Detection & Prevention of Fraud in Payroll: Ways & Methods
There are incidents when employee cheats on the company’s payroll to unfairly receive money to which they have no legal or fair entitlement. The IRS is not the only organization that has cheaters, we all know about Enron!
A payroll fraud is usually committed by way of monthly salary manipulations or by doctoring hourly payments, commissions payable to workers or on overtime done by an employee.
For those getting monthly salaries, the fraud is done by increasing the amount receivable or by adding names of fictitious employees to the payroll list and subsequently collecting their pay. For hourly wages, the total number of hours worked, log in and log out times may be altered, or false claims may be made to have worked in shifts when no actual work was done.
Employees who work on commission, particularly in the manufacturing sector are paid according to the number of units they produce.
Fraud in this case is done by falsifying production numbers and sales figures. Finally, payroll fraud may happen through false claims for reimbursement of expenses. These can range from expenses for meals with family being claimed as a business expense to fudging figures on bills submitted for business trips.
If someone is authorized to eat a Whopper or a Subway sandwich that is fine but spending $30 at a restaurant on a club sandwich is a little too much! Not even perhaps Apple with all that cash in their bank account would be OK with that!
Detecting Payroll Fraud
Persisting payroll fraud inevitably erodes a company’s financial position. However, certain typical signs show when the nefarious act is being committed.
These include a single employee or section of employees having a lifestyle which is disproportionate to their earnings and multiple employees who do not belong to the same family share a common bank account or address.
Detection can be done by conducting regular payroll audits or getting an unbiased third party who is unfamiliar with the existing payroll system to check the records.
How to Prevent Payroll Fraud
As the saying goes, prevention is always better than a cure. So preventive measures may be taken to avoid this unwanted hassle.
It is, therefore, for any company’s HRD department to caution every employee of the dire consequences of committing this fraud which could include immediate dismissal from service, heavy fines or even prison sentences for offenders as per law.
Using the services of an outside agency or a staff member who is not a part of the payroll management team to periodically check the records has also helped in uncovering fraud in the past. Use of foolproof payroll software moreover, has curbed this problem to a serious extent.