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The grand scheme of things

The large and small magnitudes of timesheet fraud



We all know fraud isn’t a new phenomenon. But what plays in the news can surprise even the most skilled anti-fraud professional. Cases of multimillion-dollar companies entangled in fraud now take precedence over other kinds of criminal activity. But is the high-stakes game of fraud limited to multimillion-dollar organizations? Or do small acts of fraud require just as much attention when deceit and deception are the players in the economic game of profitability and growth? It can be just as devastating to lose revenue in small amounts as it is for a global company to lose a few million.

Real-life account

I’ve been given the opportunity to lead and guide others as an educator and corporate leader. In my experience working independently without onsite leadership, I’ve built my foundation on being ethical, responsible, orderly, timely and task-oriented. I expect students and employees to take the same approach whether I’m two feet in front of them or two cities away. I’ve learned that some employees require micromanagement, established processes and guidance to help them behave ethically.  Some employees commit small unethical acts that they justify as normal behavior or don’t think employers will notice. In reality, many employers won’t recognize small frauds until they become costly because they’re such small acts.

While working as the manager for a distribution company, I experienced firsthand how easily an employee can cost a company excessive wages and can decrease productivity. I was reviewing the trend of costs for my former department when I noticed that the payroll was steadily increasing. I knew the employees were mainly on an eight-hour day with minimal overtime. However, the amount of overtime they recorded didn’t coincide with the current workload. This was troublesome because I’d worked hard to make the department more efficient by streamlining processes.

I decided to pull the source documents — timesheets — to determine those employees who were logging the extra time and the times of day. To my surprise, one employee (we’ll call her Linda) was habitually clocking in early at the start of the day and when she returned from lunch. She also was clocking out later at the end of the shift and prior to taking lunch. This was odd to me because I’d see the employee begin and end work on time. I’d also see her preparing and cleaning up her lunch at the start and end of the lunch hour. So, what was I missing?  There could have been technical trouble with the attendance program or the employee might have made a mistake when badging into the system.

I decided to really monitor the situation for a week by observing the behavior of all my employees. Two employees scanned their badges at the appropriate times. They began work on time and ended the day on time unless extra work was required. Linda, however, had her own method of padding her time. She’d arrive early to get coffee and put her lunch in the breakroom, and then she’d sometimes stop to chat with other employees. This is fine for an employee to do, but Linda would clock in before taking care of her pre-work needs.  At 11:45 a.m., Linda would retrieve her lunch from the break room, warm her food and fix herself something to drink. She’d then clock out for lunch. At 12:45 p.m., Linda would clock back in and then proceed to clean up her items from lunch.

At the end of the day, Linda would prepare her personal items to leave before clocking out 15 minutes after her shift. She even took extended breaks. I was amazed to discover that this was Linda’s daily process. The other employees didn’t realize she was manipulating the system and being paid for the non-work hours.

To put this in perspective, here’s what a typical work day looked like:

Linda would begin her day by arriving to work at 7:45 a.m. and would clock in even though her schedule didn’t begin until 8 a.m. She’d work until 11:45 a.m. and then go to the break room to get her lunch ready. She’d  then clock out at noon for lunch and clock back in at 12:45 p.m. after she finished eating, but she wouldn’t begin work again until 1 p.m. Linda would stop working around 5 p.m. but would clock out at 5:05 p.m. In addition, within the work schedule of 8 a.m. to 5 p.m., Linda received two 10-minute breaks that would normally last 15 minutes because she’d go to the bathroom before starting her break.

What’s wrong with this scenario? Linda, and others like her, actually work this type of daily schedule, and they don’t believe they’re doing anything inappropriate. However, these employees are committing fraud by falsifying documents and misappropriating time.

The manager of my human resources department developed standard methods for time and attendance, and Linda was purposely not following the company’s rules. She committed fraud because she engaged in an intentional act to deceive the company. The act cost the company revenue and reduced profitability. Based on the earlier breakdown, Linda received one hour of paid overtime per day that she never actually worked.

The grand scheme of things

For the sake of simplicity, we’ll consider that Linda works 52 weeks a year (not considering holidays and vacation). This means Linda will be paid an extra 260 hours per year (five hours per week times 52 weeks). Those hours are potentially overtime hours. Even at a standard rate of $10 per hour, the company would pay an extra $2,600 to Linda in one year.  Now picture a company with 5,000 employees where 200 of those employees manage their time in the same manner. That’s $520,000 paid for time not worked. This greatly increases if we tie in the taxes and benefits because of extra wages. This one act of “minor” (in Linda’s mind) timesheet fraud becomes a major expense when other employees make the same decision to pad their pockets with a few minutes here and there.

That’s more than half a million dollars that could be invested back into the company for capital equipment, wage increases, employee incentives, investor dividends or educational/training programs.

Consider these corrective actions

Here are some suggestions for correcting bad behavior and preventing future fraudulent acts with time and attendance:

  • Coach the employee on the unacceptable behavior and explain the negative effects.
  • Review the time and attendance policy (established by human resources) with all employees.
  • Develop attendance rules that are specific to your department. For example, in my department, I outlined that my employees should:
    • Seek prior approval for overtime work.
    • Be at their desk, ready to work at 8 a.m.
    • Continue their work until 5 p.m.
    • Make sure all lunch activities are completed within the lunch hour.
  • Explain penalties for breaking the company rules.
  • Monitor and audit the time and attendance log on a regular basis instead of at the end of the payroll cycle.
  • Reinforce and reiterate the standards for time and attendance at each quarterly review period.

These steps provided me with the tools that I need to prevent fraud from occurring and to detect any new act that could develop over time.

Since the new implementation, employees are more aware of proper timekeeping and ethical behavior throughout the workday. Linda was open and receptive to constructive feedback. She began to clock in and out as instructed. Originally, she was unaware of the overall negative cost effect to the organization. With the new guidance in place, overtime decreased significantly and my department remained within budget. During weekly meetings, I began to have open discussions on topics that needed clarity, such as the timekeeping issue. Our department became stronger as we discussed other concerns, such as reporting mistakes that can occur, appropriate office behavior and understanding company policy, to name a few.  Sometimes open discussion can help prevent fraud. 

Felicia Riney, D.B.A., is an independent researcher. She can be reached at friney1@yahoo.com.




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By DRiggs
Most people don't realize how seemingly small infractions are really quite significant when the grand scope of effects are considered.