Timesheet Fraud: How to Prevent It? + Sample Termination Letter
Andjelka Prvulovic
Last update on:
April 18, 2024 2:37 AM
Published on:
Did you know that on average, employees falsely record 4.5 hours of work completed every week? That's almost six weeks worth of work per year!
With businesses losing hundreds of billions of dollars annually, the financial impact of timesheet fraud is staggering. Practices like "buddy punching," where one employee clocks in for another, are rampant and can cost companies dearly.
Whether you're a small startup or a large corporation, understanding and preventing timesheet fraud is essential for maintaining productivity, compliance, and financial integrity.
This article will explore timecard fraud, the most common timesheet fraud cases, and how to prevent them.
As a bonus, we will also provide a sample termination letter for employees who commit this offense.
Is your business still relying on manual timesheets to track employee work hours?
Timesheet fraud refers to the intentional manipulation or falsification of timesheets by employees to inflate their reported work hours or activities.
This dishonest practice is also known as time theft or timecard fraud.
Why Does Timesheet Fraud Happen?
According to the Fair Labor Standards Act (FLSA), employers must keep accurate records for all non-exempt employees, including the date and time when work starts and ends, daily hours worked, and total weekly hours.
Still, companies typically rely on their employees to input information about their working hours into their timesheets.
Unfortunately, this trust-based timekeeping system can be exploited by dishonest employees seeking to increase their pay unfairly.
Employees may record hours they didn't work and get away with it, receiving dishonest pay at the employer’s expense.
Let’s take Maria, a field technician at a construction company, as an example.
Maria's supervisor rarely checks the details of her timesheets, so she takes advantage of this by inflating her work hours. For instance, if Maria spends 30 minutes at a site, she records it as an hour to boost her total work hours. Over time, Maria's fraudulent behavior results in her receiving higher pay for hours she didn't work, undermining trust in the timekeeping system.
Or consider a scenario where a field employee crew pads their timesheet by just ten minutes each day. At first glance, these extra minutes might seem insignificant. However, these additional minutes accumulate over time, eventually amounting to hours or even days.
Ultimately, the employers bear the cost of these seemingly minor discrepancies.
With Timeero’s granular view of how employees spend their working hours, employee time theft is a thing of the past.
Consequences of Timesheet Fraud
Timesheet fraud can have significant consequences for businesses, including:
inaccurate billable hours and payable amounts
wrong estimates for future workloads
poor discipline and employee morale
breakdown of teamwork, cooperation, and trust.
Employers must have reliable timekeeping systems and company policies to minimize the financial losses and other risks associated with employee time theft.
Legal Implications in Certain States
In states with strict regulations like California, the risks of timesheet fraud are heightened. For example, California labor law requires specific meal and rest breaks for employees.
Not tracking these breaks can lead to legal penalties, wage theft allegations, and labor law non-compliance.
Is Timecard Fraud Illegal?
Employees falsifying time cards violates ethical standards and legal regulations. Although it is not a specific federal crime, timecard fraud can fall under various criminal statutes.
Employers can pursue disciplinary action or press criminal charges against employees who engage in fraudulent activities and are paid for work they did not perform.
However, pressing charges against an employee can be lengthy and costly, especially if the fraud is sophisticated or the employee has covered their tracks well.
Even if the employee is found guilty, they may not have the means to repay the stolen money.
Terminating the employee’s contract and implementing measures to prevent employee timesheet fraud is often more practical and cost-effective than engaging in legal proceedings.
We’ve provided a sample termination letter to help you do this.
The same survey found that 43% of workers admit they do personal business while clocked in, and 42% say they take frequent breaks. That said, the average employee falsely records up to 4.5 hours worked weekly, up to six weeks per year.
The Most Common Timesheet Fraud Types
Timesheet fraud occurs when employees receive payment for work they didn't perform or are paid for the time spent on non-work-related activities.
Understanding the different types of timesheet fraud can help employers identify and prevent such misconduct.
Below are some of the most common types of timesheet fraud:
Work Hours Inflation
Inflation of work hours is most prevalent in companies that use hard copy timesheets, which make it easy for employees to enter the incorrect shift start and end times.
Fraudulent Entry of Data
Sometimes original timesheets have errors and need to be rewritten. In that case, it's easy for workers to exploit the numbers on the revised copy. The more times employees re-enter data, the higher the possibility of inaccuracies.
Errors Because of Delays
Timesheet hardware may experience issues, prompting employees to wait until the system is repaired. In such cases, they may take their chance to key in more hours than they have worked.
Length of Break Time
Some workers take longer break times than they should or take unauthorized breaks when they should be working.
