To detect payroll fraud, review payroll records for terminated or phantom employees, suspiciously high hours, and duplicate information. Check canceled checks for matching names and signatures. Regularly review payroll data and observe the payroll process for errors and inconsistencies.
Recognizing payroll fraud often requires reviewing payroll records for signs that terminated employees are still receiving checks or that phantom employees, which are employees who don’t really exist, are part of the payroll. You can also check canceled checks to determine if they are all made out to current employees and cashed by the person whose name is on the front of the check. Similarly, you can look for signs that an employee is getting paid for a suspicious number of hours. Sometimes duplicate checks, mailing addresses, and employee identification numbers are also signs of payroll fraud.
One of the easiest ways to recognize this type of fraud is to periodically review a company’s payroll data. Sometimes business owners and managers don’t review payroll records as often as necessary. For example, if a person or group has been in charge of payroll for an extended period of time, you may find that your need to audit payroll records is small. This kind of thinking, however, can allow payroll fraud to continue undetected for an extended period of time. Essentially, the idea here is that if you’re not looking for a scam, you can’t find it.
To recognize payroll fraud, you can start by examining your company’s payroll record. You can do this whether your payroll information is kept in a book or in a computer program. You should look for duplicate information for employee names, tax identification numbers, mailing addresses, and numbers, as well as active records for employees who have quit or been laid off. Also, if you find that some employees are listed with unusually high hours or have hours listed for days that your business is closed, this could be a sign that payroll fraud is taking place.
You can also detect payroll fraud by examining your company’s canceled checks. For example, you might have a problem if the name on a payroll check doesn’t match the signature of the person who approved it. In some cases, however, this may be completely innocent, such as where an employee uses his initials to sign his name instead of his full name. In other cases, however, this can be a sign of payroll fraud.
Sometimes observing the payroll process from start to finish can be helpful in recognizing payroll fraud. If so, you may see errors entered early in the process or notice that hours and payments weren’t calculated correctly. Otherwise, you may notice that some employees show up to pick up checks without the correct ID or ID numbers. In the event of fraud, you may even find that some employees collect more than one check. You may also find that unclaimed checks don’t match legitimate employees.
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