Whether it’s a large amount of money or a box of staples here and there, employee fraud always hurts your business’s bottom line. In a 2012 case, the CFO of a Louisiana-based company requested a six-figure payroll advance to cover the costs of his divorce. The advance was granted, but the CFO left the company without repaying the funds, leading to a major loss for the company.

Employers with complicated payroll records—especially paper systems—are particularly vulnerable to every type of fraud. Manual punch clocks and multiple documents or spreadsheets are too easy to manipulate and challenging to audit regularly. The most impactful strategy for preventing payroll fraud is to implement cloud-based payroll software like MP’s.

Are there any good free payroll software platforms?

This ensures access to payroll data is secure, organized, and easy for a payroll clerk or other employees to audit. Optimal payroll software also allows employers to create customized dashboards to easily run audits as frequently as needed. Just knowing these audits take place may be enough for employees who would have committed payroll fraud to reconsider. Ghost employee fraud involves the creation of fictitious employees within the payroll system.

Like a kickback scheme, vendor bribery involves a vendor bribing an employee with unique power over vendor contracts. Unlike a kickback, bribery usually takes place all at once and doesn’t leave a paper trail. To spot personal-purchase schemes, keep an eye out for unfamiliar invoice delivery addresses and look for merchandise that never arrives. To spot padding, look over receipts for any suspicious activity, like multiple meals for one person. Depending on the severity and nature of the fraud, there could be legal ramifications. Companies could face fines for lack of oversight or proper control mechanisms.

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Also, they may access the payroll system to falsify their wages and increase their hourly pay rates. Throughout her career, Heather has worked to help hundreds of small business owners in managing many aspects of their business, from bookkeeping to accounting to HR. Before joining Fit Small Business, Heather was the Payroll/HRS Manager for a top cloud accounting firm in the industry. Her experience has allowed her to learn first hand what the payroll needs are for small business owners. For help preventing paycheck diversion, check out our guides on setting up direct deposit and the best pay card providers. Provide workers with clear guidelines about when they can and cannot clock into work.

Periodically perform surprise audits of your payroll system to ensure accuracy and identify any discrepancies. These audits can help uncover hidden schemes, such as phantom employees, fake wage claims, or unauthorized changes to employee compensation. In the realm of payroll fraud, there are three prevalent forms that businesses must be aware of. Understanding these forms and knowing how to combat them is crucial for protecting your organization’s financial well-being and reputation. Let’s delve into each form of payroll fraud and explore the strategies businesses can employ to combat them effectively. One employee can handle time cards, while another submits payroll, and a third employee issues pay stubs.

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Essentially, the employee requests and obtains an advance payment, but never repays it. Modern payroll software has built-in features to detect any anomalous activity related to payroll records. Furthermore, payroll automation is the best way to identify any irregularities sooner and save monetary loss to the business.

• Morse previously pled guilty to one count of NSF Check more than $500, agreeing to pay $20,972.82 in restitution to employees affected by the bad checks investigated by Marshall Police.
• If you are looking to outsource Paychex can help you manage HR, payroll, benefits, and more from our industry leading all-in-one solution.
• These audits can help uncover hidden schemes, such as phantom employees, fake wage claims, or unauthorized changes to employee compensation.
• It’s often perpetrated in small amounts so as to not to make a supervisor suspicious.
• Among those, the common types of payroll fraud are buddy punching, disappearing between a punch in and out, timesheet padding, and more.
• Also, clearly explain what they can do to protect sensitive information, such as employee addresses and Social Security numbers.