How to avoid payroll fraud

Payroll fraud costs UK SMEs billions of pounds every year, and with the methods fraudsters use to perpetrate it constantly evolving, it’s important to stay vigilant and protect your company against it.

There are several reasons why payroll fraud occurs. It may be driven by personal financial gain or the desire to manipulate a company’s financial statements. Regardless of the motive, payroll fraud can lead to severe consequences.

So, what is payroll fraud?

Well to put it simply, payroll fraud is when someone illegally obtains payment from an employer by providing false information or documentation.

In most cases, the fraudster is an employee. This is because they have the means to do it, they have the knowledge of your business’s payroll process and have the ability to access it.

There are a few different types of payroll fraudsters that given the number of times it has occurred – they’ve now been given names.

You have the ‘ghost employee’. This is where the fraudster creates a fake person and enrols them into your payroll.

This person, although not real, will receive a wage and any benefits any other member of your staff is entitled to, and all of this money will be directed to the scammer’s account.

Another scam is referred to as ‘buddy punching’. This is where a staff member may have one of their colleagues clock in for them. Whether it’s to give them an extra hour of payment or even in some cases where they don’t turn up at all and get the full wages for the shift.

Wage falsification is another common scam practice. This is where one of your payroll team alters the payment an employee is due to receive so that they get paid more than they are owed.

How do I protect my business from payroll fraud?

The first step to prevention is knowing what you are looking for.

Make sure you regularly check your payroll and look for any discrepancies like employees that don’t have any national insurance, differences in pay between employees you know do the same job or even multiple employees with the same personal details.

If you have a clock-in system for work, install a system that requires something specific to that individual like a thumbprint. This should prevent anybody from being able to use the buddy punching scam.

If you are not comfortable with your own personal abilities to prevent payroll fraud in-house, you could bring in an outsourced provider to ensure none of your employees can access it and make changes to it.

It may seem obvious, but you should also put policies in place to inform employees that there is no tolerance for fraudulent behaviour. You can also provide training on this to help enforce the regulations.

Payroll fraud can be extremely damaging to your company’s financials and the reputation of the business, so knowing how you can prevent it is crucial.

For more information on how you can protect your business from payroll fraud, please get in touch.

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