Payroll fraud is a very real thing that companies deal with all the time. It is tough to have to admit it exists in your business, but ignoring it only makes a bad problem worse. Those in decision-making positions have to be upfront and honest when payroll problems are uncovered. They have to address such problems as quickly and effectively as possible so that these don’t lead to disaster.

Having said that, it is a lot better to take steps to prevent payroll fraud rather than waiting until something happens to react. Below is a basic, five-step process that any business can employ to mitigate the risk of fraud in the payroll department.

1. Establish the Right Company Culture

Payroll fraud is, at its core, a symptom of dishonesty. Unfortunately, many companies that experience payroll fraud operate on a culture that is less than honest and forthright. When employees see the company stretching the boundaries of what is ethical and right, they are more likely to do the same.

Therefore, the first and most important step toward mitigating payroll fraud is to establish a company culture based on honesty and integrity. If the company stands for doing the right thing all the time, it becomes that much harder for dishonest employees to attempt to beat the system.

2. Be Diligent About Time Tracking

The second step is to set up some system by which time and attendance can be diligently tracked and verified. For companies still using paper time slips or punch card clocks, this means upgrading to a modern, electronic system less susceptible to errors and manipulation. A system of checks and balances should be in place as well, to guarantee that any hours submitted for payment are verified buy a separate system or third party.

3. Require Vacation Time Be Taken

Employees who rarely take their vacation time while at the same time racking up as much overtime as possible create situations ripe for fraud. It has been suggested by some payroll professionals that the way around this is to require employees to take their allotted vacation time. Why? Because employee vacations require shaking things up in the office. Vacations require shifting responsibilities to other employees, which is quite often the way fraud is uncovered.

4. Cross-Train Payroll Department Employees

The fourth step in the process is to cross-train payroll department employees so that everyone is capable of doing every task the department is responsible for. Once cross training is complete, rotate tasks among payroll staff on a regular basis. Task rotation makes it more difficult for those thinking of perpetrating fraud to actually do so. Task rotation creates a natural system of checks and balances.

5. Partner with a Payroll Service

The final step is to partner with a payroll service to outsource some of your payroll processing functions. Companies like BenefitMall offer a variety of payroll options ranging from the most basic software-only solutions to complete payroll and benefits administration.

Partnering with a payroll processor outsources at least some of the tasks your payroll department currently handles. This creates even more accountability by involving third parties outside of the company with responsibility for making sure everything is kept above board.

Payroll fraud is a reality in the modern world. But rather than accepting it as something that is going to happen anyway, companies can take a proactive approach that seeks to identify and shut down any opportunities dishonest employees might have to perpetrate fraud. The more proactive a company is, the less likely they are to fall victim to fraud in the payroll department.