Payroll fraud is not easy to detect and it can takes several forms. A company’s payroll services can be affected with the following three schemes:
This type of fraud is very common in payroll service departments. It occurs when the employees misuse the system to increase their wages. They can also add extra hours that were not actually worked. Click here to know when selecting a payroll company.
Ghost employees don’t exist in reality. This type of payroll fraud is committed by adding a fictitious employee on the payroll of the company. The executor of this fraud then embezzles company funds in a way that by cashing in on the wages paid to that fictitious employee.
Sales teams can dig holes in commission structure in a bad way. They can do so by inflating sales and falsifying other sales and purchase orders.
The above mentioned frauds are not very easy to detect but the following measures can help you a lot to avoid such frauds.
5 steps to prevent payroll frauds:
Payroll outsourcing is one of the ways to avoid frauds. By implementing several internal controls you can minimize at least payroll frauds within your organizations.
1.Executive Approval of paychecks:
Executive’s approval is necessary in so many cases to avoid frauds. You must choose a person from your executive team whose approval to employee paychecks is final. Don’t forget to take approval for bonuses and other types of irregularly distributed compensations.
2.Restricted Payroll System Access:
There must be a restricted payroll system to avoid frauds. Everyone should not have access to the payroll system. The duties must be segregated. The reason is that, there would be less chances of committing fraud when the persons who record payroll information are not the same who approves and authorize the payments.
3.Surprise Payroll Audits:
Surprise payroll audits are very necessary to prevent frauds. Surprise audits are very effective and these can be applied to the area of payroll. Both external and internal payroll audits can prove effective in this regard. Auditors check any duplicate names, postal codes and addresses of the employees as they show the red flags for fraud. Auditors also ensure that the employee’s names mentioned on the payroll do indeed exist and they are also the employees of the company. Learn more about payroll audits.
4.Regular Review of payroll service providers:
Regular reviews are useful to find out the frauds. Try to reconcile the amounts paid to your payroll expenses. Also check the large one time payments. Whenever you check the financial statements of the company, at that time also review the payroll reports to find out anomalies.
Companies sometimes allow mandatory vacations to payroll and accounting personnel. This is a large way to uncover fraud. It allows other persons to step in to take over the payroll system and the new employees may find the red flags which lead to payroll fraud.
By improving payroll services and using the above mentioned preventive measures you can avoid payroll frauds.