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July 5, 2012
10 Types of Employee Fraud
Unfortunately there are many types of
fraud your employees(and supervisors) have been discovered using over
the years through the daily punch of 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, it's considered stealing and fraud to 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
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Worry about this employee too, though!
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This 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
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Need Afterlife Insurance?
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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
This
form of payroll fraud 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
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
This 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
Make sure that your 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
No industry is safe from this type of
fraud. 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
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Don't let this go on the company card!
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This is for 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
Whenever an
employee and supervisor form an alliance in order to commit fraud, 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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Leave a comment if you know another way that employees have found to commit fraud, or tell us about a better way to prevent these types of fraud from happening!
Be sure to check out my other articles on fraud and theft:
