office-620822_640

Small businesses—and large one’s for that matter—have enough troubles, but steps can be taken to lessen one if the most persistent problems—payroll fraud.

Statistics show payroll fraud makes up 8.5 percent of occupational fraud worldwide and costs businesses an average of $72,000 per payroll fraud case, according to a recent study. The Association of Certified Fraud Examiners found that “small organizations are disproportionately victimized. These organizations are typically lacking in anti-fraud controls which makes them particularly vulnerable to fraud.”

So here’s a list of steps you take to prevent payroll fraud from the National Federation of Independent Business, a small business association.

  1. Conduct Background Checks

Conduct a full background check on anyone who oversees payroll or who will have access to company bank accounts. Pre-employment screenings can helps ensure that employees are trustworthy, qualified and fit for the position. The background check should include federal and state criminal checks, a credit check, an alias search, motor vehicle report, Social Security number trace, as well as education and employment verifications.

  1. Limit Access to Payroll Information

Limit access to payroll data to only those who absolutely need to have the information to do their jobs. Provide each employee with their login information to access electronic data and establish a policy against login and password sharing. If reports are printed out, keep them in a secure place and shred them when they are thrown out.

  1. Use Segregation of Duties

Always process payroll using a checks and balances process, where one person prepares the payroll and a different person reviews the payroll. This reduces the temptation for an employee in the payroll group to run fraudulent payroll. Reconcile bank accounts with every payroll through a different person than who processed the payroll. In addition, the person managing or running the payroll should not be the same one signing the payroll checks.

  1. Review Reports

Set up a review process every pay period to help eliminate fraud and errors in the payroll. General guidelines for payroll report review include:

  • Send data to the payroll processor earlier enough to allow time to review payroll reports before printing checks or making direct deposits.
  • Have a business owner or manager review reports every payroll—including a review of all employee information to ensure that no fictional employees appear in the report.
  • If anything appears to be incorrect on the payroll, direct the reviewing person to immediately contact the processing company.
  1. Use a Positive Pay Service

According to an Association of Financial Professionals 2011 study, 71 percent of organizations experienced attempted or actual payments fraud in 2010, with checks the most likely target. Small businesses can avoid this type of fraud by taking advantage of an automated fraud detection tool—positive pay service—that is offered by most banks. This service matches the account number, check number, dollar amount and, at some banks, the payee of each check presented to the bank for payment against a list issued to the bank by the company.

  1. Set Up an ACH Filter

The 2011 AFP study also cited a 12 percent attempted fraud in ACH fraud during 2010 so set up an Automated Clearing House filter with your bank. ACH filters ensure that only authorized companies have access to your business’ bank account. Some banks also set a limit on how much can be withdrawn as part of the ACH filter or allow their clients to provide a list of authorized debits with the vendor and exact dollar amount, which is similar to the positive pay service offered for checks.

  1. Promote Direct Deposit and Pay Cards

Encourage your employees to receive their pay via direct deposit or pay card instead of by check. This method is not only more convenient for employees, but it eliminates the risk of payroll check fraud for you, the employer. Since there aren’t any checks to steal or alter, these payments are more secure.

Do you live in Cumberland County and need help with payroll fraud? Give us a call at 856.794.8400.