Fraudsters have more options than ever before to separate your company from its hard-earned revenue. Scams on the internet, over the phone, and through debt collection agencies… the world may be a terrible place, and you must be watchful.
But what if the threat isn’t from the outside? What if it originates from within your own company, from an insider who is tampering with your books from behind the scenes?
Let’s have a look.
Payroll fraud is when a company’s payroll processing system is used to steal money from an employee. Because the fraudster must have knowledge of (and access to) a company’s payroll process, the fraudster is frequently an employee.
They might tempt you to hide beneath your desk right now. However, refrain from doing so. Instead, use one of these five methods to prevent payroll fraud before it steals your money. While payroll fraud is difficult to completely prevent, if you’re vigilant, you can identify it sooner rather than later. Here’s how to monitor potential payroll fraud.
Even in a small business, the individual who enters a new hire should not be the same person who reconciles quarterly reports and balances the payroll books. At the very least, have a second pair of eyes. Look at your payroll reconciliations on a quarterly and/or annual basis. You might also require that all overtime and commission checks be approved by executives. This may deter employees from working a few additional hours or making a few extra sales, hoping to go undetected.
We recommend you set up a system for checking the books regularly and annually to look for errors that could show instances of payroll padding or ghost employees. Set your bookkeepers and payroll workers to “see only” access to your financial data. This gives them access to the information they need to accomplish their jobs, but it also requires executives to authorize payroll and check for signs of fraud.
Using a complex timekeeping system. Consider using a clock in system that needs a passcode or other two-step authentication instead of having employees self-report their hours. We will avoid misreporting because of this. To prevent buddy punching, make sure the system has a biometric or two-step verification mechanism.
Reviewing the payroll taxes that are paid regularly. This can prevent any unintentional fraud on your company’s part. If an employee is mistakenly designated as exempt or an independent contractor, reviewing payroll taxes regularly may help you detect the error before it does too much damage.
Installing a surveillance system in places where workplace harm is likely to occur. In the event of an injury report, being able to depend on video evidence protects both you and the employee. Allow employees to work in pairs on certain projects, such as those that require the use of a ladder, to avoid false worker’s compensation claims.
Pay attention to how your employees act. Payroll isn’t a department where staying late or taking files home is common. Keep your spider senses active if you have an employee who deals with sensitive payroll data and prefers to work when no one is present. Request that they adhere to office hours or do a random audit to ensure that everything is in order. When workable, we also urge that you to encourage direct deposit within your firm. This will reduce the number of physical checks on hand that could be stolen or altered.
Payroll fraud is rarely discussed, yet it may be quite costly. It has a negative impact on startups and small businesses. While it’s unlikely that you’ll ever be able to construct completely fraud-proof systems, there’s no reason not to try.
Alya Auditors provide accounting and auditing services to a variety of industry sector clients, ranging from corporate setups to multinational enterprises, in order to improve the consistency, efficiency, and effectiveness of their business operations. We provide an unbiased judgment on your operations through our internal auditing services, develop a plan to remove or decrease risks, and so generate operational excellence for you. We keep you compliant with all statutory requirements, protect your assets from a variety of threats, and ensure that your business operations are effective and in compliance with all applicable laws and regulations. Contact us today!