Preventing Payroll Fraud

© Integrity Data 2016. All rights reserved
Preventing Payroll Fraud
Keith Schmidt
Senior Customer Care Representative / Consultant
November 14, 2017

Agenda
• Welcome & Introduction
• Advances not Paid Back
• Buddy Punching
• Ghost Employees
• Pay Check Diversion
• Pay Rate Alteration
• Unauthorized Hours
• Identity Theft
• Q&A 2

Welcome & Introduction
3

Integrity Data’s leadership in
human capital management for 20 years
More than 8,000 organizations worldwide use our technology to improve businesses
processes, specifically for payroll
4
Engaged by Microsoft to author payroll and human resources upgrades to the ERP
system known as Microsoft Dynamics® GP
Original authors of:
• Core Payroll Extensions
• Overtime Rate Manager
• Deductions In Arrears
• Payroll Integration to Payables
• HRP Extended Pack
• PTO Manager
• Advanced Payroll
• Advanced HR
• Benefit Self Service
MICROSOFT
DYNAMICS GP
PARTNER
20 YEARS!

The reality is payroll fraud is not preventable,
but is catchable.
5
• The largest expense for most employers are the wages and benefits paid
to its employees
• Effective internal controls can significantly reduce the amount of
exposure employers have to these areas.
• Some simple activities that can greatly reduce intentional fraud
• Staying up to date on regulatory and administrative changes
• Ensuring that your processes are effectively documented

Advances Not Paid Back
Employee requests an advance on his payroll and then
never pays it back
6
• This works best when the accounting staff does not record advances as
assets - Instead charging them directly to expense
• Never monitors repayment – No Follow-up & Employees are silent
• Solution:
• Monthly procedure to review advances

Buddy Punching
7
• Employee arranges with his fellow employees to have them punch his
hours into the company time clock while he takes the day off
• Solutions:
• Supervisory reviews
• Threat of termination
• Use biometric time clocks

Ghost Employees
8
• Payroll staff either creates a fake employee in the payroll records
• OR prolongs the pay of an employee who has just left the company
• THEN alters the payment record so that the direct deposit or check is made out to
them
• Conditions:
• Works best in large companies where supervisors have very large staffs
• Do not usually track compensation in sufficient detail
• Supervisor has left the company and has not yet been replaced – Uses Ghost
employee(s)

Ghost Employees cont.
9
• Solution:
• Periodic auditing of the payroll records is needed to spot ghost employees
• Another way to spot a ghost employee is when there are no deductions from a pay
check

Pay Check Diversion
10
• Employees could take the paycheck of another employee who is absent,
and then cash the check for themselves.
• Solution:
• Have the paymaster retain all unclaimed checks in a locked safe
• By requiring that everyone receiving a pay check prove his identify with a driver's
license or some similar document

Pay Rate Alteration
11
• Employees collude with the payroll clerk to increase the amount of their
hourly pay in the payroll system.
• A more clever clerk will then return the pay rate to its original level just a
few pay periods later
• Solution:
• Matching pay rate authorization documents to the payroll register.

Unauthorized Hours
12
• Padding of time sheets by employees, usually in small enough
increments to escape the notice of supervisors
• This is a particular problem when supervisors are known to make only
cursory reviews of time sheets
• Solution:

Faking Illness
13
• Employees might go even further and fake their injuries or illnesses to be
eligible to collect sick leave payments.
• Solution:
• Limiting the number of sick days per year
• Reserve the right to ask for a medical certificate
• Ask the sick employee to attend an examination at a doctor trusted by the
company.

Identity Theft
• ”Common sense" controls
• Develop incident response plan
• Determine if notification is
required should a breach occur
• Be aware of Corporate identity
theft
• Verify via phone before sharing information
via email requests
• Employer responsibility
• Protect PII (Personally identifiable
information)
– SSN
– DL#
– Passport#
– Alien Regist #
– Financial Info
– Mothers maiden name
– Names
– Email addy's
– Medical Info
– Education Info
– Employment Info
– Photos
– Fingerprint
– Biometric data
– Handwriting

integrity-data.com/software/comprehensive-leave-manager/
16
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© Integrity Data 2016. All rights reserved17
YOUR PEOPLE,
OUR PRIORITY
Payroll Processing
- Negative Payroll
Transactions
- Negative Deductions
- Mid Pay Period
Rate Changes
- Overtime Hours
Rules
Payroll Accounting
- Employee Accounts
and Splits
- FTE Manager
Tailor-made Solutions
ACA Compliance and Reporting
Benefits
Management
- Leave Management
- Enhanced Retirement
Plans
- Life Insurance Tax
Calculator
Payroll Productivity
- Employee E-mail Suite
- Paycheck “What If”
Calculator
Stellar Support

Thank you
integrity-data.com/
@IntegrityData
Learn more
19
Contact us
888.786.6162
sales@integrity-data.com
Keith Schmidt
Senior Customer Care Representative / Consultant
Keith Schmidt
kschmidt@integrity-data.com

Credits
• Slide 5 http://www.integrity-data.com/importance-of-internal-controls-within-the-payroll-department/
• Slide 6-12 https://www.accountingtools.com/articles/2017/5/4/types-of-payroll-fraud
• Slide 13 https://dopay.com/blog/the-4-types-of-payroll-fraud

Preventing Payroll Fraud

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