Payroll fraud is the biggest and most common type of fraud that can strike businesses of all sizes. However, it is especially detrimental to small or start-up companies.
At a time when many businesses are still trying to recover from the economic blow of the lockdowns during the pandemic, it’s essential to ensure that you can detect and prevent payroll fraud even before it happens.
What is payroll fraud?
Payroll fraud is committed when an employer or employee manipulates the payroll system for personal gains. Payroll fraud is committed when an employer withholds an employee’s rightful salary or taxes due on wages. Another example is when an employee receives payment they did not earn.
Here are some forms of payroll fraud.
1. Timesheet fraud is when employees manipulate their timesheets and get paid for hours they didn’t work. Another example is when a payroll clerk manually overrides the timesheet to increase an employee’s payment.
2. Pay rate alterations is when an employee asks a payroll clerk to change the number of hours worked in their timesheet to receive higher pay. The payroll clerk who agrees with the employee will alter the timesheet a few days before payday and then change it to the correct rate to avoid detection.
3. Misclassification of worker is considered a fraud when an employer intentionally misclassifies an employee to avoid paying the correct amount for salary, tax, and compensation insurance.
4. Padding work hours is when an employee clocks in early, clocks out late for lunch, or any action that makes the report on time worked inaccurate or bloated.
5. Outstanding advances happens when an employee commits payroll fraud by asking for an advance payment and doesn’t pay it back. This is also when the accounting department charges the advance payment as “expenses”, which goes unnoticed.
How to detect and prevent payroll fraud?
This can be easily detected by an experienced audit firm services in Singapore, like Ackenting Group.
However, you must find out whether there is fraud committed in your company even before hiring the services of Ackenting Group, the best audit firm in Singapore.
Here’s what you can do.
1. Conduct references checks
When someone applies to your company, they are always required to supply at least three references. However, for some reason, these references are never checked. This can be one of the biggest mistakes that companies make. It’s important to check the provided references to ensure that potential employees do not pose a threat to your company. They may have committed fraud against their previous employer. By vetting them, you can be sure that you won’t have a problem with them in the future.
2. Limit access to HR and payroll files
Make it a point that only authorised personnel can access confidential HR and payroll files to reduce the risk of a data breach significantly.
3. Implement reliable policies
Your company should make sure that all employees know your payroll policies, including changing personal information. It will help to provide all your employees copies of what constitutes payroll fraud and the consequences if they are found guilty of committing such a crime.
4. Have an effective password policy in place
Your company must implement a password management system. Each employee should be asked to provide a unique and strong password for all critical systems and software programs to ensure security.
5. Employ a payroll team
There should be at least two people in your top-level payroll team to ensure transparency and control over your entire payroll. It also makes a lot of business sense to use advanced payroll systems to minimise risks and comply with the law.
6. Review payroll data regularly
Payroll fraud can be avoided if payroll data is checked regularly. Make sure to randomly check expense claims, too, to collect data more frequently and determine where you can improve on your payroll practices.
7. Update insurance policies
Check your insurance policies to know whether you need to make the necessary changes due to inflation, which can result in food and service expenses. By keeping your insurance up to date, you’ll always be in the know, preventing you from becoming a victim of fraud.
Hiring the best audit firm and SME accounting services in Singapore also helps to prevent payroll fraud. This is because they have professional and experienced accountants and experts that can thoroughly check your payroll system for any sign of fraudulent activity. Besides managing your payroll, we also provide bookkeeping services.
If you require any assistance on accounting services, feel free to drop us an email at firstname.lastname@example.org or contact us at +65-66358767. At Ackenting Group, we offer a complimentary 30 minutes online consultation for us to better understand your business requirements.