Payroll Fraud Challenges in a Remote Work Environment

Siobhan O’Connor, CPA and Senior Accountant

Siobhan O’Connor, CPA and Senior Accountant

By: Siobhan O’Connor, CPA and Senior Accountant
Cordell, Neher & Company, PLLC

Remote work has been on the minds of employees and employers alike in recent years. After employers were encouraged to allow employees to work from home as much as they were able throughout the pandemic, remote work has become a frequent topic of discussion. Regulations are starting to allow companies to bring employees back into the office, but many employees are asking if remote work is a viable long-term option. Employers must consider the benefits and drawbacks to remote work for their company’s specific structure.  An additional consideration should be how to address the potential for payroll fraud.

Below, we will review some of the top concerns with payroll fraud in a remote environment, as well as how to prevent it from happening in your organization.

Time Theft

With remote work, it is possible that an employee is on the clock but doing something not related to work, like running personal errands. Known as time-theft, this form of payroll fraud is a valid concern for both new and long-term employees.

Remain proactive against time theft by:

  1. Maintaining a remote-work policy in your employee handbook that outlines time theft. Keep the policy updated and require a signature or initials prior to authorizing remote work. Consider having employees initial next to the time theft paragraph that they have read and understood your policy and are aware of time theft.
  2. Another option is to allow flexibility in work schedules, so that employees don’t feel the need to commit time theft if they have another obligation, like a doctor’s appointment, arise during work hours.

Payroll processing concerns

When your organization’s accounting and payroll teams work remote, it can impede regular payroll processes like writing and signing checks, or paychecks being mailed on time to the correct team members for the correct amounts.

To combat these challenges, consider making some changes in how payroll is handled.

  1. First, consider moving to a digital payroll system with direct deposit that mails out payroll checks for you. Our CAS team at CNC has many resources to assist in this transition.
  2. Whether moving to an electronic system or maintaining your current one, require managers approve all timesheets, including overtime.
  3. Also require a separate person to review the payroll records after the person handling payroll is finished.

Increased review and monitoring

It can be a good idea to increase monitoring and reconciliation if your company plans to implement remote work as a long-term option for employees. While this may be more labor intensive, it will help you set important benchmarks and an expectation for what your organization’s production looks like when workers are remote.

Some useful review steps include:

  1. Reconcile your accounts on a more frequent basis (i.e., monthly instead of quarterly).
  2. Compare payroll hours to previous months and years. Any major discrepancies should be investigated, as it’s possible there’s a greater workload this year or the employee is inputting time not spent on work.

Fraud costs companies billions of dollars annually, and quite often companies are not even aware that fraud is occurring. Unfortunately, payroll fraud is usually perpetrated by a single or multiple insiders – in other words, the people you trust. However, the cost of not offering remote work could be losing valuable team members or unsuccessful recruiting. A recent study reported nearly 40 percent of those surveyed would be willing to quit their jobs if they didn’t have the option to work remotely at least part-time. A hybrid work model looks to be an important option for existing staff and new hires as pandemic precautions taper off.

If you have concerns about payroll fraud in your organization, we can help. Contact one of our professionals today at (509) 663-1661.

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