If somebody within your organization is going to commit fraud, odds are it’s going to involve payroll. Payroll fraud accounts for 11% of all workplace fraud. And in smaller businesses, it can be as much as 25%.
At some time or another, nearly 25% of all businesses will be the victim of payroll fraud. And every year, payroll fraud costs companies millions of dollars per year.
One of the biggest problems with payroll fraud up to now has been how difficult it can be to detect. The typical payroll fraud investigation takes an average of 36 months to complete. And, even then, it’s not always possible to uncover the extent of the fraud or recover the money that has been lost as a result.
Fortunately, there are new ways to combat payroll fraud. Many of them involve HR software.
Time and Attendance Software
Timekeeping software is becoming more sophisticated than it has ever been in the past. Employee metrics such as facial recognition, fingerprint identification, embedded RFID devices in employee badges, and even retinal scans for more sensitive positions are now more affordable and convenient enough that they can be incorporated into even the smallest of operations.
But these types of high tech systems aren’t foolproof. It’s still critical that time and attendance records be reviewed and approved by management thoroughly and consistently prior to submission to payroll.
Supervisors need to be trained to keep an eye out for red flags, such as employees putting in long overtime hours or taking frequent paid vacations. Consistency is the key here: When time-sheets and work schedules are being reviewed regularly, abnormalities and inconsistencies will usually jump off the page.
Utilizing Tracking and Auditable Payroll Software
If sophisticated timekeeping equipment makes it more difficult for workers to commit payroll fraud at the time clock, some are going to look somewhere else – namely, the computer system that records and tracks time and attendance.
To protect your company against computer-based payroll fraud, it’s worthwhile to invest in a high-quality integrated HR and payroll system that includes auditable software that tracks changes according to who makes the change, when and where they are made, and reason codes.
This type is widely available. It usually assigns personalized log-ins and passwords to supervisors and managers who approve time so that it’s easy to see who is making changes to time sheets. It also can track which computer terminals were used to make the changes and what time they were made. These can then be cross-referenced with surveillance equipment – including built-in cameras on company laptops and PCs – to detect when an unauthorized person has gained access to these files.
Ghost Workers and No-Show Jobs
Another type of payroll fraud involves paying workers who don’t really exist or paying for work that was never performed. This can be a common occurrence in certain government jobs or those positions that involve political patronage.
Some organizations willingly “look the other way” when it comes to ghost workers and no-show jobs. But this type of fraud can cost organizations millions of dollars..
Fortunately, this type of fraud usually can be easily detected by auditing payroll sheets, employee rosters, and time sheets and looking for things such as the reappearance of the names of employees who already have been terminated, duplicate employee names, multiple mailing addresses for the same employee, and time sheets being paid without approval from a supervisor or manager.
Continuing to Pay Former Salaried Employees
It may seem like a simple thing to stop paying the salary of an employee after they have left your company, but paperwork can sometimes forget to be filed or termination notices can fall through the cracks.
In other words, it happens. And when it does, you shouldn’t expect the person being paid by mistake to report the error — at least not right away. Though this scenario may actually be the fault of the business, it’s still payroll fraud and needs to be protected against.
One of the duties of the human resources department is to make sure that all employee rosters are up to date. These updated payroll rosters should then be periodically matched against payroll records to identify discrepancies.
If a former employee can be shown to have collected a salary improperly after they have left the company’s employ, it may be difficult to prosecute criminally. But the salary obviously needs to be stopped immediately and steps should be taken to attempt to recover the money from the former employee.
Auditing the Entire Timekeeping and Payroll Process
Periodically, the payroll and human resources departments should team up to conduct a comprehensive audit of the entire timekeeping and payroll process. This includes a review of how time sheets and work hours are being collected and approved, who is approving each individual record, and how consistently these functions are being formed throughout the organization.
The only surefire way to prevent payroll fraud is to pay close attention to how time is being monitored and reconciling time sheets with payroll records on a consistent basis.