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Remote Work Payroll Fraud: How to Annihilate It

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  • HR Technology

Remote Work Payroll Fraud: How to Annihilate It

HR Technology

Since many workers desire remote or hybrid options, businesses are turning to work from home as a solution to fill empty seats both near and far.

However, some organizations worry about payroll fraud being committed by employees based outside the office because there’s no way to manage their daily tasks in person.

Types of Remote Payroll Fraud

There are a few types of payroll fraud specific to remote work you should be aware of.

Time Sheet Fraud

Time theft is one of the most common ways employees commit payroll fraud. It isn’t limited to remote workers, but the lack of oversight for work-from-home employees may make it more difficult to catch. Time theft can mean logging in but using the time to watch a movie, working more slowly and doing non-work tasks while on the clock, or lowering productivity and being unavailable during work hours.

Some red flags that an employee is stealing time include:

  • Not responding for long periods of time
  • Asking friends to clock in for them
  • Turning things in late, and
  • Starting late and ending early but showing a full day of work on a timesheet.

When a worker commits time theft, their output and work quality will suffer. Time and attendance software can help keep this under control.

Misclassifying Workers

Another type of remote payroll fraud comes from the company side. The IRS has strict guidelines for what constitutes a contractor or employee. While the definitions can be a gray area, if the person works set hours, has benefits and completes frequent tasks, they are likely considered an employee, and thus the company should pay some of the person’s taxes. Otherwise, they have to pay self-employment taxes, which can be pricey.

Workers should be aware of the definitions of each and ask the right questions before taking a remote position with a company.

Commission Fraud

Some companies hire remote salespeople. They work on commission and must keep a sheet of their sales. There are a few ways they can commit commission fraud:

  • Inflating sales numbers
  • Writing fake reviews to make it look like the sale was authentic
  • Taking credit for generalized sales they weren’t responsible for, and
  • Stealing sales from their team if they are in management.

The company should compare overall sales numbers and commission reports to ensure there are no discrepancies. Conduct frequent department-wide surveys and pay attention to complaints.

Altering Pay Rates

Another form of payroll fraud organizations must be aware of is people altering their pay rate to increase their checks. For example, if the company offers a regular rate and an overtime rate, the person might select the wrong one “accidentally” to receive time-and-a-half pay rather than the correct hourly wage.

Steps to Eliminate Remote Work Payroll Fraud

Check for Fake Workers

A common scheme involves someone in the payroll department creating ghost employees and collecting money from the accounts. If the company pays via PayPal or another online transfer system, the chances of ghost employees may increase.

Ghost employees may either be fictitious people or have the names of relatives of the employee committing the crime. There’s a case in Clark County, IN involving former sheriff Jamey Noel, a star of A&E’s documentary series “60 Days In.” Noel and his associates stand accused of stealing millions of dollars via ghost employee accounts.

The allegations of payroll fraud don’t stop there. Court documents say Noel ordered county employees to perform maintenance projects on his properties while those employees were on the clock.

While most companies don’t give remote workers quite the same level of power and access that Noel had, remote work payroll fraud can happen if there’s not enough oversight.

Keep Track of Checks

Every check in your accounting system should have a clear path to a contractor, employee or a legitimate business expense. The accounting department must balance the books frequently to prevent fraud, so that any issues are caught fast before someone has time to steal a lot of money.

A recent report of an employee stealing nearly $2 million from two nonprofits illustrates the importance of tracking checks, even at organizations which might be short on staff for oversight. The worker issued about 250 unauthorized checks to herself and places she owed money for about five years before she was caught.

A system of checks and balances are crucial to ensure that one or two people aren’t working to defraud the company.

Protect High-Level Passwords

Remote employees should not have access to management-level administrator credentials or have a separate login profile to access any databases. They should be locked out of features such as pay rate adjustments or issuing checks.

And keep in mind that phishing attempts don’t always come from outside the company. A disgruntled employee could attempt to get sensitive data from a co-worker.

Outside hackers may also pretend to be a current employee to gain login information.

Some refresher employee cybersecurity training may be in order. For example, they should know what to do if a direct message ever pops up saying, “I need your password and login because I can’t get into the system today. It’s urgent. Send now!” Of course, it should be reported to IT, the person who sent the message should be called and confidential details like that should never be shared.

Tap Into the Power of AI

AI software is on the market that can be deployed to alert the company to discrepancies in the payroll system. A worker who makes $25 per hour suddenly receiving a check for $50,000 in one month, for example, should trigger a warning to double-check the figures and ensure payroll fraud isn’t occurring.

While human oversight and checks and balances are essential, AI can fill the gap in a time-crunched world and alert companies to red flags that might otherwise slip through the cracks.

Be Aware and Be Fair

Not every discrepancy or pattern change is fraud. Sometimes people do sell more in a single month than they ever have. Another worker might have worked overtime to cover a team member on vacation.

However, being aware of the possibility of remote payroll fraud helps organizations avoid bleeding money. Being proactive in instances of potential fraud will help protect your brand and its pocketbook.

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