Ways to Detect and Prevent Payroll Fraud

 03 Jul 2017

For businesses that are not safeguarded properly, payroll fraud can become a serious threat. The ramifications of payroll fraud is huge and it could at best create complications with your accounts, and at worst, put you out of business. Therefore, it is important to have a safe and secure system to prevent payroll frauds. Here are some ways in which you can detect and prevent any possibility of payroll fraud:

Checking information

It is important that you check the payroll data carefully as the staff detail changes or if any of your employee’s leave the company altogether. The responsible manager/s should approve the proposed payroll for that month and this should be done at a department level. However, the department heads will have a much clearer idea of what is going on in their team than a member of your staff in charge of dealing with financial responsibilities. This makes it easier to pick any errors at that stage. It is important that the leaving dates of employees are communicated clearly and the payment to the employment should be prevented after their contracts have ended. Any considerations that include overtime or unsociable working hours should also be double checked by department heads.

Monitoring payments

There are possibilities that payroll fraud could occur within the department itself. The best way to avoid losses to your business is early detection. To make sure that the payments are in order, regular auditing through an external company could be the way. But you can also self-audit and make it a point to go through each transaction that happens every month to check for errors and irregularities. The things that you should look out for are:

  • Duplication of names and addresses
  • Duplicate payments
  • Variations of same name
  • Payments which look like they are higher than what they ought to be
  • Payments to names which aren’t recognised as working in the company

Therefore, no matter how much you trust your staff members it is important that you keep a habit to check the audit reports regularly.

Separating processes

Separating processes is proven to be a common method of fraud prevention and detection for number of small businesses. Those which have separate HR and Payroll divisions can benefit from having HR manage the information and data of employees to ensure that they are paid correctly. If payroll outsourcing is not one of the options, then it is important that the responsibilities for HR administration and payroll are given to separate people. In this way, one person can be responsible for the authorisation of the payments and another can be responsible for monitoring and updating the changes in the information.

Security checks

It is important that you make sure that the person you hire has at least two references checked and approved. This is to ensure that there are no instances of frauds in their past especially for people who are to work in the finance and payroll departments. The staff should even be made aware of the consequences if any kind of payroll fraud happens just to prevent it from happening.

While most of the agencies are recognised by the HMRC which assures you the level of security they provide. As a preventive measure to eliminate in-house payroll frauds, you can take help from an external payroll party by outsourcing payroll to them. This will help you feel secure in knowing that your payments are being handled appropriately.