Unfortunately there are many types of fraud your employees (and supervisors) which have been discovered over the years of the daily punch on the time clock. The scariest part is this list is by no means comprehensive, as there could be other forms of fraud that employers may have not even discovered yet. Don't let your business fall victim to these crimes, and make sure anyone you find using these questionable business practices are disciplined or replaced to prevent further fraudulent actions. The good news is most of these can be prevented with accurate record keeping and proper employee and managerial rotations.
Not Paying Back Payroll Advances, even if you legitimately forget about your payroll advance, is considered stealing and fraud if you do not pay it back. No one on your payroll can get away with this if you keep proper records whenever an employee is granted an advance. Repayment must always be closely monitored as well to make sure the debt is paid in full. With proper staffing practices and recording methods, this form of fraud is easy to find and rectify.
Buddy Punching is one of the methods of fraud that require a buddy (this isn't Fight Club buddy punching though, so don't look for your employees coming in with cuts and bruises). The practice involves sharing personal information in order to clock each other in at times they wouldn't normally be able to log in themselves. A review of the time sheets and getting an actual head count on days you may suspect an employee isn't where they should be is an easy way for your manager or supervisor to find culprits and accomplices in this type of fraud. If you choose to keep them on, threat of termination is usually enough to quell further attempts at buddy punching. Make sure you identify all who are involved as well, to make sure no one else is pulled into the fraud scheme.
Ghost employees are a real problem. No, Patrick Swayze hasn't joined your company, but if you don't keep up with how many employees you have or audit your payroll records, he might as well be. This form of fraud is masterminded by the payroll staff. Either they continue to log hours for an employee who has left the company, or they make a fake person all together then collect the accrued "work" said ghost employee has "logged." Larger companies with more staff and a reduced manager-to-employee ratio have a harder time discovering a ghost employee. Always keep good records of your payroll, and watch even more closely when a supervisor has yet to be replaced in the event of a sudden leave or firing, as a greedy payroll staff member will use this as a prime window to reap extra funds from your business.
Pay check diversion is a form of payroll fraud that takes place when one employee takes a paycheck from one of his co-workers when they are on sick leave or other forms of absence. Make sure you keep paper checks in one area, preferably locked in a safe with only trusted members of payroll and yourself allowed access. Presenting identification to receive a check and a proper sign-in sheet are also affordable ways to prevent pay check diversion.
Pay rate alteration can be hard to spot. Your payroll staff are the gatekeepers to your funds, and this is another form of fraud they can subject you to. It involves an employee persuading the payroll clerk to increase their hourly wages to inflate their check. Often times your more savvy payroll manager will return the pay rate to normal after the fraud is committed. An after-payday payroll audit is a great way to find these types of fraud, as most payroll systems log such changes for further review in the future. The specific register and thus, the payroll staff member who authorized the pay increase, will be revealed for proper prosecution or discipline.
Unauthorized claiming of hours is one of the more common types of payroll fraud, rightly so because it is one of the harder ones to detect. This happens when employees fluff their time sheets by several means, including but not limited to, reducing lunch break times, increasing time before or after work, or sneaking breaks without clocking out. Make sure your supervisors are thorough in their review of employee time sheets, and this "siphoning" of your funds can be reduced greatly.
Exaggerating sales commissions or figures are practiced to inflate an employee's stats. Ensure employees that have the highest commissions are becoming that way legitimately. If the commissions are logged by employees, do follow-ups on what they sold and how much they claimed. The frequency and size of the commission may also be tampered with, so make sure what your employee logs is accurate to what they actually acquired for your company.
Workers' compensation fraud is a type of fraud no industry is safe from. Employees will attempt to fake an injury, such as a neck, back, or joint problem to falsely claim money from you and your insurance company. This can cause you to lose thousands quickly, and can cause unwanted raises in your premiums if left unchecked. Make sure your employees claiming these injuries were truly injured at work, either through camera surveillance or by supervisor witness. Sometimes employees will work together to perpetrate these "injuries," so be cautious and thorough.
False expenses or exaggerated expenditures happen when your employees who may go out on the road a lot or any other time they are given a company credit card for expenditures. They may use the funds for false expenses or exaggerate how much an item actually cost. Make sure your employees keep track of all receipts, and watch for counterfeit or fake receipts. This can be discovered by talking to your credit card company, or calling the establishment that the transaction was said to have occurred at.
Employee and supervisor time sharing happens when they form an alliance in order to commit fraud, and it may be hard to discover. The most common type of this sharing is when an employee records extra time to get overtime pay, and splits it with his superior who approved of the overtime. This is why proper employee and supervisor rotations are necessary, as is a strict system for overtime approval.
Keep in mind as technology increases, it doesn't always help identify fraud. Sometimes it gives employees new avenues for which to prey on your business. Setting an example to anyone who is found committing fraud is critical in prevention, as is keeping proper records and regularly checking them yourself. Only you care as much about your business as you do, so make sure your employees know they will not be allowed to cheat you. There are a lot of people our there who want a job and will do a good job for you, so don't keep an employee who is stealing from you.
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