How Can Companies Prevent Payroll Fraud?

Companies constantly seek an opportunity to identify external problems and find opportunities to resolve them. They employ different strategies to provide value addition and increase the returns for the shareholders. All companies at the same time should ensure the internal processes are robust, manipulation free and sustainable. Various financial and non-financial frauds can occur in a company due to many factors.

Payroll Fraud is one of the costliest forms of financial fraud amongst companies. As the company’s internal teams, such as the accounts and human resource processes, manage the payroll functions, usually such payroll frauds rarely feature publicly. Therefore, there is minimal possibility of recovering money lost to the fraudsters in cases of such payroll frauds.

Payroll Fraud

Payroll fraud is generally considered an illegal scheme under which a company employee gets the salary or reimbursement payment from the company through the payroll processing system. It can also be viewed as an act of stealing money from the company’s payroll system. Usually, company employees carry out such fraud by making false claims to their employers to process payments for a fraudulent scheme to sidestep paying towards payroll insurance and taxes.

Company Payroll fraud is usually insidious in the business’s accounting department involving bookkeepers or payroll managers who generally have access to company bank accounts and records with an ability to manipulate company financial statements.

Types of Payroll Fraud

The following are some of the types of payroll fraud:

Company Ghost Employees

It is a type of fraud that occurs when the employees are present in the company payroll books but not working for them. But the payment will be processed for these ghost employees, which affects the company financially.

Timesheet alterations

Company Employees at times involve in this type of payroll fraud scheme by adjusting the work timesheets to add more hours of worktime wherein the employees work for fewer hours. Company staff with full access to the company payroll system can manipulate the timesheet records to pay themselves more than the actual sum earned by increasing the commissions and wage rate.

Misclassification of company Employees

This type of payroll fraud involves employers misclassifying the company workers from full-time employees to independent contractors to avoid government tax and other insurance payments. In addition, the company management intentionally employs these practices to prevent health care insurance and contribution towards the employee pension schemes.

Employee Benefits Fraud

Company Employees involve and responsible for this type of payroll fraud scheme. It is carried out by charging the extra business benefits or higher commissions which were not earned in the true sense by providing supporting documents with fake results to factors correlating to their wages.

Work Expense Reimbursement Fraud

This type of payroll fraud occurs when the company employees claim reimbursement for work expenses that are not incurred or inflate the actual value by generating and showing fake bills.