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, a possible vendor, a made-up person, which can be easily overlooked, more so if your company has a larger number of 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 canceled 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 the processing and distribution of checks, payroll, payment approvals, etc.
Looking for more bookkeeping information or tips? Check out our post on How to Avoid Scams