How to Detect and Prevent Payroll Fraud

How to Detect and Prevent Payroll Fraud Payroll fraud is most simply defined as employees cheating the payroll system at their place of  employment to receive funds to which they are not entitled. There are many ways  payroll fraud can be committed, including from salary, hourly and commission workers, as well as ways to prevent and detect it. What is Payroll Fraud? For workers who receive a salary, the most common form of payroll fraud involves fraudulently  boosting the amount they should receive or adding a false employee to the list and collecting these  wages. For workers who are paid hourly rather than on a salary, payroll fraud methods can include  altering the number of hours worked, signing in and out of work at incorrect times or claiming to  have worked shifts when they were not actually in work. Commission workers or employees who work in manufacturing and are paid by how many units  they produce can also commit payroll fraud. This is done by falsifying records such as how many  sales they have made or units they have produced. The final common form of payroll fraud comes in false claims for expenses. This can range from a  meal with family or friends being claimed as being part of business with a client, to taking trips away  falsely labeled as business trips or meetings. How to Detect Payroll Fraud While payroll fraud is uncommon, there are plenty of examples where it has happened, and it can potentially lose businesses and employers a significant amount of money. A study in 2011  found that companies in Britain lose around £38 billion a year due to payroll fraud. Five percent  of all expenses claims were found to be false, a total of over £150 million. However this figure covers what is detected, so the actual number is likely to be significantly higher. Due to the high financial cost of payroll fraud and the serious nature of such offenses, some methods have been developed to help to detect payroll fraud and provide evidence if it is  suspected. Some of the key signs that payroll fraud is taking place are as follows: Symptoms of an employee living an overly expensive lifestyle for their earnings Multiple employees that are not family members sharing an address or bank account Payroll audits Having a member of staff unfamiliar with the payroll system check records Anomalies in payroll records Preventing Payroll Fraud While it is important to detect if fraudulent activities are taking place at a company, it is equally  essential to do everything possible to ensure that it does not happen in the first place. As well as  frequent checks of the payroll records, this can also be done by making sure employees are aware  of the full consequences surrounding payroll fraud. The punishments relating to payroll fraud go far  beyond a work disciplinary or having to repay the money, with significant jail sentences frequently being  handed out for offenders. Getting an outside body or a member of staff from outside the team to check records every so  often increases the likelihood of wrongdoing being discovered. Not every case of an employee being  overpaid will be fraudulent, mistakes can be made, and frequent checks of the system can also help  to quickly correct these errors, without significant financial loss to the company or the employee  involved. Consequences of payroll fraud Payroll fraud is a serious offense, with severe punishments for those individuals who are proven  to have carried it out. In July 2012 a British man who had carried out serious payroll fraud worth  millions of pounds was sentenced to 17 years in prison. While most cases do not involve amounts as  large as this, a custodial sentence is a standard punishment for payroll fraudsters. Making employees  aware that not only will they lose their job, but potentially their freedom is one sure-fire way to  reduce the risk of workers considering payroll fraud. As well as the threat of imprisonment, they will  have to repay the money they obtained during their fraudulent activity, as well as facing a further  fine. Many legal experts who specialize in fraud believe that payroll fraud is committed as it is seen  as a victimless crime and that such actions are commonplace anyway. Ensuring employees know  that their actions are damaging and will result in significant sanctions is an excellent way to prevent this  behavior, and may encourage anyone who has been committing undetected payroll fraud to cease  with their actions. By taking care only to appoint top quality candidates when filling your payroll vacancies, businesses can ensure they have  trustworthy and reliable staff who will not commit fraud themselves, as well as picking up on any  suspicious activity from other employees.