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Theft is an ongoing problem for many companies, and managers often struggle to combat this issue. One example is payroll fraud, in which employees act dishonestly to get paid more than they have actually earned. The tax services providers at Dianne M. Saunders, CPA, a small business accounting firm located in Litchfield, CT, presents a guide to the different types of payroll fraud.

A Tax Services Provider’s Guide to 3 Types of Payroll Fraud

1. Falsifying Timesheets

Timecard fraud mostly occurs in companies with hourly employees who are eligible to receive overtime pay. Staff members can record they worked extra hours or even additional days on their timesheets. Sometimes, people have their co-workers clock in and out for them when they aren't scheduled to work, resulting in more pay than they are entitled to. You can prevent this type of fraud by monitoring employee productivity to make sure tasks are truly completed during any extra hours worked. Also, implement an up-to-date timesheet system that makes it difficult to falsify data.

2. Bankrolling Fake Employees

tax servicesFake, or ghost, employees don't actually work for a company and are created to collect a second salary. These are often based on real individuals who recently left the company but were not removed from the payroll system. However, sometimes, they are entirely made up. To prevent this from happening, periodically audit payroll records, and consider paying employees electronically, as such transfers can be easily traced. Also, verify your HR and payroll staff have an effective system for adding and removing workers from the roster.

3. Misclassifying Employees & Contractors

All employers must classify anyone who works for them as an employee or an independent contractor. However, companies do not need to pay taxes or provide health insurance and other benefits for the latter. If a worker is classified incorrectly as a contractor, it is considered fraud by the IRS because the business is deliberately avoiding paying taxes that are owed. Keep classifications straight by consulting with HR professionals and accountants and reviewing the Department of Labor’s classification guidelines.

You can rely on Dianne M. Saunders, CPA to eliminate the stress of managing your company’s payroll system. Their tax services team is also well versed in current laws and ready to answer any questions you may have. Give them a call at (860) 567-3022 to speak to a consultant. You can also visit them online to learn more about their services.

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