Fraud Risk Management: Are You in Danger of Payroll Fraud?

Posted by Cedric Joshua Martinez

Jan 19, 2017 9:00:00 AM

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Unfortunately, regardless of the size, industry, or location, your business is always in danger of payroll fraud. All it takes is one person in your company to get a really bad idea and the opportunity to do so. Barring being the only person in your entire company, there’s no reliable way for you to completely prevent theft. However, it’s not a hopeless situation. There are ways to quickly detect these crimes to minimise damage or stop the act before any can be done. First, it’s necessary for you to know your enemy.


What is Payroll Fraud?

It happens when anyone who receives salary obtains more than what they are entitled to—for example, if an employee claims to do overtime and receives the bonus, but never actually worked the hours. The problem is, there is no one true way that payroll fraud happens. Think of your house: No matter how many locks, cameras, alarms, guard dogs, or any other forms security you can set up, it can only ever act as a deterrence. Unfortunately, crime won’t be going out of fashion anytime soon.

However, you may learn a thing from the common methods fraudsters use to illegally increase their salaries. One method is known as Ghost Employees, where they alter your records to put a non-existent person on your payroll list. Of course, the salaries of these ghosts go straight to the culprit (or culprits). While your employees hacking your network is very unlikely, this usually happens with those that have direct access.

Just because you can’t totally prevent a burglary, though, doesn’t mean it’s time to throw your hands up and take a lax approach to your security. Here are a couple of ways you could detect and deter any attempts to rob your company’s hard-earned cash.

1. Make sure there aren’t any mistakes

Did you know that you can commit payroll fraud without even knowing it? Simply misclassifying an employee or improper bookkeeping can cause as much havoc as the more malicious acts of a hooligan. Whatever the case may be, that means you are losing money without getting anything return.

Try to double-check your payroll accounts or have someone else review them for any mistakes. You could lose a lot of money—which becomes even more frustrating when you find out that you could have prevented this if you just took a few minutes to look back on your files.

2. Learn about your enemy and prepare

Like what was said above, criminals’ methods adapt and evolve as time goes on. If one tactic became obsolete, someone out there will come up with a better one. That’s why you need to stay updated with the latest accounting news to pick up on these, so you can figure out the means to deter such behaviour.

For example, some employees commit payroll fraud by exaggerating their expenses then pocketing the excess. To deter employees from trying this, you could put protocols in place that require proofs of purchase when submitting their report. Try to always be one step ahead of them.

3. Invest in payroll software

A simple payroll tax calculator has all the formulas and features to ensure that your records are correct. Not only will it make it easier for you or your team to process your accounting, it also allows the above step to be done much easier, as most software programs have a dashboard with an overview of your business’s current financial state.

4. Get the help of experts

Sometimes, preventing payroll fraud can be too much for one person to handle, especially if they have other responsibilities. Therefore, there’s always the option to get some expert help from a third-party organisation. Chances are, they have already worked with numerous other clients, experienced many different situations, and came out on top of the situation.

Still worried about payroll fraud and unsure how you should react to such cases? Click the button below to download our white paper on business analytics to find out how data can warn you of payroll fraud and what you should do with that knowledge.

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Topics: Financial and Accounting Services

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