.2 percent) in small organizations with less than 100 employees than in large ones (7.6 percent). The average instance of payroll fraud lasts about 36 months. That’s three years of paying ghost employees or overpaying existing ones.”
Fortunately, business owners and HR managers can prevent overtime fraud with the help of time and attendance software.
What is Overtime Fraud?
Payroll fraud occurs when employees or members of your workforce claim hours that they didn’t actually work in order to increase their salary. Overtime fraud can be especially financially draining for a company due to the fact that overtime pay is generally 1.5 times the amount of a normal salary. Overtime fraud can occur through buddy punching (where one employee clocks in or out a fellow employee), inflating work hours through falsely claiming time-in or time-out (mostly on paper-based systems), or through unscrupulous data entry.
The Overtime Fraud Case in Boston
Overtime fraud can occur in any type of business, and proof of this is seen in a recent, high-profile case that affected the Boston police department. Recently, nine retired and active police officers were charged with committing overtime fraud at the Boston Police Department’s evidence warehouse.
Between 2016 and 2019, the evidence control officers embezzled over $200,000 via false overtime claims. As with most employees, these officers could earn overtime pay of one and a half times their regular hourly pay rate for overtime assignments. During the investigation, it was determined that the defendants routinely departed their overtime shifts two or more hours early, but continued to submit fraudulent overtime slips wherein they claimed to have worked the entirety of each shift. Allegedly, one officer received over $43,000 for overtime hours he never worked.
How Your Business Can Prevent Overtime Fraud
Most cases of overtime fraud occur in business that continue to rely on outdated methods of recording and monitoring the hours that employees work. Paper-based time sheets or manual punch clocks are often easily manipulated by dishonest employees. They can also lead to human error when recording the actual number of hours worked.
Fortunately, time and attendance systems and software have advanced today to essentially eliminate the threat of overtime fraud. Businesses (including police departments) can rely on biometric fingerprint terminals, swipe cards, facial recognition ID technologies, contactless proximity clocking terminals, GPS tracking, among other time and attendance systems that essentially make employee fraud a problem of the past.