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Test for fraud in construction company payroll records

1. How might the owner of a construction company determine whether a supervisor who distributes payroll and has authority to hire and fire employees has fictitious employees on the payroll and is cashing the related payroll checks?

2. Why is it desirable to have at least two officials approve pay rate changes?

3. Do you agree? Please explain! There are a few ways to check for this, such as checking social security numbers, having databases with employee information (and pictures) that can be checked my the owner and have a set wages budget. In the end it might be impossible to catch everything so that is why it is desirable to have two people overseeing these activities.

4.Do you agree? Please explain! Time cards would work if the company is a small one. I would just put more than one person in charge of payroll so they could watch each other, preferably one to be a major tattle-tale.

Solution Preview

1. The situation described is a very common and easy method to embezzle. Caution when investigating is needed because this situation often involves collusion with the office staff, mainly the payroll clerk. Consider all of the above and perform as many as are feasible:
a. Ask to examine the payroll records for a section or a crew, including the personnel file. The records may be incomplete which provides a reason to follow up with a possibly bogus employee.
b. If a union is involved, verification ...

Solution Summary

In a 350 word response, the solution discusses a number of possible changes and/or tests that could reveal or prevent payroll fraud. It is a common problem with relatively simple solutions for prevention. No guarantees for 100% prevention but good procedures will quell much of it.