Quick Tips for Preventing Time Fraud

Written on 12/06/2024
Nexia SAB&T

Fraud: it’s a word that strikes fear into every business owner’s heart and something any good leader takes steps to avoid. By hiring an accountant, you have already gone a long way toward ensuring no one will be able to slip finances out of your company illegally, but did you know there is another, more insidious kind of fraud that’s just as dangerous? Time fraud.

Time fraud is exactly as it sounds, the theft of company time, and, unchecked, it can close your business, destroy client relations and ruin company morale. Here are our five tips for ensuring it never happens.

“Fraud and deceit are anxious for your money. Be informed and prudent” (John Andreas Widtsoe, scientist, author and religious leader)

While accountants have become adept at spotting and preventing financial fraud simply by analysing a company’s books, there is another kind of fraud that needs alert leadership, record keeping and careful analysis to completely snuff out. Time fraud sounds like a concept from a sci-fi movie, but in reality, it’s actually quite a simple concept. Like with those who commit regular fraud, a time fraudster is purposefully stealing from the company, but what they are stealing is a much less tangible asset – time.

Time fraud is any kind of employee behaviour that knowingly steals time from a company. It could be as minor as taking an extra smoke break, or purposefully arriving late, but can also involve using extended company time for side projects, and even illegally clocking in for shifts that weren’t worked. 

The 10-10-80 rule of business fraud says that 10% of employees will never cheat a company, 80% will cheat a company under the right circumstances and 10% are always actively looking for ways to cheat the company. This means that if it is unchecked time fraud can become a companywide problem that chokes profitability, irritates customers and destroys team morale. Here are our tips for making sure it doesn’t destroy your company.          

Spotting time fraud

  1. Recognising the red flags         

Detecting time fraud is about watching patterns. An employee who comes in late occasionally is not a fraudster, one who comes in late every day just might be. Catching a time fraudster therefore requires you to pay close attention to the employee’s behaviour. Sometimes honest employees can be guilty of one or more of these things, dependent on their skill level or job requirements, but if they are adding up, you are likely looking at a thief.

Is the employee regularly claiming they worked long hours, but getting very little done? Do they frequently miss deadlines? Are there inconsistencies in their time tracking or billable hours records? What are the employee’s colleagues saying about their efforts?

  1. The fraud triangle 

Fraud criminologist Donald R. Cressey has developed what he calls the Fraud triangle, a tool businesses can use to determine which employees are most likely to commit any kind of fraud, including time theft.

As the name suggests, the fraud triangle asks managers to pay particular attention to employees who exhibit any of these three components:

  • Motivation: People with motivation to commit time fraud are more likely to do it. Motivation covers a wide range of incentives from the receptionist with a new boyfriend she loves chatting to on the phone, to the ambitious go-getter who is trying to start their own side-hustle.  
  • Opportunity: Opportunity is much more common now when so many people work from home. Employees who would be able to indulge in time fraud without comment are much more likely to infringe.
  • Rationalisation: Again, employees who are able to rationalise their time theft are much more likely to do it. For example, if they believe the 30minutes they leave early each day isn’t missed by the company.


How to prevent time fraud

  1. Communicate concerns 

Because of the 10-10-80 rule and the fraud triangle, preventing 80% of time fraud generally revolves around simply removing people’s opportunity to commit time fraud and their ability to rationalise it. Write up clear policies and procedures on time fraud and ensure that these are shared regularly with the team to show it does matter to you and that you are on top of it.

Your communications should also show the downsides to time fraud such as overtime for teams to meet deadlines, bad relationships with clients and declining profitability which could lead to layoffs. Stripped of their ability to rationalise their theft, 80% of people will stop engaging in any time fraud and others will be incentivised to report colleagues who do still engage.

  1. Monitor your employees

Monitoring employees sounds very 1984, but it does not have to be onerous and does not require micromanagement. It can be as simple as installing cameras at the entrance of the building or asking your managers to make a simple note each time an employee is absent, late or misses a deadline.

It is important to keep a record of these things so that if it is ever necessary to meet up with an errant employee there is some kind of record of their wrongdoing to show them they are being watched.

  1. Audits and analysis        

When an employee becomes suspicious you may have to take things to the next level and begin auditing their time. Check what time they logged in, when they had their meetings and whether they were using their company laptops for something other than their work, by looking at their internet search history. Provided your employees bill by the hour, your accountant will be able to create resources that compare the fraudster with their colleagues to accurately gauge how much time is going missing.

Those who fail audits should be invited to time management training and be advised that if their behaviour does not correct itself, there may be consequences.

At the end of the day, those who are determined to scam the system will find ways to do it. For these employees nothing short of hearings with the threat of eventual dismissal will likely work to prevent their behaviour. If, however, you simply implement the rules above, the 10-10-80 rule suggests that 80% of all time fraud should vanish, leading to a much more productive, happy and profitable company.       

NOTE FOR ACCOUNTANTS: More on the 10-10-80 rule can be found here.

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