Tech Buzz
Fraud Protection: A Way to Maintain Payroll Integrity
The payroll department maintains
all the crucial employees’ information regarding legal issues, financial
transactions, and personal details, and ensuring security is its key concern.
How they store this information contributes to how well it is kept away from
any infringements. There is always a risk of fraud hovering over the sensitive
data and any unauthorized access can lead to serious consequences. Payroll
frauds can even damage a company as it tends to occur for a long period and it
can take months to rectify the manipulation. According to the Association of Fraud
Examiners (ACFE), the median duration between payroll fraud and detection is 24
months which is sufficient for any financial damage. To state facts by experts,
companies lose almost a quarter of business due to payroll frauds each
year.
An organization is vulnerable to
risks of fraud by external or internal factors. If left undetected, then even a
small dent can cause a major financial drain. You might think that this will
not be the case with your company as you have bought a reliable payroll software,
hence, creating a safe environment. Sorry to disappoint you but without the
right features and effective implementation, your data is still susceptible to
fraud and there is no one to blame. Pointing fingers at each other or blaming
the software won’t rectify the errors or change anything for better. But
knowing how to take precautions and be attentive can.
So, we have listed 5 tips that you can use to prevent payroll fraud in your company. However, to understand how to prevent payroll frauds, it must know how it occurs. Hence, we have explained 3 major types of fraudulent schemes that are common in offices. Have a look:
Ghost Employees
This is a surprisingly effective
technique that is usually seen in large organizations where managers are
supervising numerous staff members. Here, former or fake employees are issued
the checks which they use for personal gain. As supervisors could not review
compensations in detail, it is difficult to detect such fraud. A ghost employee
enters the information about former employees into the online HCM system and siphons
money as long as possible. It also includes false claims for company pension
schemes when details of pensioners are stored in the system even after his/her
death. The fraudster opens a new bank account to divert the funds and receive a
consistent amount monthly. Although this trick is challenging and involves a
lot of effort, regular money and genuine appearance of the transaction make it
worthwhile.
Falsified Wages
This is the easiest way that
employees use to increase their take-home pay or boost working hours or pay
rates beyond their entitlement. An employee claims compensation for the hours
that he/she didn’t work for or ask their coworkers to punch the card on his/her
behalf. Also, people who have access to the payroll system credit more to
themselves by manipulating the information. They inflate the sales figure to
increase their bonuses, reduce somebody else’s withholding tax, and invoice
incorrectly for personal profit.
False Expense Reimbursement
Almost every company reimburses
the amount that employees spend on behalf of the company. However, some people
abuse this system and submit fictitious expense claims, hence getting a higher
amount than what they should. The most common ways are a duplicate or false
expense and showing the items or events that never existed like dinner with the
clients. There are several other frauds that occur in this range but submitting
the fake travel costs is the most popular one. Moreover, employees often
falsify receipts or simply lose them to claim money and escape any scrutiny.
Now that you are familiar with
what you have to be aware of, let’s start with the techniques to keep your
business safe from such payroll frauds:
Tracking and Auditable Payroll Software
The ones who always seek the
chance to commit fraud and claim false benefits or pay often look for the
loopholes in the company’s Human
Capital Management system. Their motive is to manipulate the time and
attendance to boost their working hours. Of course, the computer, and files
where records are maintained cannot be tracked easily every month, hence
resulting in an increasing number of frauds. Therefore, ATS software that
automates the whole tracking system and updates the information is the ideal
way to safeguard the payroll process. These platforms protect companies against
fraud by integrating payroll and HR systems. They have all the data regarding
any changes made in time or date, who made the changes, when and for what
reason, everything can be identified through these programs. The accessibility
is restricted to managers and supervisors who approve the time and leaves of
subordinates and can track the modifications easily. For cross-reference,
company laptops and PCs can be used to detect any unauthorized access to the
files.
Regular Audit of Individual Records
Overall review of employees is as
important as any other task in an organization. However, the combined report
may not highlight any flaw or fraud and you have to invest hours to finally go
through the data completely. Hence, it is better to create an HCM or employee
benefits software that records the details and information of the
individual employee and give a sensible conclusion at the end of the month. You
can incorporate an online HRIS software that consists of a portal where the
date, time, leaves, and any updates are marked automatically. HR departments or
employers can audit the information provided by the system and find any strange
figures that need reassessment. These applications are much faster and smarter
than humans, thereby, catching the errors or frauds within a few minutes. The
activity audits can prove to be a red flag to any unusual practices in the
company, such as a significant change in the employee time cards, change in
direct deposits, etc. These audits can spot ghost employees instantly, making
your investment in an HRIS worth the money and effort.
Limit Access
The most critical line of defense
in access control to ensure the integrity, confidentiality, and reliability of
data in a company. This is the best way of internal control to eliminate
payroll frauds and identify any fraudulent practice. Through a Human Resource
Information System, employers can change the settings so that only authorized
people can access the portal, mark the changes, and see the updates made by
other members. As a business owner, you will have the power to create policies
against password sharing to keep a check on access restriction. With
established guidelines, you will be ascertained that there is no hampering with
the data and you are getting only authentic reports. It is recommended to bring
the information to the employees rather than allowing them to retrieve it from
the system. You can determine who can go through the records of other employees
and see the information and who cannot.
Time and Attendance Software
Technology is evolving every day,
giving us sophisticated and effective solutions to every problem. Payroll fraud
is no exception to it as we have an HRIS system that can record the in and out
time of employees along with the attendance. They give reliable and accurate
results, making them more popular and helpful than ever. By scanning employee
metrics, such as fingerprints, face, retina, or badges, these systems can mark
the attendance instantly and give the monthly reports to authorities. Things
couldn’t be better as these programs are available at the most economical prices
and are convenient to use that every company is incorporating the software into
the smallest of operations. Of course, it requires the review and approval of
managers before payroll submission to avoid any mistake. With proper training
and supervision, managers will be able to find any inconsistency and can report
the same to the concerned department.
Standardize External Requests
Companies often get payroll
inquiries from external sources which pave the way for security breach and
cyber theft. You have to be careful and alert while sharing any information.
When mortgage companies, creditors, or other entities that have financial interest
connect with you for any details or information, there is no method to verify
the person at the other end of the line. It can be anyone from someone calling
to confirm the income of an employee or a creditor wanting to garnish wages.
Therefore, you must pay the utmost attention to building a proper HCM system
where every inquiry is submitted in writing. A standard legal procedure should
be followed for a garnishment. The employees must be trained about the process
that they need to adhere to while releasing details about any worker of the
office to a third party.
Conclusion
Payroll Fraud can be a major
stumbling block for a company with some serious financial setbacks, considering
how costly the affair it is. It is important that you know what to look for in
internal audits to reduce the chances of any fraud. Moreover, you need to be
vigilant while using technology to control such practices. Make sure that you
pick a reliable and authentic company for payroll software. Accomplish takes
care of every single detail when it comes to complying with the payroll
process. From filing taxes to keeping your information safe, we will have your
back at every step to keep you away from hacking.