Buddy Punching
Buddy punching is when one employee puts in a false arrival or leave time for another employee who didn’t arrive on time or who left work earlier.
Favoritism
Managers or supervisors can show preferential treatment to certain employees, ignoring lateness or allocating tasks unfairly.
They may favor a particular coworker, friend, or relative and schedule them for a task that would have cost the employer less labor and been completed more efficiently if another employee had done it.
Logging Regular Time as Overtime
In this scenario, an employee records their regular work hours as overtime. Overtime hours are typically paid at a higher rate than regular hours (often time-and-a-half or double time), allowing the employee to earn more than they are entitled to.
Ghost Employee
This fraudulent scheme involves a fraudster creating a fake employee in the company’s payroll system or using the details of a former employee who has left the company. The fraudster then falsifies time records to show that the ghost employee has worked a certain amount of time and collects wages.
As a result, the employer unknowingly pays wages for hours not actually worked, leading to financial losses and undermining the accuracy of payroll records.
What About Employer Time Fraud?
When employers engage in deceptive actions related to recording work hours or manipulating time clock systems, their actions can also be considered time fraud.
Here are some examples of employer-related time/payroll fraud:
Misclassifying Employees. Intentionally categorizing employees as exempt (not eligible for overtime pay) when they should be non-exempt avoids overtime costs.
Forced Unpaid Overtime. Pressuring employees to work beyond their regular hours without proper compensation.
Automatically Deducting Breaks. Automatically deducting break times from employee hours, even if they didn’t take the full break.
Ignoring Off-the-Clock Work. Failure to account for work performed outside the regular hours, such as answering emails or attending work-related events.
Manipulating Time Records. Altering time records to reduce the number of hours worked or avoid paying overtime.
Note that even the mere rounding up of time can be classified as time fraud. Time-rounding in California can lead to substantial costs for employers.
How Does an Employer Pay Employees When Timesheets Are Incomplete or Inaccurate?
It’s not uncommon for businesses to struggle with receiving accurate and timely timesheets from their employees. Some employers may even contend they cannot process payroll without a completed timesheet.
However, delays or inaccuracies in timesheets do not absolve employers from their legal responsibilities. As per the Fair Labor Standards Act (FLSA), employers bear the ultimate responsibility for maintaining accurate time records and ensuring prompt and full payment for all hours worked by their employees.
Even in the face of incomplete or inaccurate timesheets, employers are legally obligated to make a good-faith effort to calculate the hours worked and compensate their employees accordingly. Failure to do so can lead to legal repercussions, including penalties and lawsuits.
Prevent Timesheet Fraud By Using A Time-Tracking Attendance System
Timesheet fraud is a prevalent issue that many businesses face. Still, it doesn’t have to threaten your company’s bottom line.
One effective solution is transitioning from manual timesheets to reliable and accurate time-tracking software like Timeero.
Here's how Timeero can help you end the expensive problem of time fraud.
GPS Time Clock
With a location-based clock-in, you can ensure your employees' time cards are 100% accurate.
Transitioning to Timeero ensures every clock-in is tied to an employee's location.
This location-based accuracy is crucial for maintaining honest timesheet submissions, directly combating common fraud practices such as claiming work hours when not at the work site.
The geofencing feature ensures employees are at the designated work location before they can clock in.
For example, when using Timeero's geofencing feature, you can restrict your employees from clocking in when offsite. This way, you can verify that the time reported is spent on the job, safeguarding against false time entries.
Biometric Time Clock
Timeero prevents buddy punching by requiring biometric verification, such as facial recognition, to clock in or out.
Thanks to the facial recognition clock-in feature, Timeero can help prevent buddy-punching.
Real-Time Overtime Monitoring
With Timeero, employers can set thresholds for overtime and receive alerts when employees exceed these limits.
Using Timeero, you can easily customize your overtime settings or use the predefined settings for California.
Overtime tracking helps you manage labor costs and prevent a common timesheet fraud tactic: employees inaccurately claiming overtime hours.
With Timeero, overtime is monitored and approved, preventing unauthorized overtime claims.
Accurate Break Tracking
Timeero enhances compliance with labor laws by tracking break times accurately. This feature is especially critical in states like California, where specific meal and rest breaks are mandated.
The best break-tracking apps will ensure employees take their lawful breaks without falsely claiming they worked through them, a subtle yet impactful form of timesheet fraud.
Real-time Monitoring and Shift Management
By providing a real-time overview of who is working, when, and where, Timeero makes it easier for managers to verify work hours against scheduled shifts.
If any potential discrepancies occur, they can directly address them.
