5 Ways to Detect & Prevent Payroll Fraud

By | Editor

Payroll fraud can be a serious threat for businesses that haven’t safeguarded themselves properly, which can lead to complications with your accounts, putting your business out of pocket as well as your employees. Having safe and secure systems is one of the best ways to prevent payroll fraud and we outline some other considerations below. Using a trusted payroll provider is one way to safeguard your business against payroll fraud, to find details of the most suitable providers for your business, complete the form at the top of the page and Expert Market UK will search for the best providers for your needs.

Detecting and preventing payroll fraud

Check Information

As staff details change or they move jobs or even leave the company altogether, it is important that all payroll data is checked carefully. This should be done at a department level with each responsible manager approving the proposed payroll for that month. Department heads will have a much clearer idea of what is going on with their staff than some remote finance officer, therefore any errors can be picked up at this stage. Making sure leaving dates are communicated clearly and in enough time should prevent employees being paid after their contracts have ended.

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Any considerations such as overtime or unsociable working hours should also be double checked by department heads if they appear out of the ordinary compared to an employee’s usual pay method. Put procedures in place that all claims for additional pay must be signed off by a department head and then approved by HR or Payroll to ensure that they are checked thoroughly. Regular checking of information and even asking staff to regularly update their contact details is an effective way to prevent fraud and prevent any possible errors with payments.

Monitor Payments

Unfortunately it could be the case that payroll fraud could occur within the department itself, with people paying out to names not registered as working at your company and more. Early detection is the best way to avoid costly losses to your business. Regular auditing through and external company is one way to look out for errors and making sure that payments are all in order but you could also self-audit and make a point of going through each transaction every month to check for errors or irregularities.

Things that you should look out for when checking for these irregularities are things like duplications of names and addresses, duplicate payments, payments to those with similar names or variations of the same name (JO Bloggs, J O Bloggs and J Bloggs for example), 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 and anything that looks like it shouldn’t be there (payments to companies going through payroll as opposed to procurement for example). Even if you completely trust your colleagues, it is important to regularly check in case anything sets off alarm bells.

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Separating Processes

This is a common method of fraud prevention and detection for a number of 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. For example, details may be submitted to payroll about a ‘new employee’ but without a HR department to confirm this information properly, it could be an example of payroll fraud.

Understandably for small businesses, it may not always be the case that they can have separate departments for everything or even teams of people working on this process. If outsourcing payroll is not an option, then it is important that the responsibilities for HR administration and payroll are given to separate people. Therefore one person may be responsible for authorising payments whilst another would be responsible for monitoring changes and updating information.

Thorough Background and Security Checks

You’d be surprised at how many employers fail to follow through on reference checks, which can make a huge difference between hiring someone who is genuine to someone who has had some trouble in the past. You should ensure that everyone that you employ has at least two references checked and approved to ensure that there are no instances of fraud in their past – especially those who work in your finance and payroll departments. If necessary, you can ask for other checks to be made in order to provide you with further security that the staff you are hiring are trustworthy. Staff should also be made aware of the consequences should they be involved in any kind of payroll fraud in order to prevent it from happening.

Go external

Using a payroll agency doesn’t necessarily mean having to completely outsource your payroll activities. In fact, many agencies offer support and bureau services which means they can do things like approve payroll, check for irregularities and other services which could provide a useful way to pick up on anything which may appear fraudulent.

Payroll agencies are trusted and many are recognised by the HMRC which should help give you an indication of their security. By using an external party to process your payroll, you can eliminate in-house fraud caused by employees and feel secure in knowing that your payments are being handled appropriately. There are also a number of other benefits to hiring payroll agencies, and could help save your business money.

Whilst the information above may help to give you things to consider when carrying out your payroll activities, the most important thing you can do is to use secure payroll software to carry out your processes or to enlist a payroll provider to do this for you. You can get a tailored search of the most suitable payroll service agencies for your business by completing Expert Market’s useful search form at the top of the page and let them match your details to relevant agencies based on details such as your business size, your budget and even your location.

▶ Find out more: The benefits of cloud based payroll software

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