In this day and age it is interesting to see our good old friend, the manual timesheet, still being used in many labour intensive businesses. Manual timesheets can be an effective, if inefficient, way to record time as long as there are sufficient controls in place through the various stages of the process. However, if not carefully controlled, there are points in the process where error or fraud may occur.
If your organisation uses manual timesheets to record labour hours that flow through to payroll, you must ensure that there are effective controls in place at the key points in your process. Ultimately, this ensures that your employees are paid accurately for the hours they work. This includes ensuring that the timesheet is authorised by an appropriate approving officer who can verify the accuracy of the hours worked.
One recent example of inadequate controls that we have seen involved contractors who were required to submit completed manual timesheets on a weekly basis. These timesheets were authorised by their Line Manager, who was based in the same office. The Line Manager was the key control point in the process.
A review of independent data from a barrier entry system into the building highlighted that a small number of the contractors were arriving at lunchtime on a Monday and leaving at 2pm on a Friday. Their authorised timesheets showed these particular contractors claiming for full days on these Mondays and Fridays. Further examination showed that this was a regular occurrence, with these contractors regularly overbilling seven hours per week per person. An analysis of the hours overbilled in financial terms equated to around £220,000 over a 12 month period.
The authoriser, acting as management’s control point, did not fulfil his role. He was authorising timesheets without specifically being aware of the hours his team was working. No use was made of the barrier data, which could have been used as a source of primary evidence, being accurate and independent information used to verify against the manual timesheet submissions.
A second example deals with one offshore contractor working for a service company in the oil & gas industry. His monthly timesheets were completed manually, authorised by an offshore line manager and returned to the contractor for submission to his company on his return onshore. The monthly timesheets were then reviewed by the company before being submitted as part of a larger invoice for payment by the Oil & Gas Operator. As part of the invoicing process there should have been a review of timesheets by both the Service Company and Operator.
As part of a Contract audit review of this particular Service Company, timesheets for offshore contractors were reviewed against the offshore personnel system – a definitive record of when personnel begin and end their offshore trips. The Contract Audit showed that this particular offshore contractor had been adjusting his timesheet to add further days. A cross-check to the personnel system showed clearly that he had not been offshore for a number of the days claimed in his monthly timesheets. Cumulatively, over a 12 month period, the overbilling on this one issue amounted to around £100,000. There was no review of the accuracy of timesheets by either the Service Company or Operator as part of the invoicing and approval process.
These examples highlight the importance of ensuring that internal controls are in place and operating effectively. If not, these errors or fraudulent behaviours could be costing your business dear.
For more information contact Mark Dailey, Internal Audit Senior Manager, email@example.com