Payroll Fraud – Are you a victim or a perpetrator?

According to Forbes payroll fraud happens in 27 percent of all businesses.  There are basically three main kinds of payroll fraud and different ways of avoiding each of them.

  1. Employee Fraud:  Time card falsification is an obvious form of payroll fraud.  Certainly Time and Attendance software can help keep employees honest and give supervisors some oversight.  Real-time software is particularly helpful in keeping everyone honest.
  2. Payroll Administrator Fraud:  It is never a good idea to have one person completely completely responsible for payroll without assistance or oversight.  Aside from the danger of losing that person and their expertise, there is also the danger of pretend employees being entered into the system (who coincidentally share a bank account with the payroll person), or duplicate checks being created.  A system of checks and balances, such as audit trails and periodic payroll reconciliations from another source or department can help protect company assets.
  3. Employer Fraud:  The third type of payroll fraud is actually committed by employers.  It involves the incorrect classification of employees as contractors, or hourly employees as exempt salaried.  These types of violations can be intentional, or due to a failure to understand Wage and Hour laws.  Either way they can be expensive.  In the state of California the penalties for classification of a worker can result in back payroll taxes and penalties, plus fines of $25,000 per occurrence.

No one wins with payroll fraud, whether intentional or inadvertent.  Make sure your systems protect you and your employees.