3 Ways Your Small Business Can Fight Payrolling Fraud

Category: Payroll

Payroll fraud can be difficult to detect. Employees can steal money from your company through your payroll system. Instances last an average of 36 months and cause havoc in the company. Common payroll scams include staff claiming to work more hours than they did. They could enter overtime hours they didn’t work or clock in for a coworker who’s late or doesn’t show up for their shift. Employees with access to your payroll system can alter their hourly rate to get paid more. They could create fake staff members and funnel funds to fraudulent workers. Employees could receive a salary advance and not pay it back or claim more reimbursable expenses than they have. They can withhold taxes from wages and pocket the amounts.

The longer fraudulent payroll activity takes place, the greater the financial fallout for your business. Although you can’t guarantee your employees won’t commit payroll fraud, you can take steps to prevent it or quickly catch it. Here are three ways.

Establish Checks and Balances

Entrust payroll to multiple employees. Two or more can set up new hires, another group can process payroll, and a third set can handle accounting duties. Make sure someone periodically reviews payroll to look for ghost employees. Have them look into addresses that are the same for different employees. Having more than one staff member handle each task increases honesty. Also, monitor employees with access to account numbers and payroll checks. They could create ghost employees and falsify wages. Plus, don’t allow payroll department staff to generate their own paychecks. They could add overtime wages when processing payroll. Have someone on the team handle the responsibility.

Encourage Employees to Report Suspicious Behavior

Ask employees to let you know about any suspicious behavior they witness with payroll. Since you might not see every detail that goes on with payroll, staff are in a perfect position to spot payroll fraud red flags. A confidential whistleblower action is the most effective way to discover fraud in the workplace. Implement a special phone number for payroll fraud tips. Provide a clear procedure for reporting suspected fraud.

Conduct Internal and External Audits

Have an employee or third-party auditor check your business’s finances, operations, or management. Conducting an audit involves reviewing financial records to see where the money is going. You may uncover gaps in records to determine whether a staff member is committing payroll fraud. Do so at random times to catch employees off guard. You’ll be better able to determine whether someone is committing payroll fraud. Hiring an external auditor can provide an unbiased view of your company’s inner workings and documentation. Be sure to address any inconsistencies and close any loopholes that may arise.

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Outsource your payroll to Red River Payroll. Our experts use the latest technology to streamline your payroll experience and protect against fraud. Get started with us today.

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