8 Tips To Prevent Payroll Fraud At Your Business
Payroll fraud is more prevalent than you may realize. According to the Association of Certified Fraud Examiners;
- Payroll fraud happens in 27% of all businesses, and;
- Occurs twice as often in small organizations than in large ones.
From false reimbursement claims, to claiming overtime for hours not worked, to “ghost employees” being added to the system, there are a myriad of ways in which fraud can infiltrate your payroll.
Although you can never entirely eliminate the possibility of payroll fraud, there are steps you can take to minimize the risk.
8 Tips To Help Prevent Payroll Fraud At Your Business.
Tip #1: Use Checks And Balances – Incorporate a system of checks and balances by having at least one manager review and approve the payroll register before it’s forwarded to the payroll department or processor. The manager should look for names of terminated employees, duplicate names, duplicate mailing addresses, duplicate Social Security numbers or unusual hours worked. In addition, the person managing the payroll should not be the same one signing the payroll checks.
Tip #2: Limit Access To Payroll Information – The only employees who should have access to payroll data are those who absolutely need the information to do their jobs. If reports or any other payroll data are printed or recorded on other media, make sure that all documents are destroyed when disposed.
Tip #3: Use Biometric Time And Attendance – Friends covering for one another at work happens everywhere. The simplest way to stop buddy punching is to use a biometric time and attendance system.
Tip #4: Review Reports Every Pay Period – Having a review process in place is a great way to eliminate fraud. In order to have time to do this, you should send your data to the payroll processor at least three days prior to check date.
Tip #5: Use A Positive Pay Service – Most banks offer a “Positive Pay Service”, which is an automated fraud detection tool. This service matches the account number, check number and dollar amount against a list issued to the bank by your company. If these components do not exactly match the list, the check becomes an “exception item.” The bank will then notify your company representative who can review the item.
Tip #6: Set Up An ACH Filter – An Automated Clearing House (ACH) filter ensures that only authorized companies have access to your business’ bank account. You send the bank a list of companies authorized to debit your account and the bank only allows debits from vendors on that previously approved list.
Tip #7: Promote Direct Deposit And Pay Cards – Both of these payment methods help eliminate the risk of fraud, since there aren’t any checks to steal or alter.
Tip #8: Don’t Misclassify – This is a self-inflicted type of fraud. The illegal practice of designating an employee as a “1099 worker” or an independent contractor can cause your organization to be slapped with harsh penalties, not to mention back payroll. In all cases, it is simply not worth it.
Executive Summary: The reality is that while payroll fraud is prevalent, it is also highly preventable. By setting up a system of checks and balances, being safe and secure with payroll information and taking time to review your reports, you can catch any fraudulent activity that may slip into the system. In addition, by taking advantage of automated options such as Biometric Time and Attendance, Positive Pay Service and ACH Filters, you can add an extra layer of protection to your payroll. It’s true that anyone can steal at any time. The key is minimizing your risk.