Whether your payroll services are in-house or outsourced, you should keep payroll fraud into your consideration before trusting any internal member or external agents. Payroll fraud is an illegal act of stealing a company’s wages, benefits, reimbursements, commissions, or any other funds by invading the payroll system. It can be anyone within the company such as an entrusted employee who has been given access to the system or it can also happen on part of the payroll processing companies if hired. The only difference is that the payroll processing companies bear the loss in case payroll fraud has occurred from their side.
Types of Payroll Fraud
There can be different types of payroll fraud, however, the following are the most commonly occurring types of fraud that you should know about;
- Expense Compensation Fraud: A fraudster can retrieve funds by claiming them to be work-related when in original they will be used for personal purposes.
- Excess PTO: A fraudster can take pauses from work without adding them to the record.
- Wages Falsification: A fraudster can retrieve wages for the work he/she is not doing for the company.
- Commission Fraud: A fraudster can falsely increase the number of sales in order to get more commission out of them.
- Ghost Employees: A fraudster can pay any person that is not employed in the company. The person can be related to the fraudster.
- Timesheet Fraud: A fraudster can add extra work hours into the timesheet when he/she has not worked for those extra hours.
- Taking Benefits: A fraudster can take extra benefits when he/she does not deserve them.
How to Prevent Payroll Fraud
Small businesses as a whole and payroll processing companies for small businesses utilize minimum anti-fraud strategies as compared to large entities. The main reasons behind these are lack of resources and awareness about fraud and entrusting employees excessively. Such companies should actively monitor payroll services in order to avoid fraud. The following ways can be helpful in preventing payroll fraud;
- Outsource payroll functions
One of the best ways of preventing payroll fraud is to outsource all payroll functions to an efficient payroll outsourcing company. Outsourcing payroll completely eliminates all the threats regarding payroll fraud. Outsourced payroll providers guarantee the security of your company’s personal data and most importantly they take the responsibility for fraud and losses. It means that if any fraud occurs from the outsourced payroll provider’s side, you will not bear the loss for it. Also, the payroll outsourcing companies have efficient fraud management systems, so the chances of fraud are less.
- Implement strict policies
In order to prevent fraud, you should aware your employees that you are keeping an eye on how payroll services are being performed in your company. You can introduce strict policies along with rules and regulations about payroll services and payroll fraud. In this way, the employees would know what would be the consequences if they ever try to perform such illegal acts. Employees that work in companies that do not have any policies about fraud are more likely to commit most frauds.
- Always use the direct deposits method
Companies should always utilize the direct method of any deposits. Frauds are also common when it comes to payment methods. Companies that use paper checks to pay their employees are most likely to be the victims of fraud. Paper checks can easily be stolen and used to retrieve the money. There are minimum chances of finding a lost paper check. Also, you should avoid using pre-printed and signed paper checks because these attract fraudsters. They can steal and retrieve any amount from your account.
- Geofence attendance and time
Companies are always encouraged to install geofence perimeters just like most government entities do. It is a perimeter that is virtual and can be set up for different work fields and locations. This system helps in tracking the attendance of the employees and they are tracked whenever they clock in or out of the work field. This prevents the fraud of taking pauses from work without deduction of pay. Employees will tend to remain at the worksite because they know that their attendance is being monitored.
- Utilize IP allow list
Utilizing the IP allow list is equal to adding another layer of protection from payroll frauds. The company should create an allow list or whitelist that allows only specific IP addresses to make any changes in the records and data or perform any actions. This method will prevent the system from being invaded by any devices or employees. Also, you should carefully place your trust in specific employees whose IP addresses will be allowed to invade and make changes to the payroll system. Also, warn these entrusted employees about sharing personal data.
- Utilize the positive pay method
With the help of this method, you can approve specific transactions and amounts in advance. This method will only allow transactions that you already have approved. Also, this system will not allow any amount to be transacted that is not approved by you. Companies that do not utilize a direct payment method and use pay checks instead should take the benefits of this method. This will not allow fraudsters to change amounts on checks or add any amounts on pre-printed or signed blank checks.
- Utilize mandatory PTO policy
Utilize a PTO policy to distribute tasks between employees. Sometimes there are too many tasks and employees can disorganize tasks so that they do not get caught when committing fraud. Use this policy to let all the employees know each other’s tasks as well. This will make it difficult for any employee to commit fraud by taking the advantage of confusion about task distribution among employees. Also, if fraud is committed, this method will help in finding the guilty employee.
- Regularly review reports
Some companies do not review their weekly and monthly payroll reports. The primary reason for this is they think that the reports are the same every week or every month. Companies need to avoid this assumption and start monitoring reports regularly and critically. This will aware the employees performing payroll services that every task and action is being monitored. Check pays critically and also keep an eye on employees giving extra hours to their work. Consider any slight anomaly.
- Spread awareness about fraud
Awareness methods are vitally important in case of fraud. Companies should initiate awareness programs to educate their employees about different types of frauds and how these frauds are usually committed. Also, awareness should be provided about the consequences of such frauds for the employees and the company as well. This basic knowledge about fraud can help employees notice any unusual events happening around them so that they will be able to inform the authority.
- Establish a CCTV system
Always install an upgraded CCTV system in every department of your company including the payroll department. This will help the company in preventing frauds that are committed inside the company such as falsely adding extra hours or stealing pay checks. This will also aware the employees that they will get caught very easily if they commit any fraud inside the company. This significantly reduces the chances of fraud because most of them are performed within the companies.
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