Tips For Preventing Payroll Fraud

Tips For Preventing Payroll Fraud

While businesses are affected externally due to the global pandemic and economic crisis, another enemy lurks within: Payroll fraud. It is a crisis that continues to rear its ugly head in and cripple businesses, big or small.

In this article, we’ll explore what payroll fraud is, its forms, and preventive measure you can implement to minimize the risk of being defrauded in your business.

What is Payroll Fraud?

Payroll fraud is a type of accounting fraud perpetrated by employees (or even employers) of an organization who exploits the excesses of a payroll system to enrich themselves. This typically results in workers falsifying their timesheets or any other forms of deceit to receive payments for hours not worked.

In the case of an employer or supervisor, payroll fraud could mean withholding deserving payment of a worker’s wage. According to a report, payroll fraud happens in 27% of all businesses, and twice as much in businesses with a staff size of fewer than 100 workers.

Types of Payroll Fraud.

Payroll fraud manifests in different forms in businesses. They include:

  1. Padding working hours.

This is one of the most common types of payroll fraud. This typically occurs when an employee with ill intentions falsify the hours worked on their time sheets so as to get greater pay for less work. In some cases, a worker may clock in hours for a co-worker that isn’t present. This practice thrives in businesses when the line manager isn’t closely monitoring the time sheets. 

  1. Pay rate alterations.

This is another deceitful practice that is occurring in most businesses today. Here, a worker (or group of workers) connives with the accountant or payroll supervisor to illegally increase the amount of their monthly or hourly pay. This happens days before payday and is reverted to the original rate shortly after payment.

  1. Outstanding advances.

This type of payroll fraud involves a worker demanding an advance payment and doesn’t pay back even after their regular payment has been paid. This fraud can only work when the payroll supervisor changes this advance fee to company expenses and will not be detected.

  1. Workers misclassification.

This type of payroll fraud is facilitated by an employer. Workers in an organization are classified as either employees or independent contractors. Recruiters sometimes make the mistake of misclassifying their workers. But some are done intentionally in a bid to evade payroll and unemployment taxes.

How to Prevent Payroll Fraud.

Now that you’ve learned what this fraud is and how it can be perpetuated in businesses, how can you as an employer prevent it?

  1. Designate different duties to different employees.

Payroll fraud typically thrives when a worker is responsible for multiple duties in the same department. For instance, if a worker is in charge of processing payroll and writing payroll reports, fraudulent activities may go undetected. You can mitigate payroll fraud by assigning different duties to different workers.

  1. Critically review payroll reports.

Another payroll fraud prevention tip is to critically review payroll reports from the payroll manager before signing off on it. Payroll frauds may thrive in a business when the pay reports are not properly analyzed for errors.

  1. Monitor canceled checks.

Another way you can prevent payroll frauds is to monitor canceled checks to ensure that they’re truly canceled. Payroll managers with ill intentions make the habit of processing checks that have been canceled.

  1. Never sign off on a blank check.

No matter the reason, you should never sign off on an empty check. Your business finances can take a hit and it’d be quite unfortunate to realize that you authorize such transactions.

  1. Hire a professional payroll provider.

An effective and lasting solution to the payroll menace is to hire the services of a professional payroll provider. A reputable payroll provider, like Consultants In-A-Box, will handle all the complexities involved in processing payroll and give you a concise report void of any financial fraud.

Consultants In-A-Box is a reputable payroll provider that offers the best solution to your payroll needs. Do contact us today to enjoy the best payroll service that your business deserves.

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  • Jordan VanMaanen