Identifying suspicious activity can help your business save thousands of pounds every year from payroll fraud.
Private sector businesses are losing in excess of £12bn each year to payroll fraud. Payroll fraud is simply described as employees who try to defraud the payroll system at their place of employment in order to gain more money they are not entitled to. For larger corporations, undetected payroll fraud may not pose a huge threat but for smaller businesses can have a leverage on its survival.
Unbeknown to employers, permanent employees who are paid a salary can illegally claim the salaries of fictitious personnel added to the payroll system. Temporary staff who are paid hourly can manipulate the amount of hours worked to claim more wages. Commission workers or contractors can falsify sales records or quantities of products produced. No industry is immune to fraud and as employers, having the ‘know how’ to recognise suspicious activity can help your business save thousands of pounds each year.
Experlu on HR News shares 8 valuable insight into how your business can combat payroll fraud and reduce your vulnerability.
1.) BUDDY PUNCHING
This is when a co-worker clocks in their working start and end times on their behalf without them being present. This is how an employee can claim for hours not worked.
How to avoid it: Implement biometric tracking software like fingerprint, ID badge or facial recognition.
2.) GHOST EMPLOYEES
This is when a former or terminated employee with access to the businesses payroll software creates a fictitious employee profile or fails to delete a terminated employee profile, gains funds they are not entitled to.
How to avoid it: Conduct regular employee list audits. Notice any duplicate addresses, fake NI numbers and non-contractor paycheque with no deductions.
3.) CHANGES IN PAY RATES
This is when a fraudster changes an employee’s rate of pay in the payroll system either directly or by hacking into the system remotely. Some fraudsters may change the rate before pay day and change it back after whilst others will do it continuously to avoid being caught out.
How to avoid it: You can reduce your payrolls risk by ensuring your payroll software is password protected and that employee access is limited. You can also ensure that the rate of pay documentation are in sync with the payroll.
4.) EXTENDING WORK HOURS
Employees manipulate or falsify the timesheets to reflect more hours worked in order claim more pay.
How to avoid it: Establishing a clear policy for punching in work times. Next, sync your businesses payroll software to ‘time tracking software’. Another option is to manually monitor overtime and conduct regular payroll audits.
5.) FRAUDULENT EXPENSE REIMBURSEMENT
When an employee is reimbursed for an expense claim that either did not occur or was valued more than the original value and pocketed the difference. These can take the form of mileage claims or submitting fake invoices.
How to avoid it: Have clear spending policies in place such as what expenses are deductible and what the spending parameters are. Regular security checks should be done to ensure receipts match the policies and what is being claimed.
6.) FRAUDULENT COMMISSIONS
This is when an employee falsifies or inflates sales reports in order to claim more commission than what they are actually entitled to.
How to avoid it: Be aware of suspicious activity such as a rise in commission being claimed against declining sales. Also, monitor top sales performers commission against sales made.
7.) DIVERSION OF PAYCHEQUE
When an employee steals or cashes in another employees cheque.
How to avoid it: Try paying employees through a direct deposit or pay card. This will eliminate the risk of employee’s cheques landing in the wrong hands. If this is not possible and paying by cheque is the only option, then try ensure this process is managed strictly. Lock cheques away in a secure place and request that employees identify themselves before receiving their cheques.
8.) FAILURE TO REPAY OVERPAYMENTS
This is when an employee is paid an advance in their salary or wages and is still paid in full. It can also be someone who is overpaid and does not repay that money back to the employer. These often go unnoticed since they are categorised under expenses in the finance department.
How to avoid it: Include the rule into the company issued handbook whereby any overpayments made or advances given that it is either paid back to the company or is settled.
Utilising an accredited payroll partner can also assist in negating fraudulent activity. Choosing a provider who has a system that is directly linked with the pension provider via real time information and HMRC ensures processes are compliant and constantly up to date with the latest changes.
If you found this interesting, read about how HMRC’s new taskforce are clamping down on fraud and exploitation of COVID-19 Relief Schemes.
ePayMe are one of the UK’s leading providers of compliant payroll and accountancy services to contractors, temporary agencies and small businesses. Our bespoke systems utilise the latest software and linked directly to HM Revenue & Customs using RTI (Real Time Information) system, ensuring that pay calculations are always based on the correct tax code. Our reputation has been built with over 30 years of experience in payroll and accounting, by putting our customers first: our customer service is second to none and our contractors know they can rely on us to process their earnings on time, every time.