How can you avoid payroll fraud in your firm?
Emily was Dr. Watson's office manager who was with him for 20 years, and he always considered her as a life saver because she dealt with all the administration and bookkeeping responsibilities which helped him to focus on his profession and provide service to the people peacefully. After some time Emily was entrusted with more duties such as processing the payroll services and handling the accounts receivable and payable which gave her access to the bank accounts and checks. Unfortunately due to such access, she started to steal from her employer by issuing payroll advances for herself every week and not reporting all these on her paycheck. Moreover, she manipulated the books and made it look like those funds were paid to legitimate vendors. Then Dr. Watson realized that some unfamiliar advances were made using his credit card, so he insisted on having an internal audit to detect the loophole in the payroll processing and Emily was identified as the person responsible for such fraud.
As referred above Payroll fraud is one of the frauds which is related to asset misappropriation and it is very difficult to detect it, and also considered as one of the long-lasting frauds in a company. It involves huge losses because it remains undetected for a long period, even though many companies do not give much priority to detect these frauds. In most cases, this fraud is conducted by the persons who are within the company. Payroll fraud can be defined as "any scheme in which an employee causes their employer to issue a payment by making false compensation claims."
Before knowing the ways to avoid fraud let us go through some common type of payroll frauds in a company:
- Falsified wages: Sometimes the employee claims that they worked the hours which actually they didn't and with the help of the co-workers who punch their timecard even when they are not present and they persuade the employer that they worked during that hour. It is the most common and easiest way of fraud.
- Ghost employees: In some cases, frauds are conducted by issuing payments for fake or former employees stating that they are part of the staff, this type of fraud is common in a large organization that may hire temporary laborers or workers.
- Timesheet fraud: Under this case the employee may log time for the hours they didn't work such as skipping the hours or coming late, here they try to hide the skipped hours by logging the time asking his co-worker to do so.
- Commission fraud: It refers to representing fake sales records with the motive of earning commission for such sales, the companies which provide extra incentives on the increase of sales must concentrate on such type of fraudulent activities.
- Expense reimbursement fraud: Sometimes the workers may claim their personal expenses as work-related and they try to get incentives for such expenses which will lead to huge costs if they are not dealt with on time.
Different ways through which a firm can avoid payroll fraud:
- The first and foremost way to avoid the above-stated frauds is conducting periodic audits related to the payroll reports to get a clear picture regarding the payroll process and loopholes if any.
- A specific division of work must be maintained, the responsibilities and authority related to the payroll process must be divided among the employees and minimum access to the payroll system should be provided to the employees.
- During the monitoring process, you must be aware of the cancelled checks and must ensure that these are really cancelled; also they should never provide a blank check to the employees.
- It is always the best course of action to reconcile the payroll statements after a particular interval and to appoint some other person outside the firm to oversee the payroll system and to evaluate it thoroughly.
- The firm must appoint a senior supervisor to give approval for timesheets so that fraud can be detected at an early stage.
- The firm or the employer must try not to be lenient towards the fraudsters and follow strict rules and regulation to prosecute those persons who indulge in fraudulent activities
How can CDA avoid payroll fraud?
CDA along with its auditing and accounting services provides a well-known payroll service with its well-trained and expert team who can effectively manage your payroll documentation, expense claim disbursement, and processing pay slips in an easy way. It also focuses to avoid theft and fraudulent activities by maintaining confidentiality and complying with all the rules and regulations.