Payroll Fraud is one of the most damaging frauds that can happen in an organization. It is very hard to detect, track, and report because of its camouflaging nature of presence in the business ecosphere. According to a 2014 Global Fraud Study by ACFE (Association of Certified Fraud Examiners), a typical organization loses 5% of its revenue each year to fraudulent payroll systems. Loosely translated into numbers, the global fraud amount can rack up to as high as $3.7 trillion. This is a huge loss worldwide for businesses who are trying to keep up with the rising inflation and decreasing economy. To curb these fraudulent activities, it is important to identify the black swans of payroll frauds, tighten the noose and prosecute the faulty.
Firstly, let’s have a look at some of the most common payroll frauds that are rampant in the industry:
Ghost employee is a term used for an employee that does not exist. He might have left the organization or been onboarded as a dummy entry in the payroll to siphon off funds to another fraudulent employee.
This kind of fraud occurs when there’s singular access to the payroll software. Employees try to sway the payroll processor to increment their wages in the system, increase their sales commissions or tamper with the payroll paper paychecks that are issued by the employer.
More often than not, an expense account issued by the employer to the employee is misused to the maximum capacity. Employers are not honest with the expenditures and quote elevated reimbursement charges to rip off their organization.
The most easily executed fraud is the theft of time. Time is money and in the business sense, it literally translates to working hours is salary. Some employees clock in earlier than required, clock out later than necessary to increase their weekly hours. Some employees also indulge in proxy punching, which means punching in for an employee who is absent.
Modern problems require modern solutions. While it is advisable to invest in payroll software that offers complete payroll solutions to control such frauds, it is not necessary that payroll services will completely put a stop to such scams. The top 5 ways of preventing payroll fraud are:
1. Require mandatory day offs
Some employees believe in giving their best to their organization. While it is worthy of applause, it is not always the case of employee loyalty. Employees look at it as a way of racking up working hours on the timesheet to increase their salaries and overtime costs. This can be dealt with by enforcing vacations and making day-offs mandatory.
2. Segregate duties
When there is only one payroll processor in an organization with access to a complete payroll solutions payroll software, it becomes very easy for employees to take him in confidence and execute payroll frauds. This can be avoided by delegating duties to individual payroll team members in a sophisticated manner. One team can handle authorizations, one team can handle distribution while one team can handle grievance resolution.
3. Paperless Payroll
It’s extremely easy to falsify a paper paycheck but almost impossible to falsify a digital payslip. To make matters even secure, companies should look into making direct deposits in employee’s bank accounts to bypass any imminent frauds.
4. Set up biometrics
One sure-shot way of avoiding proxy clock-ins is to set up biometric punch-in systems. These can be directly connected to the HRIS which can, in turn, provide relevant timesheets to the payroll department, thus completely eliminating the reliance on employees for maintaining timesheets.
5. Reviews and Audits
While the above-mentioned methods can work wonders for preventing fraud, loopholes can always be found or invented to circumvent the system. To ensure that the payroll is processed correctly, it is necessary to conduct surprise audits in the organization and to review reports thoroughly. Identification is the first step to recovery!
Prevention is better than Fraud. Payroll Software can be customized to offer access to selected users and require login credentials to increase security. Uzio payroll software houses this and many more complete payroll solutions to make your payroll more secure, efficient, and fraud-resistant. Finally Pursuing fraud detection certification such as the CISA by successfully passing the CISA exam can be helpful for preventing Online frauds.