Payroll fraud occurs when employees cause their employers to pay them more than their fair share of wages and compensation by making false claims and falsifying records. By being more vigilant and adopting control policies, you can protect your business from the losses it could incur due to payroll fraud. The Association of Certified Fraud Examiners warns that internationally, companies can lose up to 5% of their revenue each year due to fraud; And small businesses often suffer the most because they lack the elaborate internal controls that larger companies could implement.
non-existent employees
Your employees may be collecting wages on behalf of other employees who don’t actually work for you; or who have worked for you in the past and have left your company. To overcome this problem, you need to ensure that when an employee’s services end, their records are updated immediately. Also count the actual number of employees present with the number of paychecks you write. You can also have your employees physically pick up their paychecks and sign for them. Make sure they provide you with proper identification, such as a Social Service Number that you can later verify with authorities. Also check to see if your records have real addresses and if all payments show mandatory withholdings. If any of your employees are complaining that they haven’t received their paycheck, you may want to check your entire payroll process.
fake time sheets
Another method of claiming undue compensation is to record overtime hours that the employee has actually worked. If you have an electronic time card system, you can assign a supervisor to punch cards. You can also implement new technology whereby employees must add a password or code when registering for work. Examine overtime pay carefully and establish a rotation system whereby supervisors are reassigned from time to time. Separate payroll duties so supervisors are not the same staff adding clocked time and doing payroll. If your bonuses are based on work hours, you could take care of authorizing them.
Bank statements and taxes
You can keep a close eye on the wages you are paying by studying your bank statements. For example, if you see similar bank details, it could be a double payment indicator. On the other hand, if the details of a particular payment are missing, you may want to investigate the recipient. Also keep an eye out for payment codes that were inactive but suddenly activated. In case an employee changes their bank account number, you may want to check and ask the reasons. You can also check your bank payments against your employee list. Above all, you could monitor the taxes you are deducting and remitting to the IRS for inconsistencies.
Sales commissions
Your employees can also add false entries to sales records and commission statements to claim additional pay from you. To protect yourself, compare your sales revenue with the commissions you pay. Also confirm if you’re paying for sales that didn’t actually materialize. If your sales numbers are declining but commission charges are constant or even increasing, you may want to investigate the problem. Also, carefully study reports from customers who don’t want to do their part. When making the payroll, review the percentages of the commissions that your employees have requested against the sales that they claim.