Prevent Time Sheet Fraud: The Complete Guide to Protecting Your Business

Time card fraud poses a significant threat to organizations across various industries. Preventing it requires more than simply implementing a time and attendance or time clock system. Let’s explore the challenges and uncover strategies to foster a culture of accuracy and accountability in managing employee time and attendance.

What Is Time Card Fraud?

Time card fraud occurs when employees manipulate timesheets or timekeeping systems to get paid for hours they did not work. From buddy punching to inflating work hours, these deceptive tactics lead to significant financial losses for businesses, breed a culture of mistrust, and inflate payroll costs.

Why Does Timesheet Fraud Matter?

Timesheet discrepancies are more than a minor inconvenience Every inaccurate minute on a timesheet, PTO hour not tracked, or time claimed but not worked represents increased labor costs that, if left unaddressed, could escalate, leading to bigger issues.

Financial Implications

Consider a company with 1,000 hourly employees, each overreporting just 15 minutes daily and making $18 per hour. While that might seem like a small margin of error, those seemingly harmless minutes translate into $135,000 monthly or hundreds of thousands in overpaid wages per year.

Legal Risks

Then, there are the potential legal repercussions. In many locations, inaccurate time records can put you at odds with labor laws like the Fair Labor Standards Act (FLSA). This could result in penalties and legal disputes that further strain your resources. In fiscal year 2023, the U.S. Department of Labor’s Wage and Hour Division recovered more than $274 million in back wages and damages for over 163,000 workers nationwide.

These recoveries addressed violations such as unpaid minimum wages, overtime, and other labor law infringements.

Unmasking the Most Common Forms of Time Card Fraud

Time card fraud often occurs in various ways. Let’s dive deeper into the common tactics used and what makes them so concerning:

1. Buddy Punching: A Collaborative Deception

The most widespread form of time clock fraud, buddy punching, involves one employee clocking in or out for a colleague who is absent or running late. This seemingly harmless favor contributes to inaccurate time records and lost time when paying employees who are not working.

2. Inflating Hours: Exaggerating Time Worked

This involves an employee rounding up their hours worked, such as clocking in early or late. They might claim an eight-hour workday when they only worked seven and a half. Falsifying timesheets like this is considered time theft. In some cases, these inflated hours can also result in unearned overtime pay.

3. Leave Liability: Cost Inflation

Leave liability refers to the financial obligation a company incurs for employees’ accrued but unused paid time off (PTO). When employees do not claim their PTO, the company’s leave liability increases, as these unused hours must be accounted for as a future expense. This can inflate costs on the balance sheet, tying up funds that could otherwise be allocated to growth or operational needs while risking employee burnout from not taking time off.

Effective Strategies to Prevent Time Card Fraud

Now that you’re well-versed in the types of time card fraud and the repercussions of inaccurate timekeeping, we can move on to the solutions. Fortunately, you don’t need an army of auditors to stay ahead of time card discrepancies.

A proactive approach that combines clearly defined policies with the right tools will make all the difference in building a culture of accountability and accurate timekeeping.

1. Establish Clear Policies

The first line of defense in preventing time card fraud lies in creating a clear time theft policy. These time and attendance policies outline acceptable practices, consequences for violations, and methods for reporting suspicions.

Let your team know exactly what constitutes time theft and what disciplinary actions will be taken if these policies are disregarded. Document your policies thoroughly and ensure every employee has reviewed and understood them.

Clearly stating expectations and consequences sends a powerful message. It creates an environment where transparency is valued, and dishonesty is quickly identified and addressed.

2. Fully Automate Time and Attendance

While robust policies lay the groundwork, a modern time and attendance solution like Legion Workforce Management Software is your steadfast ally. Gone are the days of relying solely on paper timesheets or outdated punch clocks that offer ample opportunities for manipulation. Manual processes or interventions to edit timecards introduce errors that can be costly.

Automated Time Tracking Systems

Legion Time and Attendance offers real-time visibility into when employees clock in and out. Intelligent automation (IA) saves managers time with timesheet auto-approvals and schedule-to-clock exception alerts. You can also use it to restrict early/late/unscheduled clock-ins and automatically track non-compliant attendance inputs.

Time and attendance systems help manage time theft by leveraging automation, tracking, and compliance tools to record hours worked accurately. Here are the key ways these systems address time theft:

1. Schedule-Aware Timesheets: Ensure schedule alignment at all times with timesheets and time clocks that are tightly integrated with scheduling.
2. Accurate Time Tracking: Automated clock-ins/outs reduce manual errors and prevent employees from inflating hours worked.
3. Geofencing and GPS Tracking: Mobile-enabled time systems can restrict clock-ins/outs to specific locations, ensuring employees are physically present.
4. Real-Time Monitoring: Managers receive alerts or dashboards showing who is clocked in, enabling quick identification of irregularities.
5. Policy Enforcement: Time and attendance solutions automatically enforce company rules around breaks, overtime, and early/late arrivals, reducing unauthorized work hours.
6. Audit Trails: Systems maintain detailed records of time entries and edits, making identifying and addressing discrepancies easier.
7. Timecard Attestation: allow employees to view their full shift time and hours at the end of their shift and attest or reject their clocks to help ensure they are correct.

By addressing these key areas, time and attendance systems help improve accountability, reduce unnecessary payroll costs, and maintain trust within the workforce.

3. Promote a Culture of Engagement

By cultivating an environment of engagement, you will naturally minimize the potential for dishonest behavior. Invest time in building relationships, creating a positive workplace culture, and empowering your team with open communication. Improving employee morale can help discourage timesheet fraud.

Communication Software Platforms

Clear lines of communication—that run both ways—create an atmosphere of camaraderie and respect for important policies and procedures. Companies that implement Legion Frontline Communications unlock the power of digital communications dramatically to improve the experience of hourly work.

4. Reward Employees for Accurate Clocks

Employees are more likely to clock in and out accurately if motivated by rewards, such as the ability to instantly access their wages at the end of the shift for auto-approved (or approved) timesheets. Legion InstantPay is a great way to incentivize employees to engage in such clock behaviors. For example, one Legion customer saw clock hygiene and on-time performance improve by almost 70% with the introduction of Legion InstantPay.

Increase Your Oversight With Legion WFM

Time card fraud, a multifaceted challenge impacting businesses of all sizes, presents significant financial and legal ramifications.

Discover how Legion Time and Attendance can help your business eliminate timesheet fraud, ensure compliance, and optimize labor costs, contact us for a demo today.