Focus time and attendance solution from Chronologic helps prevent payroll fraud

No, we’re not talking about haunted offices or factories, although I did come across a ghostly aproned lady who haunts a balcony in Club Hedonism Barnsley, once the site of a Co-Op store, and spooky goings-on at the old Stanley Tool factory in Sheffield.

What we’re talking about is payroll fraud, in particular ghost employees, companies paying for employees who no longer work for them or who were never employed (often friends and relatives are in on the fraud). One individual or a number with access to the payroll system add non-existent employees (or don’t remove leavers), and in some cases submit false timesheets, pocketing often quite significant amounts of money. It’s more common than you might think, scams run from one ghost employee to thousands.

Recently one construction company lost £165,000 through paying the salary of just one bogus employee for five years. In another scam, employees of a housing charity misappropriated over £1.8m over four years.

A 2013 UK Government report estimated that £1 billion a year could be being lost through payroll fraud in the private sector and £335 million a year in the public sector.

Deterring payroll fraud

There are many ways to tighten up procedures to deter or prevent payroll fraud including:

  • More than one person should approve additions or changes to staff on the payroll.
  • Regular internal audits should be carried out including matching wage bills to actual employees.
  • HR records need to be kept up to date. HR and payroll should have an accurate idea between them of how many employees currently work for an organisation and what they’re paid.

It surprised me to find out that some organisations don’t know exactly how many people they employ and on what basis. I came across a case study for a multinational oil company who until recently didn’t have an accurate idea of how many people they employed because payroll and HR had different definitions of how employment and therefore employees were recorded.

Biometric clocking in

Many ghost employees are assigned to job roles which require some form of clocking in. Whilst it can be all too easy to submit fraudulent timecards, biometric clocking in is a lot harder to get round. As long as the employees being inducted onto the biometric clocking in system are genuine, clocking in can’t be fiddled.

Biometric clocking in terminals use the unique characteristics of fingerprints*, hands or facial recognition to check each individual clocking in. Entering a PIN combined with biometric scanning adds extra security.

The HR module in our Workforce Management System can also help keep track of employee information as well as recording accurate time and attendance and pay rates for payroll. Managers and supervisors can be given different levels of access to reports and information which means more transparency across an organisation too.

Some articles on payroll fraud suggest that staff who never take holidays might need to be watched as it could indicate they’re running a scam. They don’t take a break in case someone filling-in for them uncovers what they’re doing. It’s suggested that company policy should be to make all employees take holidays. Our time and attendance systems can certainly help you keep on top of holidays by individual, department and company-wide.

Payroll ghost busting may not be particularly glamorous but it could save your organisation a lot of money and hassle.

Update: The Criminal Finance Bill is intended to make employers responsible for preventing money-laundering, false accounting and fraud. Another good reason to close potential loopholes with a good time and attendance solution. HR Magazine article


More information about recognising and deterring payroll fraud – Chartered Institute of Management Accountants

The Sheffield Star

*Biometric clocking in terminals don’t store fingerprints, they create a code based on the unique characteristics of the prints. It’s the code that’s stored and compared to the fingerprint each time it’s scanned at clocking in.

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