Prevent Timesheet Fraud Without Sacrificing Employee Morale

Photo by Markus Spiske

No matter what industry you’re in, you can come across timesheet fraud. Apart from the obvious financial losses, it negatively impacts nearly all aspects of the workplace: from project management and resource planning to the work environment.

Timesheet fraud results in wrong billable and payable amounts, inaccurate estimates for future workloads, as well as weak discipline and employees’ morale. For example, a recent fraud case in Port Elizabeth, New Jersey involved more than one person. The main accused illegally acquired an amount worth of $500,000 annually, while showing up at work just 8 hours per week. To make this happen, his coworkers submitted false timesheets for him.

More than anything else, such a behavior was undermining teamwork, trust, and cooperation. As hard as it is, this problem can and should be handled. In this article, we’ll look into the most common timesheet fraud schemes and ways to prevent them.

7 Most Common Timesheet Fraud Types

Time fraud takes place when an employee gets paid for work they never did or for time spent on activities not related to work. Time fraud schemes mostly depend on the method employees used to track their time, absences, and overtime.

These are the most common fraud types:

• Inflating hours worked. This is when an employee artificially increases the number of hours worked on their timesheet. This can be done by adding extra time to their timesheet, or by clocking in / out cheating (i.e., punching in early or out late).
• Editing timesheets retrospectively. This practice is also considered timesheet fraud because it can be used to inflate hours worked in order to cover the deficiency of working hours.
• Buddy punching. In the companies where clock-in / clock-out systems are used, it is not uncommon that some employees punch in for their colleagues when they’re running late.
• Logging regular time as overtime. When overtime is included in the payroll calculation and paid for more than the regular working hours, sometimes people tend to record their regular hours as overtime.
• Overtime abuse. In case an employee works more overtime than they are entitled to, or when they work overtime without the proper authorization, they commit timesheet fraud as well.
• Time off abuse. An employee may take time off that they are not entitled to, such as sick days or vacation days. In other cases, they can also take longer breaks than allowed, or leave work early.
• Ghost employees. This is when an employee is paid for hours worked by someone who doesn’t actually exist, which can be done by creating a fake employee, or by using the hours of a real employee who is no longer with the company.

One big question is, can goofing off during the workday be considered as a time fraud too?

It largely depends on the employee’s area of activity and responsibilities. In customer service, it is usually not okay for an employee to play with their smartphone even when no customer is directly addressing them.

However, in many cases the employer pays their employees for being ready and willing to work. So even if they’re doing nothing for a while and the employer doesn’t want them to go home, it shouldn’t qualify as time theft.

How to Prevent Timesheet Fraud

While there is no surefire remedy against employee fraud, employers can take certain steps to reduce and prevent false salary claims.

Here’s what you can do:

1. Keep accurate records of who worked on what and when. This will help you catch any discrepancies in the event that someone tries to submit fraudulent timesheets.
2. Make sure to inform your employees about payroll and overtime policies in advance. Sometimes time fraud is not really intended. Things start going wrong, when an employee doesn’t clearly understand their duties or how they should account for their work. They tend to waste time and track it poorly. Later, this results in timesheet edits and non-relevant or inflated time entries.
3. If you’ve noticed any minor cases of fraud, don’t ignore them until they turn into a serious issue. Remember the old saying: “It’s better to prevent than to cure”? Talking to the employee as soon as possible is your chance to prevent major problems in the future.
4. Have your managers check and approve their employees’ timesheets. Once it is approved, it cannot be corrected.
5. Educate employees on the harmful effects of timesheet fraud. Make sure they are aware of the importance of accurate timesheets. Let them know that timesheet fraud is a serious issue and explain how it can impact the business negatively. Train employees on how to fill out timesheets correctly and what information needs to be included.
6. Allow employees to take regular breaks. If your team members are stressed and overworked, they are more likely to try to log more working hours than they actually worked. So, by encouraging them to take regular breaks and personal days off, you may prevent timesheet fraud and also ensure that your employees remain healthy and satisfied with the workplace.
7. Offer flexible work schedules. Higher workplace flexibility helps to improve work-life balance so that your employees don’t have the need to pad their hours.
8. Prohibit employees from working overtime without prior approval. This practice ensures that employees are only working the hours that they are supposed to be working. This means that if an anyone tries to claim overtime hours they didn’t actually work, their claim will be rejected and your company will manage to save money.
9. Use electronic time tracking systems that have timesheet approval and lock functionality. Once a timesheet is approved and locked from any modifications, no edits are technically possible. This solution is one of the most efficient ways to prevent timesheet fraud.
10. Adopt an automated clock-in system. Automated time trackers can help prevent timesheet fraud by ensuring that employees can only clock in and out when they’re supposed to be working. This type of system can also make it easier to track employee hours so that you can spot any discrepancies quickly.

Things You Should Carefully Consider

The key rule here is “Don’t overdo it.” Employee fraud, even if only alleged, is a sensitive issue. Before taking any decisive steps, always consider the implications. Too much eagerness to eradicate the fraud can consume all resources, damage work environment, or undermine employee loyalty. So…

1. Treat your employees like adults. Trust them and express your trust openly. You don’t want to impair motivation and discipline of your team. And if the environment is unhealthy, it’s hard to perform well.
2. Avoid micromanagement. Consider which measures are really necessary and stick to them. Otherwise, this can easily turn into a waste of time and effort and block available resources from being used in current or future projects.
3. Think twice before docking employee pay or applying other financial penalties. Make sure that contract terms and legal regulations explicitly allow that in your particular case — and in case of doubt remember that it’s always better to err on the side of caution.

Protect Your Business from Timesheet Fraud with actiTIME

As you can see, there’s no shortage of ways to commit timesheet fraud. Yet luckily, there is also plenty of methods for coping with it effectively. And we know one excellent solution that will help you do that with ease — actiTIME!

Online timesheet interface in actiTIME where every user can select task parameters
they want to see in their timesheets

Using this time tracker, you are sure to put an end to the costly problem of timesheet fraud.

Here’s how it can help:

1. actiTIME makes it easy to track hours spent on specific tasks and projects and compare your time tracking results to the set estimates. This way, you can see if employees are working the exact amount of time they claim to invest in each piece of job.
2. The software allows for establishing an approval workflow for incoming timesheets and lock the submitted ones. Thanks to this functionality, no one can submit a timesheet without a manager’s approval or make changes to them retrospectively.
3. The time tracker can also generate detailed reports on employees’ productivity and work patterns. This can help you spot any suspicious activity, such as excessive overtime or schedule overruns.
4. actiTIME lets you keep daily employee performance in check without resorting to micromanagement. It doesn’t contain any tools for spying on employees. Thus, it allows you to develop more trustful relationships with the team and promotes a healthier work environment than any automated activity trackers and employee monitoring systems can do.

With actiTIME, you can say goodbye to timesheet fraud and hello to accurate time tracking!

Sign up for a 30-day trial and request a free demo today!

Summary

There’s no doubt that timesheet fraud is harmful for the company’s work process and climate. At the same time, make sure not to cross the line when preventing it or handling its consequences.

There are ways to minimize the problem without micromanaging or threatening healthy work environment. One of the most efficient ways to prevent fraud issues is implementing an electronic timesheet system that physically prevents any inappropriate time-track modifications. And no matter which technology you apply, building trust in your team lies at the core of a healthy workplace.