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How Can You Prevent Payroll Fraud?

How Can You Prevent Payroll Fraud

Whenever we hear about employees being involved in stealing from their job, the first thing that comes to mind is the stealing of items from the supply closet, legal pads, office stationery or others. However, many businesses nowadays are facing a more costly type of fraud, known as payroll fraud.

Did you know that on average almost 30% of business are being affected by payroll fraud schemes annually? Payroll fraud is one the most damaging things which could happen to a company. This is because payroll fraud is not a scheme that is carried out in short period of time, but a fraudulent act that tends to occur for a long period.

According to a study of the Association of Fraud Examiners, ACFE, payroll fraud schemes are long-term fraudulent acts and the time duration between the start of the fraudulent act and its detection is almost 24 months. This, unfortunately, is ample time to cause huge financial damage to a business.

So how do employees commit payroll fraud that result in companies either overpaying or underpaying them?

To assist you with that let us have a look at some common practices of employees that falls under payroll fraud.

Buddy Punching

This type of payroll fraud occurs when an employee ask another colleague to time-in or punch the hours, In the time clock of a company, while the employee is on casual leave or coming late to the office.

While this is the most common practice in many small or medium sized companies, large business organizations keep an adequate control over such type of payroll frauds by devising proper internal controls such as biometric time clock machines.

Ghost Employee

This type of payroll fraud is about creating a non-existent employee profile in the payroll records. Moreover, this can also be done by prolonging the salary payment of an employee who has recently left the company. For such kind of payroll fraud, the payroll staff modifies the payment record or inserts a ghost employee into a department whose supervisor has left recently.

However, to catch such payroll frauds, companies should keep the practice of periodic auditing with regards to payroll records. Another way to track is through the pay checks with no deductions since fraudster would like to steal maximum amount of money.

Worker’s Compensation

This type of payroll fraud may affect all types of organizations. In this activity, employees fake backbone, neck or other physical problems in order to bilk their insurance company or employer out of hundreds of dollars. Similarly, they make false claims of injury occurred at work to obtain lucrative benefits that are offered in the scheme of worker’s compensation. Organizations with self-insurance are more likely to get affected through this fraud while others may end up paying rising premiums.

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