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Payroll Fraud During COVID-19

by John Stebbins on Jun 23, 2020 8:56:58 AM

During COVID-19, fraud has been on the rise, with wrongdoers seeking to profit from the pandemic. The threats even prompted the FBI to issue warnings. But while most scams are directed at individuals, businesses can also be victims of schemes, even from within their own walls. And payroll is often the target.

Payroll fraud is more common than you may think, affecting nearly 30% of businesses each year. And with remote work on the rise during the health crisis, opportunities for fraud is even higher. Here’s what you need to know about payroll fraud and how to prevent it in your organization.

Types of Payroll Fraud

Payroll fraud can take many forms. These include:

  • Employee Misclassification: Incorrectly designating an employee as an independent contractor is a type of payroll fraud perpetrated by a company. Learn how to spot the difference.
  • Ghost employees: This type of fraud involves payment to terminated or newly created fake employees set up by someone at a higher level in the organization with access to the payroll system.
  • Buddy Punching: Employees commit payroll fraud when a coworker fraudulently clocks in for an employee who isn’t present.
  • Human Error: While unintentional, inaccuracy in completing time sheets by employees or manual retyping of the data into a payroll system can lead to mistakes and overpayment.
  • Unworked Hours: Overinflating hours on timesheets, often called time theft, is the most common type of payroll fraud.

During COVID-19, this last type of payroll fraud – time theft – has been an issue for many companies. While activities like an audit can help organizations spot it in normal working conditions, it can be more difficult to uncover falsified records with remote workers.

Time Theft During COVID-19

Federal and state law requires non-exempt employees to keep an accurate record of time worked. But with many of these hourly employees now remote during COVID-19, it can be challenging to ensure accuracy.

Common ways employees are padding hours during the pandemic and committing payroll fraud include:

  • Performing personal, non-work activities while on the clock and recording the time as hours worked
  • Inflating the number of hours worked, especially when logging a full day despite starting late or ending early
  • Taking long breaks without accounting for them

Some exempt employees are also expected to track their hours, like those whose time is billed to customers. But even if they’re not, these salaried employees can also be guilty of time theft by not actually putting in the work expected of them during a normal workweek.

How to End Payroll Fraud

Payroll fraud like time theft can result in big losses for companies, hits most businesses can’t afford in today’s economy. That’s especially true for companies with fewer than 100 employees, where cases of fraud are more common, according to the Association of Certified Fraud Examiners. 

While some discrepancies may not be intentional, even if workers don’t mean to commit payroll fraud, there are steps you can take to prevent their unlawful activity:

  • Establish Clear Policies: Make sure your remote work policies lay out expectations for timekeeping. These should address schedules and recordkeeping as well as penalties for violations. Put these in your handbook and communicate them with all employees.
  • Hire Trustworthy Employees: Be mindful during the hiring process. Validate application information, review criminal records, and conduct personal references. Pay attention to red flags like gaps in an applicant’s resume or inflation of their employment or educational history.
  • Monitor Timesheets: Ask employees to sign a statement verifying the accuracy of their records. And have managers and supervisors check that all work is captured completely and accurately before submission to payroll. Periodically asking questions about their records will also let employees know that you’re checking carefully and looking for payroll fraud.
  • Provide Remote Tools: For those still off site, consider technology solutions. Time and attendance software can help you better track when employees are working when you can’t monitor them in person. Plus, an automated platform that integrates seamlessly into your payroll system will result in greater accuracy. Learn more benefits of a time and attendance solution.

For more information about payroll fraud and time theft, contact Complete Payroll Solutions at 401-332-9325.


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