Recognizing payroll fraud often requires reviewing payroll records for signs that terminated employees are still receiving checks or that ghost employees, which are employees who do not really exist, are part of the payroll record. You may also check canceled checks to determine whether they are all made out to current employees and cashed by the person whose name is on the front of the check. Likewise, you may look for signs that an employee is receiving pay for a suspicious number of hours. Duplicate checks, mailing addresses, and employee ID numbers are sometimes signs of payroll fraud as well.
One of the easiest ways to recognize this type of fraud involves reviewing a company's payroll data periodically. Sometimes business owners and managers do not review payroll records as often as they should. For example, if a person or group has been in charge of payroll for a long period of time, you may feel that your need to check payroll records is reduced. This kind of thinking, however, may allow payroll fraud to continue undetected for a long period of time. Essentially, the idea here is that if you are not looking for fraud, you cannot find it.
To recognize payroll fraud, you may start by examining your company's payroll register. You can do this regardless of whether payroll information is kept in a book or in a computer program. You should look for duplicate information for names, tax identification numbers, mailing addresses, and employee numbers as well as active records for employees who have quit or been fired. Additionally, if you find that some employees are listed with an unusually high number of hours or have hours listed for days your business is closed, this may be a sign that payroll fraud is occurring.
You may also detect payroll fraud by reviewing your company’s canceled checks. For example, you may have a problem if the name on a payroll check does not match the signature of the person who endorsed it. In some cases, this can be completely innocent, however, such as in the event that an employee uses his initials to sign his name rather than his full name. In other cases, however, this can be a sign of payroll fraud.
Sometimes observing the payroll process from start to completion can be helpful for recognizing payroll fraud. In such a case, you may notice errors that are entered early in the process or note that hours and payments have not been calculated properly. Otherwise, you may observe that some employees show up to collect checks without the proper ID or ID numbers. If fraud is occurring, you may even find that some employees collect more than one check. You might also find that unclaimed checks do not match up to legitimate employees.