Payroll fraud can be costly to your company in more ways than one. The overall cost of payroll fraud in the United States alone amounts to $14 billion per year, according to the National Insurance Crime Bureau (NICB). Because payroll checks are processed every pay period, it’s an easy target for scammers who want easy money without having to work hard at it. But there are several things you can do to protect yourself and your business from payroll fraud. Here are seven practical tips to help you prevent payroll fraud and ensure your funds make it where they’re supposed to go every time.
1) Adopt Technology Solutions
Technology solutions may not sound sexy, but they’re worth mentioning. Technology can make a big difference when it comes to preventing payroll fraud. You need a solution that will allow you to set up checks and balances for your employees and their pay levels, as well as an auditing process if anything goes wrong. Without technology solutions, there’s only so much you can do with good intentions. Also remember that software isn’t a magic bullet – it can help you catch things, but people still have to be aware of risks and how they could lead to theft or tampering with data – not just computers – which means educating your employees on what they should do if something doesn’t seem right.
2) Use Reliable Staff
It’s important to ensure that your staff is reliable and trustworthy, so don’t take them for granted or leave them unsupervised. Once you’ve hired an employee, establish clear lines of communication. If you run into any issues with them that require discipline or termination, document all interactions you have with them on an ongoing basis. By creating a paper trail, you can protect yourself if they try to make false claims against you in court later on.
3) Utilize Employee Monitoring Solutions
With employee monitoring software, you can spot possible payroll fraud in your company before it gets too big. For example, by tracking timesheets and location data (combined with IP address history), you can see when employees are working from home without authorization or how often they’re clocking in late at night while claiming that they’re working on an urgent project. Such actions could signify that your workers are submitting false time cards or reporting false locations so that they can get paid for hours not worked. By using time-tracking software to identify discrepancies, you give yourself a chance to stop any embezzlement or other payroll fraud before it becomes costly or widespread.
4) Investigate Payments
An in-depth review of payments in and out of your payroll account can help you sniff out suspicious activity. Go back through your employees’ pay records and check for frequent direct deposits, large checks, big payments from vendors, and other activities that may seem strange or unusual. For instance, if you see a worker who normally makes $1,000 per week suddenly make a $10,000 deposit followed by two $2,500 withdrawals shortly after (and it isn’t payday), that should raise an eyebrow. It may be nothing — or it could be fraud and theft. Using data to investigate these types of transactions is essential because too often HR pros only look at things like large sums when they have time on their hands.
5) Regularly Review Transactions
A common mistake employers make is believing that, because their payroll processing system flags transactions for review, they are diligently monitoring their payroll records. However, transaction alerts are not enough; making certain each employee’s W-2 or 1099 forms reflect only reported hours worked and wages earned is an important part of preventing payroll fraud. Regularly reviewing your employees’ W-2s and 1099s (for independent contractors) can uncover errors before you file them with the government or send copies to your employees. If you need assistance calculating paychecks—including overtime payments—or have questions about payroll taxes or deductions, consult with a tax professional to ensure compliance with federal, state and local laws.
6) Use Payroll software
In a time when paper checks are becoming a thing of the past, it can be easy for employees to walk away with money that isn’t theirs. This is why it’s important for businesses to integrate an automated software solution into their payroll processes. From keeping a detailed record of what employees make and where they work to preventing payment errors and double payments, payroll software offers a wide range of benefits for businesses looking for better control over their finances. You may also want to consider hiring a dedicated payroll professional or consultant if you find that your business is growing quickly and you need someone on-hand who can handle everything from tax calculations to direct deposit issues without any hassle.
7) Conduct Random Audits
One of our solutions for preventing payroll fraud is to run regular audits. Conduct random audits on every employee within your company—as often as once a month—to ensure everyone is actually where they say they are, doing what they say they’re doing. Start by calling a few vendors and asking for timesheets from a couple of days in their current billing period. Compare those timesheets with payroll information from the same period to make sure everyone billed hours worked matches up with hours actually reported as worked by employees.