Payroll Management: How to Prevent Payroll Fraud in Your Company

Even with the emergence of payroll technologies during these modern times, payroll fraud is still evident across businesses worldwide. From those scandalous payroll fraud cases of large companies that we see in the news, to those smaller instances that go undetected, it just goes to show that employees can intervene and deceive payroll processes in any scenario. What can you do to prevent it? First, let’s identify the most common types of payroll fraud.

Types of Payroll Fraud

Cheating the payroll system takes many forms but definitely has one goal—for an employee to receive unauthorised money. The most common forms of payroll fraud are:

• Falsified Wages – Employees claiming salaries that they did not work for by tampering with their timesheets or altering their pay rates.
• Ghost Employee – A nonexistent employee is placed on the payroll for another employee to benefit and receive the ‘ghost’ employee’s salary.
• Ghost Suppliers – Like a ghost employee, a nonexistent supplier is created for an employee to receive the payments allocated for that supplier.
• Falsification of Workers’ Compensation – Employees fake injuries to file false claims towards their employer or insurance company.
• Inflated Expense Reimbursement – Employees alter company expenses that they are entitled to reimburse so that they may keep the excess amount paid to them.

How to Prevent Payroll Fraud

Having weak internal controls is the main reason why employees find a way to trick a company’s payroll system. The best preventive measure is to strengthen controls from the very beginning and embed it into the company culture so that the “bad apples” can easily be spotted and eliminated early on. To achieve this, you must:

• Automate your payroll processes. Going paperless and moving all payroll information into a single software platform can reduce the chance of employees messing around with payroll records.

• Never rely on a single person to do payroll. Payroll duties should be divided across several employees—with different people approving timesheets, payroll, bank details, salary changes, and new employees. Having different employees check and confirm these elements will decrease the chance of having one person manipulate the entire payroll process.

• Have a solid payroll procedure in place. Having a clear, documented payroll procedure will make it easy for the company to have an audit trail to trace any anomalies that might have happened in between. Your HR and Payroll department should work hand-in-hand to create a robust and reliable workflow that cannot be infiltrated by in-house thieves.

• Keep your payroll system secure at all times. Update logins and passwords regularly, and ensure that access is limited for employees who need to access payroll but are not directly involved with payroll management. The usage activity of the payroll system shall also be monitored as fraudulent activities usually happen during out of hours.

• Have regular audits. Getting someone to audit (either internally or from an external source) can help you spot any errors and irregularities and be able to act upon them immediately. While not all errors are fraudulent activities, conducting a payroll audit can help you prevent any losses and other bigger payroll issues.

• Give Business Intelligence a try. Let BI technology make use of all your payroll data to analyse trends and spot any irregularities or accounting fraud in terms of overtime, salaries, reimbursements, taxes, commissions, and so on. You can do this on your own time, when the regular audits have yet to take place.
• Emphasise the consequences for payroll fraud. The company should make it clear among its employees that anyone who commits payroll fraud is subject to criminal action. This will reinforce the idea that everyone should be truthful when dealing with payroll, or else, it will badly affect their entire reputation and career.  

The best way to significantly reduce the risk involved in payroll fraud is to partner with a reliable payroll provider. The impartiality of a third party payroll provider gives you the assurance that none of your employees can have access to controlling your payroll resources.

D&V can be that reliable partner to help you set up a robust payroll system for your company. With our proficiency and objectivity in handling payroll processes, you can be sure that your payroll resources are well-managed, secure, and completely safe from fraudsters. Get in touch with us now to learn more about how we can manage your company’s payroll.