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Fighting Payroll Fraud


As small businesses expand and take on more employees, the risk of payroll fraud grows. Whether its workers punching their friends in or out inappropriately or someone adding hours to their timesheet, it’s important to monitor your payroll costs carefully and consider technology tools that can help reduce the risk of payroll fraud.

Digital Timeclocks

One of the simplest and most common forms of payroll fraud is employees punching their friends before they arrive or after they leave. This extends the amount of time the worker is supposedly on the clock, and costs your business unearned pay.

You can take a couple of approaches to this issue, such as installing a camera near your timeclock. This will provide a visual record of who punches in or out, and when, so you can verify any suspicious entries on your company’s timesheet records.

Perhaps a more comprehensive solution would be to switch from a manual timeclock to a mobile time-tracking app that lets workers punch in and out on their phones. Apps provide a number of security and convenience benefits, including:

  • Verifying the geographic location of where a punch-in or out is recorded. This ensures workers are clocking in and out in your workplace.
  • Allowing workers to view their shift schedule and request changes or time off via the app.
  • Uploading time data automatically to a payroll service, which reduces the opportunity for time to be padded or entered inaccurately.

If your company routinely has team members working at remote jobsites, some mobile apps allow you set up a geofence that automatically records when workers enter or leave the worksite. Automating this process improves accuracy and reduces the potential for fraud.

Improving Payroll Controls

Beyond mobile timesheet apps, there are a number of steps you can take to protect your payroll processes (and expenses) from fraud or misuse.

For instance, a reputable payroll service can be a prudent investment in making sure your payroll data is recorded accurately. This can include employee timesheet, commissions, paychecks and required reporting to state and local labor departments.

The payroll service will also have security controls to guard against potential signs of fraud, such as different employees who share addresses or bank accounts. This can be legitimate, but also can be a sign of potential payroll fraud.

Another good idea, if your team is large enough, is segregating the various aspects of payroll management so you don’t have one person overseeing the whole process. Having different people handling portions of the process reduces the risk that someone will increase hours or pay rates without authorization.

With careful oversight, you reduce your risk of being one of the many small companies victimized by payroll and timesheet fraud.

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This article contains general information only. Sunflower Bank is not, by means of this article, rendering accounting, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, before making any decisions related to these matters, you should consult a qualified professional advisor.