DPP Business Tax

Types of Payroll Fraud Explained

Payroll fraud is a type of accounting fraud that is usually carried out by individuals who have access to employee details and salaries or wages.

Companies that haven’t implemented the correct controls in their financial department – especially in times of economic hardship – will face higher risks of fraud than other organisations.

There are four main types of payroll fraud:

Ghost Employee Fraud

Put simply, a ghost employee is a fraudulent creation.  Inputting details on to the company’s payroll of a fictional worker allows the fraudster to collect the ghost employee’s salary.

This can be done one of two ways:

  1. Keeping on the details of an employee who has recently left the company, but whose banking details have been amended by the fraudster in order for them to access the earnings.
  2. Creating the profile of an imaginary person – or a relative of the fraudster – in order that they can collect the pay.

This type of fraud can go undetected for long periods of time, particularly in larger businesses where the top tier may not have a handle of every single one of their employees.

How Ghost Employee Profiles Can Be Avoided

Companies can avoid this by implementing special procedures are put in place for employees that have left the business:

  • Putting in place a quarterly payroll reconciliation procedure done by someone other than the person responsible for normal payroll operations.
  • Paying employees electronically, and phasing out cash or cheque payments.

Falsification Of Time Sheets

Employees who are paid hourly are normally in possession of timecards or timesheets. Amendments to the true hours worked can be made by logging in extra hours or even extra days. Some employees may even ask their colleagues to clock them in and out.

How false timesheets can be avoided:

  • Managers running the timesheets.
  • Fostering an environment of satisfaction and employee contentment. Workers who feel under-appreciated and overworked are more likely to commit this type of fraud.

Sick Leave Fraud

There have been many instances of employees faking illnesses in order that they can work in another job whilst still claiming sick pay from their other employer.

How Sick Leave Fraud Can Be Avoided

Asking employees to produce a doctor’s note after a certain amount of time has passed (usually around seven days including non-working days).

False Expenses Fraud

Expense sheets are open to any employees who have paid for anything work-related on company time. If you’re driving to visit a client, for example, you may charge for your petrol and possibly any refreshments consumed during the trip, for example. However, it is possible to inflate items – either by making some items up or claiming the same expenses twice.

How False Expense Fraud Can Be Avoided

Expenses fraud is difficult to tackle, however, having set daily limit to spend for employees can help. It is also recommended that VAT receipts and tax invoices must be supplied for every item.

If you need any legal help with payroll fraud, whether you’ve detected it in your company or are in the middle of a payroll fraud investigation, contact the payroll fraud team at DBT & Partners

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