Question

Imagine this scenario. The corporate headquarters for Dunlap, Inc. is located on one side of town. Operations at the headquarters include administration, human resources, marketing, and accounting (including payroll). On the other side of town is the manufacturing plant. The plant has a supervisor and a number of manual laborers. When a new laborer wants a job, they contact the plant supervisor. The new employee fills out the proper paperwork (W-4, application, direct deposit info, and I-9). The supervisor submits the paperwork to the payroll department at headquarters. The new employee works 40 hours the first week. The supervisor approves the timecard and submits the time card to the payroll department. Payroll makes payment to the employee.

What is wrong with this scenario? How could employees use the employment/payroll process to embezzle money from the company? What are the corrective actions?

Answer 1

In the given scenario, the entire responsibility of appointing new employees, supervising their work, approving the time cards is handled by the plant supervisor. In this case there is a high risk of embezzlement of money from the company by showing fake or non-existent employees on the payroll and siphoning off funds under the pretext of salaries/wages paid to the fake employees.

The corrective actions in this case would be to have proper segregation of duties. Once an employee is selected which may be done by the plant supervisor, the function of appointment of new employees and paper work related to the same should be handled independently by another person/department such as the human resources department in the organization. This would eliminate the possibility of embezzlement of money through payroll by including names of fake employees.