No matter the size of your business or the industry you are in, you must be aware of the serious threat of payroll fraud. This involves the theft of money from the company’s payroll system, often from an employee but sometimes from unauthorised external access, and can take many forms. You might think it will never happen to you, but payroll fraud is common and can cause significant harm to your business, including financial loss and damaged reputation.
No matter the size of your business or the industry you are in, you must be aware of the serious threat of payroll fraud. This involves the theft of money from the company’s payroll system, often from an employee but sometimes from unauthorised external access, and can take many forms. You might think it will never happen to you, but payroll fraud is common and can cause significant harm to your business, including financial loss and damaged reputation.
Common Payroll Fraud Schemes
There are several common payroll fraud schemes that you should be aware of:
- Ghost employees: Creating fictitious employees in the system to move money into their accounts.
- Timesheet manipulation: Falsifying timesheets to claim money for unworked hours.
- Fictitious vendor: Similar to ghost employees in that it involves the creation of fake vendors or service providers.
Warning Signs & Red Flags
It is helpful to be aware of the common payroll fraud schemes, but you also need to know what to look out for. The most obvious signs of payroll fraud are financial inconsistencies between payroll records and financial statements and unexplained discrepancies in payroll expenses. This is why it is important to conduct regular audits to identify issues. It is also sensible to hire an external bookkeeper in your area so that your accounts are handled by a specialist and reliable firm, such as a Liverpool accounting company if you operate in this area.
There are also behavioural red flags to look out for. Nobody likes to think that an employee would steal from the business, but this can happen, often when in a desperate situation. Therefore, employees who are overly stressed or talk about money issues can raise the alarm, or those who start living beyond their means and noticeably increase their living standards. Additionally, many fraudsters will avoid taking vacations to prevent people from discovering their schemes.
There are also a few operational red flags to look out for. These include a lack of segregation of duties in payroll processing, which is why it is best to divide payroll responsibilities among multiple employees. Strong cybersecurity measures can also help to prevent payroll fraud by preventing unauthorised access to the system. This should include multi-factor authentication, software updates, and encryption. You should also provide cybersecurity training to staff so that they can avoid phasing scams that could give access to a malicious external actor.
Payroll fraud is a serious issue that can cause significant harm to a business, both in terms of financial losses and reputation damage. It is easy to assume that it will never happen to you and that you can trust your employees, but payroll fraud is common. The above information should help you gain a better understanding of payroll fraud, including the common schemes that are used and warning signs that you need to look out for.
