Payroll Fraud

Running a business requires effort on all fronts. You must ensure that output is always at optimum level so that workers are satisfied and feels motivated with the company culture. Another critical aspect is safeguarding a company payroll system against payroll frauds.

Stealing within a company can take place in many ways, such as stealing raw materials, infrastructure vandalism and machinery. However, payroll fraud is the toughest to detect because it’s often secretly invisible.

According to Forbes reports, Payroll frauds happens in 27% of all businesses and occurs nearly twice as often (14.2%) in companies with less than 100 employees.

We created this Blog on payroll fraud to help you understand how it affects the SME or Large business and what payroll fraud prevention methods can be implemented.

What is payroll fraud?
Payroll fraud happens when an individual illegally does time theft when they add working hours that they do not work or changes the company payroll structure to manipulate the calculation of employee remuneration for their own benefits

Six different types of payroll fraud

1. Ghost payroll
   This payroll fraud is generally committed by someone in HR department who has easy access to the organization’s payroll system by producing fake staff in the payroll system. In doing so, they falsify the employment records to keep collecting cash from the organization.
2. Misclassify
   Workers provide different classifications depending on the number of hours they work, their work role, their relationship with the company like full-time, part-time, or contract workers to steal the benefits they’re entitled for and to save costs like severance levies, staff benefits, and payroll levies.
3. Timesheet fraud
   Workers provide different classifications depending on the number of hours they work, their work role, their relationship with the company like full-time, part-time, or contract workers to steal the benefits they’re entitled for and to save costs like severance levies, staff benefits, and payroll levies.
4. Third-party payroll scams
   Employers think payroll frauds can be committed only internally, but payroll diversion scams have third-party offenders who steal the employee data to change their bank account details so that the money is transferred to cyber criminals.
5. Workers’ compensation fraud
   Worker compensation fraud happens mostly in the manufacturing, construction and mining industry when a worker reports a fake injury or falsely claims that an injury occurred at work to collect workers’ compensation which may resume the rise of workers’ insurance premiums thus increasing the cost.
6. Bonus schemes
   Some staff may figure out loopholes in the payroll system to avail the incentives or bonuses they didn’t earn honestly.

Another type of fraud is committed by contractors who agree to provide a certain number of workers on site but avail fewer workers working thus saving on the labor cost.

How to detect payroll fraud?
Prevention is better than cure. This is why you must take the necessary steps prior to payroll fraud. While lawsuits and recovery of stolen money are secondary steps, first, you must ensure all measures are taken to mitigate fraud.

1. Use tools to avoid timesheet fraud
   You must ditch paper or excel timesheets and switch to payroll and attendance management software that’s cloud-based. It also offers advanced features such as leave management, attendance policy, contract worker management, and real-time staff tracking.
2. Understand staff classification
   As a manager, you must understand staff classification. Misclassification of the staff not only has financial implication but this is also against the law.
3. Create clear workers’ compensation policies
   Create clear policies for workplace injuries. Your workers must know who, when and how to report workplace injuries. Install security cameras at work sites so that any workplace injuries are recorded as evidence.

Can a legal action be taken against employees doing payroll fraud?
An employer can file an action against the employee who commits payroll fraud and sue to recover the stolen plutocrat and seek discipline as per the law against fraud.

Conclusion
Payroll fraud is punishable by law, but its fiscal suggestions on the overall business can be ruinous. It can happen to the small and large companies, which is why there must be measures taken like using payroll automation technology for payroll fraud early discovery. As the consequences can be more than loss of money and can result in privacy invasion, you must implement the solutions we have shared in this blog.