In addition, managers can edit their work schedules whenever they need to. Employees will automatically receive notifications on their phones of any new schedules or shift changes.
Control User Access
Timeero lets you set different user roles for your employees. You can set manager and supervisor roles and define the timesheet approval process.
This ensures that someone with oversight reviews the hours employees work and can detect any suspicious patterns or inaccuracies.
Have Your Timesheets Signed and Ready for Audits
A detailed record of every change made to a timesheet, including who made changes and when, offers transparency and accountability.
This feature ensures that any attempt to alter timesheets can be traced and addressed, which is essential to combating timesheet fraud.
For improved accuracy, you can have your timesheets signed by your employees.
How Can Companies Detect and Prevent Timesheet Fraud?
Time-tracking software such as Timeero is crucial to detecting and preventing timesheet fraud.
In addition, you can implement various strategies to safeguard your business's financial integrity and ensure fair compensation for your employees.
Timesheet Fraud Detection Strategies
Below are some of the most efficient ways to identify timesheet fraud.
1. Comparative Analysis
Compare your payroll data with your budgeted expenses to identify discrepancies or inconsistencies.
Look for deviations in employee wages or hours worked that aren’t justified by legitimate factors such as overtime or bonuses.
2. Timely Review
Ensure that timesheets are completed and reviewed promptly to ensure you notice errors or discrepancies.
Set clear deadlines for timesheet submission and review to avoid delays that could lead to inaccuracies in payroll processing.
3. Surprise Audits
Conduct surprise audits by fraud examiners or third-party companies to scrutinize timesheets and schedules for anomalies or irregularities.
These audits provide an independent and thorough examination of payroll records to uncover potential instances of fraud.
4. Employee Behavior Monitoring
Monitor employee behavior and productivity patterns for signs of potential fraud, such as significant changes in work habits or discrepancies between output and reported hours.
For example, Timeero can alert business owners if an employee fails to clock out after their scheduled shift, helping to prevent potential timesheet errors or fraud.
Timesheet Fraud Prevention Strategies
The ways to prevent timesheet fraud will vary depending on the dominant problem in your work environment.
Here are some things you can do to discourage timesheet fraud.
Keep Accurate Records
Keeping accurate records will help you catch discrepancies when an employee attempts to hand over a fraudulent timesheet.
Make these records accessible for employees to review and understand the importance of accuracy in time reporting.
Be Harder on Submission
Getting tougher on submission can be an excellent way to prevent timesheet fraud caused by manual submission. For instance, you can enforce strict deadlines for timesheet submissions to discourage last-minute, potentially fraudulent entries.
You can also require detailed descriptions of work performed during reported hours, especially for overtime.
Don't Ignore Minor Cases of Fraud
Ignoring minor fraud cases will show your employees they can get away with such behavior and even encourage some to create bigger issues.
By addressing minor discrepancies and fraud cases head-on, you send a clear message about your company’s stance on time theft, fostering a culture of honesty and respect for company time and resources.
Educate Your Employees on the Importance of Accurate Timesheets
Teach your workers the harmful effects of timesheet fraud and ensure they know the importance of accurate timesheets.
Tell them that timesheet fraud is a severe problem that can negatively affect the business and everyone involved, including employees. Also, train them on how to fill out their timesheets accurately and what information to include.
Let Your Workers Take Breaks
Allow your employees to take regular breaks. If they are overworked and stressed, they are more likely to attempt to clock in more hours than they worked.
By providing them the opportunity to take regular breaks and days off, you can prevent timesheet fraud and ensure they stay healthy with high employee morale.
Create a Culture of Integrity
Promote a workplace culture that values honesty and accountability. Encourage employees to report suspected fraud through a secure and anonymous reporting system.
Implement Fair Workload Management
Regularly assess workloads to ensure they are reasonable and equitable. This way, you can reduce the temptation to commit fraud due to overwork or unrealistic deadlines.
Come up with a Clear Time Theft Policy
Formulate a clear time theft policy and explain it to your workers. Include the behaviors that are considered time theft and the consequences they will face if they break the rules.
If you consider termination for falsifying timesheets, explain the process in detail.
Dealing with employees' fraudulent activities can be tough, even more so when you have to let them go. To help you during this challenging process, we've created a sample termination letter for timecard fraud. You can download, print, or just use it as a guide and alter it according to your needs.
Andjelka is a sociologist turned digital marketer. She specializes in creating content for SaaS and software companies. When she’s not researching the most effective employee management techniques, Andjelka loves cooking, reading, and fighting for human rights.
.webp)
%202.svg)
