4 Tips for Preventing Payroll Fraud

When most employers think of payroll fraud, they equate it to multi-million dollar fraud cases complete with criminal charges and front page news stories. The truth of the matter is payroll fraud often takes the form of small amounts of missing money and missing time. In fact, payroll fraud accounts for 11 percent of all workplace fraud, and closer to 25 percent in small businesses. To cut down on payroll fraud, use these tips to curb and eliminate its effects on your business. 

Require a Signature

If you want one easy way to prevent fraud, take a look at where you're asking your employees to sign documents. By moving signatures to the top rather than the bottom, researchers found that people were more honest about the information they provided. Prior to filing payroll, ask employees to electronically sign that the hours listed on their timesheet are accurate. If employees receive mileage compensation, ask that they sign their log at the top so it's the first piece of information recorded. Have employees sign first to encourage honesty. 

Exorcise Ghost Employees

Ghost employees are those employees collecting a paycheck but who are not working at that place of employment. It isn't just outright fraud that causes a haunting on your payroll, it can also be an honest mistake when an employee leaves the organization or an oversight caused by too few checks and balances. Regardless, it's imperative that employers are continually on the lookout for erroneously paid employees.

Create a system with checks and balances to ensure that no employee can add or collect checks for other employees without the approval of a manager. When employees leave the organization, create a workflow that ensures two or more employees check to make sure the former employee is paid appropriately and removed from payroll. Finally, business owners should conduct a quarterly oversight of payroll to find any unexpected costs. 

Build In Oversight

When businesses grow quickly, more and more responsibilities are delegated to new managers. During those growing pains, it's easy to find assignments that are seemingly carried out and understood by a single employee. If that employee is honest and loyal, that system may not pose an immediate problem but if that employee leaves suddenly or exploits the system, you have created the perfect environment for fraud. As your business grows, ensure that each duty for payroll and timekeeping has built-in oversight. Make sure every task has a backup and a manager ensuring proper documentation. 

Prevent Buddy Punching with Automation

While payroll fraud cases that make the news often involve finance department employees, more often fraud is committed by everyday hourly workers. Buddy punching is one method of fraud where another employee punches in for a co-worker who is running late or wants to leave early.

Thankfully, time and attendance software or biometric timekeeping systems can help employers prevent buddy punching. Time and attendance software requires employees to scan a badge or enter a pin number and biometric systems require a fingerprint scan, both of which remove the possibility of easy payroll fraud. Don't allow buddy punching to impact your bottom line. Use time and attendance software to hold employees and managers responsible for time worked. 

No matter the technology and oversight, fraud is always a possibility. Business owners who build in a system of checks and balances as well as using more up-to-date technology heavily reduce that possibility. If you're worried about fraud in your workplace or simply don't believe you have the resources to prevent it, use these four tips to get your business back on track.

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