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Payroll fraud is nothing new, but recent technology changes continue to shift paymaster duties from centralized corporate processing to the hotel property level. This increases internal control issues to prevent the occurrence of payroll fraud.

According to the Association of Certified Fraud Examiners:

  • Payroll Fraud happens in 27 percent of all businesses

  • Payroll fraud occurs nearly twice as often (14.2 percent) in small organizations with less than 100 employees than in large ones (7.6 percent)

  • The average instance of payroll fraud lasts about 36 months

There are two common types of payroll fraud, the first being time falsification, and the second is "phantom or ghost" employees. Time falsification involves paying employees incorrectly for the hours they work. In some cases, companies overpay employees based on falsified timesheet submissions; employees might even have a co-worker clock in and out for them when they aren't even scheduled to work. Or simply, an employee will "forget" to clock in or out, thus requiring a manual entry, to which they then add extra hours. Timesheet fraud can usually be caught quickly via regular audits and review of employee schedules, and strict policies regarding timesheet submissions and changes. Ghost employees are the second most common type of fraud, and your payroll staff or manager often perpetrates it. "Phantom or ghost" employees involves paying wages to an employee that "does not exist" or adding wages to terminated employees with diverted funds. Or someone who once worked for the company and has since left, but was never officially terminated in the payroll system. Prevention includes regular payroll audits, by comparing your payroll registers to the checks that have been cut or deposits made to locate anomalies like duplicate names of employees who no longer work for the company. Separation of duties also helps prevent this type of fraud, whereby the person who processes payroll shouldn't be the same person who makes changes to employee records. Getting the perfect separation of duties is hard to achieve in most hotels. We recommend performing regular internal audits to verify compliance with payroll processing procedures including periodic random "phantom or ghost" employee testing.

Audit Hotel specializes in internal audits and surprise hotel property inspections.


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