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Avoid Falling Victim to Payroll Fraud in 2021

Updated: Aug 16, 2021


The American Payroll Association recently published an article highlighting the importance of payroll fraud awareness and prevention - especially in 2021 with the added challenges to payroll departments brought by 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, dishonest benefit schemes and continued payments issued to "ghost employees." On average, these types of fraudulent schemes can go completely undiagnosed for 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. Here are some practices that will help you secure your business and defend against damaging payroll fraud.

1. Build Trust into your Culture

It may seem like a 'no-brainer,' but building a foundational backbone of integrity into your work culture is a huge step not only to avoid in-house fraud, but also to create a work environment that is safe and healthy for your employees, a benefit 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 the chance for fraud. It is a good idea to 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, reported and corrected. 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 - ensures 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 discovered is when another employee is tasked to cover payroll functions for a temporarily absent payroll employee and they discover anomalies within the payroll. Therefore, employees should be required to take mandatory time off.

It's also important to ensure that when your employees are on vacation, their PTO balance is appropriately reflecting that time off; the same should be done with any hourly employees who are receiving overtime. Monitoring these elements helps 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 the message needs to be clear that fraud will not be tolerated and there are 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, a great opportunity can be found in Full Payroll Outsourcing. With multiple external eyes on your payroll, payroll outsourcing provides an efficient and secure alternative to paying a full-time salaried team.

Our trusted Humanic Payroll team regularly undergoes AICPA SOC audits to ensure that our systems are secure and that our payroll is free of fraud risk. 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 that when they are combined 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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