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Use these 4 internal controls to prevent payroll fraud

by , 24 November 2015
If your business manages its own payroll, then your payroll is at risk of falling victim to errors, and even fraud!

The four major examples of payroll fraud include:

· Timesheet fraud: When an employee says they've worked more hours than they say they have, and you pay them for this;
· Ghost employees: When an employee adds false employees to the payroll. This then leads to fictitious salaries being paid to 'employees' who don't even work for you:
· False expense claims: When employees submit false or unapproved expense claims; and
· Changes to bank account details: When an employee changes bank account details for another employee's benefit.

Now, having said, here are 4 internal controls you can make use of in preventing payroll fraud from affecting you:

Internal control#1: Split duties between the person doing the monthly processing and the person doing the salary payments

If someone can adjust the salaries to benefit themselves, or pay incorrect amounts into their personal bank accounts and commit fraud, you
then have an internal weakness.

You should split the payroll function and payment function in two, and ensure that these two people don't work together to commit fraud.


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Internal control#2: Bring about processes for change and adjustment to payroll systems

It's important to note that every change leaves a paper trail, so save all changes electronically on your hard drive as well as your backup drive.

Also, introduce templates to use for any changes to the payroll system.

Internal control#3: Implement checks and cross-checks to ensure the calculations are done correctly

Review and sign off the staff variance report which shows the variances between staff members from month to month.

Most payroll systems have reports you can print and check on a monthly basis. Do this for every month starting now.

Internal control#4: Reconcile actual bank account payments to the payroll system on a monthly basis

Always do a salary account reconciliation. To do this, check your control against what you've paid out.

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