Payroll fraud, as the name implies, is the theft of funds from a business via the payroll system. It is a form of asset misappropriation and one of the most common types of fraud in businesses. Precisely speaking, payroll fraud can be defined as the unauthorized altering of payroll where the person (an employee) committed the fraud could make financial gain.

What is Payroll Fraud?

In general, employees can commit payroll fraud in several ways.

1. Ghost Employees

One of the common ways behind the payroll fraud is the existence of ghost employee. Ghost employee is the fictitious identity created by the dishonest employee, recorded on the payroll system, but does not work for the business. The fraud happened when the salary is paid to the false employee and the dishonest employee will then collect the fund.
2. Timesheet Fraud

A timesheet fraud involves incorrect wage payment to the employees for the hours they work. The fraud happened when employees falsify records in order to get more wages. In some cases, dishonest employee will add extra hours to their timesheets, claiming for hours they did not work. There are also cases that companies overpay employees based on falsified timesheet submissions.  
3. False Expense Claims

Another common type of payroll fraud is false expense claim. It involves the submission of completely fake or unreal expenses for items (or events) which never happened. Other than this, it could also be the submission of duplicate claims and inflated expenses.

How to Identify and Eliminate Payroll Fraud in Malaysia

Though payroll fraud is unavoidable, it is preventable. The key idea here is to identify the fraud before it spirals out of control and eliminating the risk. Below are some preventive measurements in identifying and minimizing the occurrence of payroll fraud.
1. Schedule Regular Payroll Audits

Conduct regular payroll audits to review the company’s payroll records and identify any suspicious activity in the payroll system. The regular payroll audit will help to minimise the risk of fraud cases within the company.
2. Eliminate and Identify Ghost Employees

One way to identify ghost employee is to have periodic checks on the employee information to ensure that every employee indicated on the payroll system is real and working in the organisation.
3. Verify Employees’ Timesheets

Timesheet fraud happens especially in organisations that require tracking of employees’ working hours. Employees might falsify records, which could result in overpaying. One way to minimize timesheet fraud is to conduct regular timesheet audits to ensure the accuracy of the working hours as recorded in the timesheets.
4. Engage a Payroll Services Provider

Another effective way that worth mentioning is to engage a payroll service provider to ease the hassle of payroll as well as to prevent the fraudulence. Having to manual calculate and handle payroll can be a very taxing and tedious. At times, miscalculating or mistakes occurring while preparing the payroll may leave a negative impact on the business, let alone the risk of payroll fraud that may hurt the organisation. To hack this problem, outsourcing the payroll matters to a third party payroll services provider is one of the good solutions

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