Payroll Fraud: How Can a Business Detect and Prevent It [FULL GUIDE 2020]
Payroll fraud can run your business into the ground. Not only does it waste precious resources that you could otherwise utilize to expand your company, but it creates an atmosphere of distrust among managers and employees. Fraudulent individuals are extremely inept at finding loopholes to create payroll fraud cases and small business fraud.
Still, if you enforce a strict system that propagates honesty and promotes transparency, you will be able to spot and eliminate these employees right away. If you are interested in learning how to prevent payroll scams, then this article is for you. Read on to discover the best tips to protect your company from fraud and other financial scams.
1.Ensure Honesty To Avoid Payroll Fraud Cases
Preventing payroll fraud cases starts with you. As a business owner, you have the huge responsibility of setting the company’s tone. If you are running an ethical institution that thrives on transparency, the chances are that your employee will follow in your footsteps and report any duplicitous activities.
Your business should not be built on fear but trust, which means encouraging those who tip off the management to fraudulent behavior. This way, you can entice your employees to be more forthcoming when reporting payroll inconsistencies.
2. Hire a Professional Accounting Team
If you are the only one handling payroll, you may give frauds the chance to manipulate their work hours or submit false compensation claims. After all, you are one person, so it will not be hard for employees to find loopholes to commit payroll fraud. Similarly, designating a sole employer to process and create payroll reports is playing with fire because you will be actually giving them room to control a big portion of the company’s resources, which is too big of a task for one person.
For this reason, hiring a professional accounting team is your best bet. You will be able to segregate duties and spot fraudulent individuals much easier since there will be a whole team controlling the payroll process. However, make sure to conduct thorough background checks first before you hire any new employees. To do so, everyone has to pass the same checks, which means that you need to be consistent and not make any exceptions even if you trust the person. However, be also aware of accounting fraud.
3. Invest in Dedicated Payroll Software
Why tackle accounting tasks manually or using old methods like spreadsheets when you can automate the whole process? The folk at Zenefits point out that dedicated payroll software has become the saving grace of many small companies that were on the verge of going bankrupt.
With similar software, you can create reports and calculate employees’ paid time off (PTO) without a hassle, reducing payroll fraud risk. When choosing a payroll system for your business, make sure to allow integrations with popular accounting platforms to eliminate the need to start from scratch again.
4. Eliminate Paper Paychecks
It is ridiculous to think that some businesses still rely on paper checks in 2020. Sadly, recent statistics show that a whopping 95% of small businesses utilize paper checks to make payments. Paper checks are a ticking time bomb because they are prone to manipulation. They can be altered and stolen, which increases the risk of payroll fraud cases.
On the other hand, more secure payment options like direct deposits or pay cards cannot be manipulated in any way. So, get rid of those pesky paper checks and upgrade to more modern payroll solutions.
5. Be Careful of Overtime Payments and PTO
Employees who have access to the company’s payroll system can manipulate it to show that they worked extra hours when they were, in reality, dozing at home! In some cases, some workers might take PTO (Paid Time Off) that does not appear on the system or cause a decrease in their PTO balance.
This is why you have to be extra careful when making overtime payments and calculating PTO. You should instruct your accounting team to submit periodic reports so that you can check the legitimacy of employees’ claims before processing any payments.
6. Punish Fraudulent Individuals
You have to show your employees that payroll fraud has severe consequences. Setting an example when it comes to punishing fraud is extremely important. Letting such incidents slide or deducting the fraudulent employee’s salary lets other workers think it is okay to steal from the company. If you ever identify an employee who has committed payroll fraud, you need to sack them because they cannot trust the business’s resources.
Not knowing how to spot and control payroll fraud can disrupt your business operations and lead to a lot of finger-pointing. Since you need to guarantee that everything runs as smoothly as possible in your company, taking proactive steps is essential to reducing payroll schemes.
Remember that the above suggestions will work only if you and your staff are on the same page, so make sure to inform them of the anti-fraud measures you will enforce. Which takes us to the next point.
7. Report Payroll Fraud
You can also officially report the scammers and any other suspicious activity when it comes to payroll activity to the Federal Trade Commission using the link below:
How To Protect Yourself More
If you want to be the first to find out the most notorious scams every week, feel free to subscribe to the Scam Detector newsletter here. You’ll receive periodic emails – we promise not to spam. Meanwhile, educate yourself with some other fraud-related articles right under this paragraph. This way, you can protect yourself in many other aspects and niches. Last but not least, use the Comments section below to expose other scammers.
Here are some must-reads for the end:
Most Common Cases of Identity Theft
How to Become a Chartered Accountant Scam
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