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Timesheet Fraud – How well is your business protected?

As a business if you are still relying on spreadsheets and paper timesheets to manage your employees’ time, activities, skills and costs, you could be leaving yourself open to inefficiencies, inaccuracies, non-compliance with working time legislation and in some cases even employee fraud.
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As a business if you are still relying on spreadsheets and paper timesheets to manage your employees’ time, activities, skills and costs, you could be leaving yourself open to inefficiencies, inaccuracies, non-compliance with working time legislation and in some cases even employee fraud. Inaccurate employee time tracking and timesheet fraud is a common problem in organisations that use manual processes. Some of this is due to conscious intent and some due to a lack of management controls. In this article I will explore some of the most common types of timesheet fraud. Furthermore I will look at real life case examples of timesheet fraud and cases of accidental underpayment of employees that ended up as lawsuits. Finally, I will set out some ways that you can protect your business from deliberate fraud, increase management controls and ensure compliance with working time legislation

Types of Timesheet Fraud
Entering and/or approving incorrect data is one of the most common abuses of attendance information. When done accidently it can expose employee carelessness, flawed processes and a lack of management control, however when done deliberately, in simple terms it is fraud. Employees are responsible for entering their correct attendance data and supervisors are responsible for certifying that this information is indeed correct.  While we all hope that the majority of employees are both diligent and honest, unfortunately experience shows that this is not always the case. Set out below are some of the most common ways employees can commit timesheet fraud.

1. Inflating work hours
With paper-based timesheets it’s very easy for employees to enter incorrect times of arriving and leaving work and overstate or round their hours up to the nearest hour. Overpayment then occurs as the employee is paid based on falsified hours or rates.

2. False data entry
If employee attendance data has to be retyped from timesheets or time cards into a payroll system, it is very easy for a dishonest employee to change the numbers. As well as being open to fraud, this type of process is susceptible to typos and mistakes. The less you have to rekey your time and attendance information, the more accurate your data and in turn the more accurate your payroll.

3. Nepotism
This type of fraud occurs when a manager favours a co-worker, relative or friend by scheduling them for a specific task rather than scheduling a different employee, who is also available to work, and may be a more cost effective choice. For example, if a job comes in for a service engineer, who also happens to be the schedulers buddy and is assigned to this job despite the fact they are already in overtime, your business is at risk of paying unnecessary time and a half rates to get that job done.

4. Errors due to delays in completing timesheets
Although not technically fraud there are often inaccuracies when employees fill in timesheets weeks or months after they have worked these hours. Supervisors then sign off on these timesheets when realistically it is unlikely anyone can actually 100% guarantee that these hours were worked particularly for supervisors who are responsible for large teams.

Case Study 1: U.S. Census Bureau – Allegations of Time and Attendance Fraud
On December 15, 2013, the U.S. Department of Commerce Office of Inspector General (OIG) received a hotline complaint alleging that certain U.S. Census Bureau employees had been fraudulently reporting their time and attendance. [1] Specifically, the complaint alleged that six employees in the Census Hiring and Employment Check (CHEC) Office had regularly been recording and receiving pay for time not actually worked since at least 2010. OIG opened an investigation on June 16, 2014 regarding the allegation. The OIG’s preliminary analysis not only confirmed significant discrepancies in time and attendance recording by the employees originally identified, but also showed that the problem was much broader than this group of six employees. The OIG therefore extended the scope of their investigation to include a significant portion of the CHEC Office. They identified a systemic pattern of time and attendance abuse by a significant portion of the CHEC Office since the start of the decade. In particular, the evidence and the OIG’s analysis of relevant data showed the following:

From January 1, 2010 to September 20, 2014 there was a discrepancy of 19,162 hours (amounting to the equivalent of 2,395 full 8-hour workdays) between reported work time and actual work time).

The total time and attendance abuse in the CHEC Office during this four-year period cost taxpayers an estimated $1.1 million.

Nineteen of the employees had discrepancies of more than 400 hours over the four-year span.

Nine employees improperly claimed and were paid for more than 100 full work days each that they did not actually work.

The CHEC employee with the largest discrepancy improperly claimed 160 full days (1,277 hours) that he did not actually work.

In some cases, CHEC employees claimed that they had worked a full day, yet there was evidence that they had not worked at all.

