Most businesses can be hit with payroll fraud. Even if your company has only a few employees — it does not guarantee your funds will be safe. Here’s how payroll fraud can happen and what you can do to prevent it.
How it happens
Perhaps one of the easiest payroll fraud techniques is the overpayment of withholding or payroll taxes. An employee simply overpays the government.
When the refund check arrives, the employee deposits it to his or her personal account.
In some cases, the employee will have an account at a different bank but in the company’s name. This type of account could be used for the fraudulent deposit.
The greater the number of employees, the easier it is for someone to pull off a scam.
An employee could create a fake employee or falsify hours or commissions for a cooperating employee who shares the stolen funds.
Or the employee holds the payroll deposit funds in his/her own interest-bearing account until it is time to make the payroll deposit to the government.
How to prevent payroll fraud
Businesses that lack anti-fraud controls can be more susceptible to payroll fraud. Here’s a few ways you can work toward preventing this type of fraud:
1. Get outside help
A payroll review by an independent accountant may help prevent employee schemes. Hiring a third-party provider to process your payroll, file the appropriate paperwork, and manage funds can also reduce your risk of experiencing fraud.
2. Divvy up duties
Even in small companies, it’s possible to divide office tasks to make employee theft more difficult.
3. Limit payroll access
Figure out who needs to have access to payroll data. That list will likely be very small. Make sure it stays that way.
4. Offer direct deposit
No paper checks means less opportunities for employees to handle funds, meaning greater security all around.
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