Employee Payroll Fraud

Employee Payroll Fraud

Payroll fraud can be simply defined as employees cheating the payroll system at their workplace to receive funds towards which they are not entitled. There are several ways payroll fraud could be committed, which includes salary, hourly and commission staffs, as well as many ways to prevent the fraud and detect it.

Detection of Payroll Fraud

It is extremely important to detect if any fraudulent actions were taking place at an enterprise as well as taking every possible measure to ensure that it does not occur in the first place. Frequently checking of the payroll records can be carried out by making certain that the staffs are aware of the consequences surrounding payroll fraud. The punishments concerning to payroll fraud go far beyond penalizing or having to repay the money, along with significant jail sentences, which can also frequently being handed out for the offenders.

Getting a third party from outside or a member from outside the team towards checking records often increases the possibility of wrongdoing being exposed. However not all the cases of an employee being overpaid shall be fraudulent, mistakes could be made, and recurrent checking of the system could also help to quickly correct these mistakes, without significant monetary loss to the business or the worker involved.

There are many examples where payroll fraud has happened, and it could possibly lose businesses and companies a major amount of money

Because of the high financial cost of payroll fraud as well as the serious nature of such wrongdoings, few methods were developed to help in order to detect payroll fraud and present evidence if it is suspected. Some of the major signs that payroll fraud is happening are:

  • Signs of staff living an overly lavish lifestyle for their earnings.

  • Multiple staffs that are not family members sharing an address or bank account.

  • Payroll audits.

  • Having a member unexperienced with the payroll system checking records.

  • Irregularities in payroll records.

Prevention of Employee Payroll Fraud

For preventing employee payroll fraud and set up strong internal controls in employee salary payment disbursement, the steps which could be adopted are:

  • An individual someone other than the Payroll or HR department should distribute the salary payments.

  • Each of the individuals receiving a salary should be identified properly utilizing their identity cards.

  • Payroll accounts should be routinely checked for duplicate names or addresses or deposit accounts.

  • All overtime claims should be authorized through a supervisor.

  • For extensive overtime by a single worker in a department, the records should be checked more thoroughly.

  • Distribution, as well as the calculation of payroll, should be routinely rotated among the team without prior notice.

  •  Personnel record should be maintained by an individual different from the payroll and time-keeping functions.

  • Employee payments should be made through a separate bank payroll account.

Few safety measures for preventing errors or fraud in Payroll

A supervisor is also required to check as well as approve the payroll register, a summary of who is getting paid and how much, before being forwarded towards the payroll branch. Checking the registers searching out names of terminated staffs, duplicate names, duplicate mailing ids, duplicate Social Security numbers, or unusual hours worked. If the staff typically works Monday through Friday and supervisor see some Saturday or Sunday hours, one must follow up.

Human resources are required to enter a termination date in the system due to the fact staffs leaving an organization generally receive their final check after their last day of service. A good accounting system allows payment up to but no longer after the termination date. After that date, any compensation paid to the ex-employee needs to be stopped because the payroll worker would not be capable of accessing the employee record. If a department supervisor sees payroll data for a terminated employee on the payroll check-in, the manager ought to correct it each on the department level and at the human assets level.

Towards maintaining a ‘maker-checker’ equilibrium, wherein the ‘maker’ is the member entering the payroll information while ‘checker’ is another member of the team, who would authenticate every one of the entries submitted in the system through the ‘maker’ towards rectifying any inadvertent mistakes.

Segregation of duty for a similar procedure would make certain independent accountability to validate any data or to approve/authorize a transaction. For ensuring that there are no troubles towards a well-set procedure due to absenteeism, cross-training of team members of each other’s responsibilities is highly vital. This would serve a dual purpose of supporting each other during vacations or sickness of any team member and to detect any fraud during maker-checker activity.

A company should have a mandatory leave program for staffs. Employees managing critical works in an organization would be required towards proceeding on mandatory leaves for a certain number of days. At this time, another team member or administrator should be asked to manage the procedure. Through this way, if any fraudulent actions take place, that would come into the light.


eStartIndia Team

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