Here we talk about the often-missed kinds of payroll fraud and what to do:

#1. “Ghost employee,” receiving paychecks,

Normally this could be a former employee, possible vendor, a made-up person, which can be easily overlooked, moreso if your company has a larger number or employees. It is recommended that an audit be done of your payroll reports to look for things such as: direct deposits made to the same bank account or duplicate SSNs.

#2. Having a coworker punch the time for someone who is not there to do it themselves.

Have supervisors verify employees’ work time.

#3. Seeing that cash advances haven’t been repaid.

To avoid this happening, record cash advances in a balance sheet account will avoid you easily losing track of these advances and having them improperly recording as an expense.

#4. Self-approved pay rate increases, bonuses or bogus commissions, or overtime.

Having a supervisor approve these will lower the risk of loss of funds.

All kinds of payroll fraud are easily preventable with the following internal controls:

  • Review cancelled check payees against the names in your books and your monthly bank statements.
  • Implement rotation and cross-training with your HR & payroll staff.
  • Ensure that employees use their vacation time during the year.
  • Making sure that duties are properly separated is key.
  • Setting up bonuses and payroll as direct deposit.
  • Having separate individuals doing processing and distribution of checks, payroll, payment approvals, etc.
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