Question

6.-1 What are the three main categories of payroll fraud?

6-7 and 6-7 What is meant by the term rubber stamp supervisor, and how are these individuals utilized in a payroll fraud scheme?

6-9 There are two ways that an employee working on commission can fraudulently increase his pay. What are they?

Answer 1

6.1 The three main categories of payroll fraud are:

(I ) Ghost employee scheme: In this type of fraud the employee does not actually work for the company that is a victim of fraud. The personnel on the payroll are falsified and these ghost employees are used to create paychecks. The ghosts are usually friends or relatives of the fraud perpetrator.

(ii) Falsified hours and salaried scheme : This the most common type of fraud where in the payroll funds are misappropriated through excess payment of wages. In this case, the hours worked by the employee are increased for those that they never worked or the rate of pay is changed to generate fraudulent wages.

(iii) Commission schemes: In case of payment of additional wages by the company in the form of commission schemes, fictitious sales are created or the actual sales figures are overwritten and there can be increase in the rate of commission payable. The payroll commission Is recorded as per the illegitimate figures or rate of commission and an inflated paycheck is issued to the employee.

6-7 Ans: A supervisor in the company usually rubber stamps the time cards of employees who are paid on a hourly basis. A fraudster recognizes a supervisor who seems lazy and inattentive to the time being recorded and without reviewing the accuracy of the time cards put this stamp for payment to be made. The managers in a rubber stamp scheme usually do not how much is being paid and the they do not usually engage in reconciling the expense journal monthly.

6- 9 Ans : The two ways that employee working on commission can fraudulently increase his pay :

1. Fictitious sales: Create fake sales orders and purchase orders to increase sales figures, credit authorizations , packing slips, invoices and so on. The fictitious sale on the face of it looks legitimate and fraudulent paycheck is issued the employee who works on commission.

2. Altered sales: The prices on the products are altered to inflate the sales figures and in turn get higher commission paid for excess figures reported.