In other cases, CHEC employees claimed to telework a full day, but the evidence showed they performed little or no work at all.

At least two CHEC contractor employees inflated the hours that they worked, including one contractor who billed for 361 hours of time not actually worked, which amounted to a loss to the government of $32,217.11.

Case Study 2: Overtime Fraud – Amtrak Pays $200 Million in Overtime to Employees
Just under $200 million of overtime was paid to Amtrak employees. [2] Amtrak is The National Railroad Passenger Corporation in the US. According to an audit report from Amtrak’s Office of Inspector General (OIG) many employees had fraudulently recorded their overtime hours. The investigation uncovered instances where employees claimed they worked over 40 hours in a single day with others recording a workday of between 20 and 24 hours! In 2014 Amtrak paid out nearly $200 million in overtime. Set out below are some of some of the blatant abuses uncovered by the OIG:

Employees reported a total of 1,357 days in which they worked more than 24 hours.

Ten employees reported working at least 40 hours in a day.

Of those 10 employees, a serving attendant in the Café Car, who earns an average of $23 an hour, recorded 47.95 hours in one day, 31.01 of which were recoded as overtime.

Numerous employees also claimed to work 20-hour days.

1,891 timesheets recorded a range of 22 to 24 hours in a single day.

7,145 timesheets listed between 20 and 22 hours worked in one day

Some employees repeatedly reported working overtime but no regular hours, including five employees who reported at least five weeks with overtime but no regular hours.

2,381 timesheets reported at least 40 overtime hours in addition to 40 regular hours

There were 280 occurrences of employees who said they worked at least 31 consecutive days in a row.

How to prevent Payroll Fraud
While it may not be possible to eradicate payroll and timesheet fraud, there are ways to catch it and catch it early. The key to catching it and minimising the risks is to ensure you have safe processes, policies and systems in place that can’t be easily manipulated.

Use of electronic Timesheets
One of the easiest and most unobtrusive ways to accurately track employee time and activities is via electronic timesheets. Electronic Timesheets replace the need for paper timesheets and gather information on hours worked by employees. They interface with Payroll and Human Resources Systems. Electronic timesheets were designed to allow employees to easily enter their daily hours worked or assume their standard contract hours, as well as paid time off via their PC, laptop, tablet, phone etc.

They were developed to reduce administration and manual tasks, increase payroll accuracy, ensure compliance with working time legislation and protect organisations against payroll fraud. Once timesheets are completed and approved, the system can then calculate payable hours, based on what is entered thereby avoiding the need for any manual calculations. With electronic timesheets, supervisors don’t need to sign off on “paper” timesheets which can be open to errors; instead they approve employees’ electronic timesheets online directly from their email or via their phone App. This ensures that timesheets cannot be changed later as once approved they go directly to payroll rather than back to the employee. With electronic timesheets you can allow employees to view and edit their time, enter absences, submit requests for leave and review their schedules reducing time spent looking for this information from others.

Entering and approving timesheet information regularly
The most common type of payroll fraud is the padding of timesheets by employees and the best control over this is ensuring that timesheets are completed and signed off regularly and in a timely fashion. With an automated system like Softworks, there is no need for administration staff to re-enter this information into the system. This allows you to completely eliminate the middle steps which could leave your business open to human error or fraud. The quicker that timesheet information is processed the more exact it will be. By leaving a time lapse between work done and approval you leave your business open to mistakes and deliberate fraud.

Make timesheet approval quick, easy & hassle free
If tracking time and attendance becomes too much hassle for employees and supervisors, timesheet accuracy goes down. The easier it is for employees to fill in timesheets and supervisors to approve them, the more accurate this information will be and the faster errors or attempted fraud will be spotted. Line managers don’t want to waste time chasing their team for timesheets and HR & Finance departments don’t want to waste time chasing line managers. Good electronic timesheet systems have built in functionality such as email alerts and SMS messaging reminding employees and managers about timesheet submission and approval.

At the end of the day the process should be quick and easy and provide no disincentive to doing it. By enabling supervisors to easily and quickly edit, authorise and analyse, time, attendance, holidays, absences and additional time from one screen you will increase timesheet accuracy and alert supervisors quickly to any discrepancies. A good electronic timesheet system should offer all of this. With Softworks, employees and supervisors receive automatic email notifications when timesheets are due and they can approve or edit timesheets directly from their email or via their phone App.

