What is Payroll Fraud and How To Prevent It?
Category: HR & Payroll, Posted on: 21/01/2021 , Posted By: Webtel
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Payroll fraud is simply defined as manipulation of the payroll system to either receive payment not earned by employees or denial of payment of justly earned wages by the employers. There are several kinds of payroll frauds that occur be it a giant corporation or even a small business. In this blog, we’ll discuss some of the commonly occurring payroll frauds and how to prevent them.


How to Prevent Payroll Fraud?


#1 Time Theft

Also known as ‘timesheet falsification’, this is one of the most common kinds of fraud that occurs in a business. Time theft occurs when an employee reports working more hours than they actually did, thereby, inflating their take-home pay in the process. This usually takes the form of either clock in for a shift by an employee, clocking out late, or clocking in for a co-worker who isn’t present for the shift i.e. buddy punching.

How to Check It:

We understand that you want your employees to have a sense of autonomy as well as reduce the administrative burden of the management by allowing them to clock in and out of shifts themselves. What you may not want is for employees to abuse this policy to the detriment of the organization.

By combining a nifty time and attendance system in your payroll management software, you can take preventive measures to weed out time theft:

  1. Predefined shift rules: Define a time window wherein workers can clock in and out of work. If they try to clock in/out outside of the predefined timeframe, the system won’t allow them.
  2. User authentication: Good payroll management software also incorporates user authentication which helps eliminate buddy punching. This is achieved by requiring workers to produce a unique identifier such as a fingerprint or a photo of the employee’s face when they clock in and out of shifts.


#2 Falsifying Wages

Employees can falsify their wages before the transfer of their wages by either working alone or in conjunction with the payroll administrator. This can take the form of either upping the wage rate, increase in sales numbers or tinkering with the actual paycheck itself.

How to Check It:

By keeping just one person in charge of approving timesheets, releasing funds for salaries, while also managing the files that include employee wage information and classification; to put it lightly is a recipe for disaster. This creates a massive vulnerability in your payroll system that can lead to payroll fraud. It is advised to keep separate teams/people for handling authorization, distribution and reconciliation.

Go for payroll management software that can flag wages and bonuses paid out of the ordinary, can execute audits, and transfer salaries through online modes thereby doing away with handing our physical cheque that can be forged or falsified.

#3 Ghost Employees

It’s nothing as dramatic as the name suggests, to put it simply, a ghost employee is someone who receives his salary despite not working for the organization. This occurs in one of two ways: a former employee still getting his salary after leaving the company or a fake account set up by an existing employee to game the system. Even though this occurs more in huge firms which employ thousands of workers, it can also pop up in SMBs.

How to Check It:

As per a survey conducted by TEKsystems, only 14% of IT leaders strongly agree that their firm has an effective off boarding process. If your company lacks one, then it is entirely possible to miss out on purging exiting employees from the payroll system. A good payroll software helps create an exhaustive employee off boarding workflow to ensure a seamless process whenever an employee leaves the company.

Also, the payroll system should be checked regularly to keep tabs on payments and a formal quarterly payroll audit should be conducted to catch hold of any fake accounts to prevent long-term damage.



Winding Up

It cannot be stressed enough that you employ a payroll management system to automate your payroll functions. There are quite a few good ones in the market however with HR Pearls you cannot go wrong. It is comprehensive payroll software wherein you can disburse salaries & wages, generate employee pay slips, execute full & final payments due to exiting employees, as well as manage over-time payments, loans and advances forwarded to employees. Sounds great, no?

Also, checkout >> How a Good Payroll Management System can Transfrom your Business


The question here is, whether your Payroll Management System is secure or not and whether it is helping you to manage your company's payroll operations effortlessly. If yes, then it's excellent, but, if not, then get the most secure Payroll Management System in India - HR Pearls.
HR Pearls by Webtel is a complete HR & payroll management solution, where you get secure and relaible payroll solutions for your business.
If you are looking for a secure and hassle-free payroll solution, then, get a free demo of HR Pearls by clicking on the button below or simply drop an email to contactus@webtel.co.in
To know more about HR Pearls, visit Webtel's HR Management Solution.

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