What Are The Possible Errors and Frauds in a Payroll Cycle?

Anything involving the handling and distribution of money is susceptible to errors as well as fraud. It is most commonly seen when employees falsely boost the amount that they should be paid. These actions may have costly consequences, and even damage a company's reputation. This blog will go through the possible errors and frauds in a payroll cycle so you can prevent them from occurring at your place of work.human resources

What Can Go Wrong?

Payroll fraud is the theft of money from a company or small business via the payroll processing system. It can be carried out by the employer or individual employees. There are many fraudulent activities which can result in overpayment and exaggerated bookkeeping data. Here is a list of the most common errors and misconducts:
  • Fictitious employees- These are workers who are falsely created onto the payroll system. They do not exist, and their supposed wages are deposited into a a different bank account. This can also allow a supervisor to falsify time sheets which are needed to generate Pay slips.
  • Unauthorized payments- An error can occur when a payment from your account is taken without your authorisation. You should contact your payroll service provider immediately if you notice this.
  • Incorrect salary payments-  Sometimes the hours you have worked may not correlate with the amount you get paid. This can be an underpayment or overpayment to what you are entitled. It is best to assume an honest mistake was made and repot the issue. Having your own record of the times you started and left work can be helpful when correcting your pay.
  • Falsified sales-  Some company records may contain illegitimate sales and purchase history. This can allow for false financial statements by overstating revenue and profits. Usually not recording expenses and income accurately can hint at methods of tax evasion.
  • Falsified wages/hours worked-  Commonly seen when an employee or employer exaggerates the amount of work they have done to attain higher wages. This can be done through timesheet fraud, where false claims on the number of hours worked are processed.
  • False expenses fraud- An employee can claim for personal expenditures to be reimbursed as business expenses. They have no right to exploit company funds this way.

What are the Consequences of Payroll Fraud? 

Payroll fraud is not taken lightly, and go beyond basic disciplinary hearings and repaying back what was essentially stolen. The maximum penalty for offences like these can be punishable by up to 7 years in prison. Offenders are likely to face jail sentences and a criminal record which hinder their ability to find work.

How to Identify Payroll Fraud

Each year, Companies in the UK lose billions of pounds due to payroll fraud. This figure is likely to be a lot higher than what is actually found, as not all fraudulent activity is detected. Some signs that this may happening where you work are as follows:
  • An employee has started living a lavish lifestyle in comparison to their salary
  • A shared bank account or address amongst multiple employees that are not related
  • Anomalies in the payroll records
  • Missing funds
  • Expenses which are not accounted for

How to Prevent Payroll Fraud

While it is helpful to spot fraudulent activity in a company, it is even better to prevent it. Frequent checks of payroll records and educating staff on the consequences of related misconduct can help reduce if not stop, frauds in a payroll cycle. Here at Happie Group, we can help you outsource your payroll and leave all the responsibility to us. We provide exceptional payroll services. While mistakes are human nature, we take pride in providing you with an accurate service which is smooth and efficient. Contact us today to hear from our trustworthy experts on how we can assist your payroll needs today.