Keep track of employees centrally
Managing variable working hours, times and days and tracking large numbers of employees and/or contract workers dispersed at multiple locations in real time can be quite a challenge. With electronic timesheets you can allow employees and/or contractors to check in from off-site locations. Electronic timesheets are 100% web enabled so both employees and supervisors can log in anytime and anywhere via their PC, Laptop, Tablet, Phone etc. making it easy to record employees’ working hours, times and days and track large numbers of employees at a central source no matter where office premises or employees/ contractors are located. This in turn makes it easier to track any discrepancies or unusual time and attendance which leads us into management reporting.

Management Reporting
In order to keep a close eye on timesheets, managers and supervisors should be able to generate and view reports easily. This will help them to analyse employee costs, overtime usage, time off and easily and accurately track hours spent on projects or tasks. Furthermore having a system that generates good reports will prevent employees from booking time to projects that don’t exist or are completed, or favouring employees on projects, without taking into consideration the cost implications.

Legal Compliance
Most countries today have working time legislation for health and safety reasons. As a business, it is your responsibility to accurately record your employee’s working hours, overtime, annual leave and start and finish times. If you don’t, you could be at risk of prosecution for non-compliance or even face a lawsuit from employees. There is a growing body of case law involving class action lawsuits for unpaid overtime. Already lawsuits have been filed against many high profile organisations in the US including; Best Buy, McDonalds, Urban Outfitters, Apple, AT&T, Bank of America, CVS and Wells Fargo among others, alleging employers misclassified employees as exempt from overtime or failed to pay overtime to employees regardless of their classification.

This is not just an issue in the US, this is a global issue. In Canada, Ontario’s Superior Court of Justice gave the green light to a class-action lawsuit against part of Bank of Montreal’s wealth management group that alleged the bank owed unpaid overtime to hundreds of current and former investment advisers. The lawsuit alleged BMO Nesbitt Burns Inc. did not keep a proper record of the time employees worked and did not appropriately compensate employees when they worked overtime. The case followed other lawsuits over unpaid overtime brought against Canadian Imperial Bank of Commerce and the Bank of Nova Scotia by bank tellers and other employees who said they were unfairly denied overtime pay. The banks were hit with combined claims of $950 Million.

In the UK John Lewis had to spend £40m to compensate staff who were accidentally underpaid for working Sundays and Bank Holidays over a seven year period. You can read the summary of the case below. No matter where in the world you are based, if you employ staff, ensuring legislative compliance and managing, recording and tracking working hours has never been more important. A good Time & Attendance Solution can automate this process for you and ensure that your organisation is always 100% compliant.

Case Study 3 – John Lewis to pay £40m for not implementing Working Time Regulations
In the earlier case studies we examined companies who had overpaid their employees for hours not worked due to timesheet fraud. In this case study we look at John Lewis who accidently ended up in the reverse situation. They underpaid their employees for overtime that was actually worked. John Lewis had to spend £40m to compensate staff who were accidentally underpaid for working Sundays and Bank Holidays for seven years. They made a one-off payment to staff reflecting the amount due dated back to 2006. Following a review of their Partnership’s holiday pay policy it became clear that Partners who receive certain additions to pay, such as premiums for working on Sunday or bank holidays, had not been paid correctly under the Working Time Regulations legislation. The Partnership Board therefore decided to make one-off additional payments to those affected. About 69,000 employees from its department stores and Waitrose supermarkets were affected and were due individual payments ranging from a few pounds to about £4,000, accounting for more than 80 per cent of its 85,000 workforce. The cost to the Partnership of these repayments and associated expenses was around £40 million.

Tracey Killen, Director of Personnel, had this to say: “As soon as we established that we were not implementing the Working Time Regulations correctly, we worked quickly to make the repayments to our Partners in a way that is both fair and responsible.”

[1] https://www.oig.doc.gov/OIGPublications/OIG-14-0790-I.pdf

[2] https://www.amtrakoig.gov/sites/default/files/reports/OIG-MAR-2015-011%20REDACTED%20-%20REV%2010212015.pdf

 

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