3 Types of Payroll Fraud—and How to Build Your Defenses

We all want to think our company is fail-proof, but that doesn’t mean we can lay down our guard. Because every business is trying to make money, there are bound to be a few problems and faulty motives now and again. If you don’t have the right people on your side, your company money can end up in the wrong hands.

 

3 Common Payroll Fraud Schemes

It’s often said that small businesses are about twice as likely to have problems with payroll fraud than bigger corporations. Reading up on these tricky payroll fraud schemes can help you spot trouble and protect your profits.

 

1. Paying a ghost employee

You might think you know everyone who works for your company, but have you checked the payroll system? Some fraudsters will create an employee “ghost” and then use that information to funnel deposits into their own accounts. If your payroll list is longer than your actual employees, someone might be trying to cheat you. 

 

2. Stealing time for payday

Another way theft can occur is when employees misuse their timecards or other “clock-in” systems. Say a few people team up to clock each other in or out—Joe clocks Sarah in at 7am even though she doesn’t come to work until 9, and then Sarah clocks Joe out at 6 even though he left before her around 3. Wrongfully adding more hours to their workweek can quickly wreak havoc on your payroll budget.

 

3. Miscalculating commissions

Some salespeople might want to scam the payroll system in slightly more complicated ways. Changing a sales contract, for example, can help them bump up their commission or meet a set quota. Then they might go back with a credit memo to try and cover their tracks. That’s why it’s so important to have multiple controls in place for bookkeeping and payroll.

 

How to Fight Payroll Fraud Risks

If you’re worried about keeping your payroll system on lockdown, you have to understand the potential pitfalls. One way to protect your company is to separate payroll duties so one person doesn’t hold the keys to everything. A formal approval process can help your business run smoothly and securely. 

A few random audits throughout the year can also help give you peace of mind. Sometimes that means calling on an outside professional to review your records. These can either happen with a small sample set of a few employees or dates, or you can plan for a complete, in-depth review of your entire payroll department. When you can keep your audits a surprise, then no one should have the chance to go back and right their wrongs. 

Whether you want to move your payroll processing to a trusted team or you just want to give your existing process a quick checkup, our team at NSO and Company can help you get the job done. We know how important it is for small business owners to be able to trust their payroll system. Let us help safeguard your bottom line and your employees’ earnings by making sure all of the accounting is accurate. When you have questions about your setup, you can always give us a call at (317) 588-3131.