Overall tips for preventing payroll fraud
According to the Association of Certified Fraud Examiners (ACFE), nearly half of all fraud involved internal control weakness. In 30% of the cases, companies lacked the controls they needed, and in nearly 20% of the cases, employees were able to override the controls. So, tight controls are the No. 1 way you can prevent payroll fraud.
Here are some other tips that can help you detect payroll red flags and deter common types of payroll fraud:
- Develop internal controls that include random checks of the books, bank account and all timekeeping back-up to detect any sort of anomalies.
- Reduce the ability for one person to have total control. Cross train your team and rotate jobs to create a system of checks and balances that can help prevent or reveal fraud during random pay periods. Insist on mandatory vacation for anyone who regularly handles payroll to see if red flags arise while that person is gone.
- Create a payroll account that is separate from your regular business account, which can make it easier to keep accurate records and notice inconsistencies in that specific part of the business. Review payroll reports each payroll period, after it is processed.
- Develop a culture of honesty. Perhaps surprisingly—but certainly reassuring—is that a company code of conduct was one of the most effective ways to reduce fraud loss, according to the Association of Certified Fraud Examiners.
Finally, remember that payroll fraud schemes are incredibly common. Don’t ever assume it couldn’t be you, or turn a blind eye to the fact that it could be occurring in your business. Vigilance and awareness can be business owners’ best defense.