• Lindsey Karkos

Avoid Falling Victim to Payroll Fraud in 2021

Updated: Apr 2

The American Payroll Association recently wrote up an article highlighting the importance of payroll fraud awareness and prevention - especially in 2021 with the added challenges to payroll departments with increased jobless aide and additional complexities to the process of getting people paid.

How does Payroll Fraud Occur?

There are a few common forms of fraudulent payroll schemes, such as falsified wages, benefit schemes and continued payments issued to "ghost employees". On average, these types of fraudulent schemes can go completely undiagnosed for an upward of 30 months!

The best way to avoid payroll fraud is to be aware of what it is and to build a defense to reduce the risk of it happening in your business.

1. Build Trust into your Culture

It may seem like a 'no-brainer', but building your foundational backbone of integrity into your work-culture is a huge step to not only avoid in-house fraud, but also creates a work-environment that is safe and healthy for your employees which will return back to your business in the form of increased revenue and cross-sectional security.

2. Cross-train and Spread out Payroll Duties

The less people who handle your payroll, the greater chance for fraud. Create a cross-training element to your finance department and segregate job duties. Holding more employees accountable for the correct execution of tasks allows for there to be more eyes and ears on payroll reporting and processing. Holding a team accountable for the accuracy improves the likelihood that errors (intentional or not) are caught, corrected and reported. Implementing a system for checking accuracy by supervisors can be another great method to keep accountability in these areas.

3. Randomize your Payroll Audits and Review

Periodically running in-house audits to ensure the numbers add up consistently keeps your payroll not only accurate and compliant, but also helps shake up the likeliness of fraud. Additionally, making it a habit to regularly review payroll reports after they are processed - including employee addresses and bank account numbers to ensure multiple payments are not being issued to the same entity.

4. Mandatory Vacations and PTO Accruals Checks

One of the most common ways that fraud is found out, is when another employee is covering the out-of-office payroll employee and they discover anomalies within the payroll. It's also important to ensure that when your employees are on vacation that their PTO balance is appropriately reflecting that time off; the same should be reflected with any hourly employees who are receiving over-time.

Monitoring these elements help ensure that there are systems in place to appropriately respond to fraudulence within your company.

5. No Exceptions: Fully Prosecute Instances of Fraud

It can be daunting to prosecute someone in your company, but it needs to be known that it is a blanket expectation with dire consequences if committed.

It doesn't matter if a team member has been with the company for 2 months or 15 years, engaging in fraud is unacceptable and results in immediate termination and additional prosecution.

6. Fully Outsource your Payroll to a Trusted Provider

If you're not quite ready to build a full-time payroll department to handle your payroll, another great opportunity is Full Payroll Outsourcing. Payroll outsourcing provides an alternative to paying a full-time salaried team with all the efficiency and security of having multiple eyes on your payroll.

Our Trusted Humanic Payroll Team regularly undergoes AICPA SOC Audits to ensure that our payroll is free of fraudulent risk or activity. SOC for Service Organizations are internal control reports on the services provided by a service organization providing valuable information that users need to assess and address the risks associated with an outsourced service.

Ready to learn more? Check out our International Payroll Services and experience our state-of-the-art Payroll software and learn how together, Humanic has developed a full-scale Payroll solution that is second to none! Register for your Custom LIVE Demo today.

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