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.