Despite it being impossible to accurately quantify, payroll fraud is more common than you might think. This is because payroll fraud is often not reported in the media and is managed by internal HR processes. Even when cases are made, they often remain unprosecuted due to the minimal chance of recovering funds.
Payroll fraud is defined as the theft of cash from a business via the payroll processing system. If you are a concerned business owner who suspects that something is amiss with your payroll system, look into the seven most common areas that give rise to suspected fraudulent payroll activity.
1. Payroll audit trail
Make sure you are auditing critical fields in your payroll system, even if you have a robust audit trail.
A payroll audit trail will often point directly to fraudulent activity and highlight the areas that need to be investigated.
The activity you are looking for could be varied, which is why it is important to have someone in your payroll department who understands the process.
2. Regular masterfile changes
When there are regular changes to an employee’s bank details or leave balances there might be a need for further investigation. There could be simple explanations for these changes, however, this is a very common red flag in payroll fraud.
3. Duplications of data and ghost employees
There have been cases of twins that share a bank account and live at home with their parents being on the same payroll. However, this very rare!
If you identify duplicate names, addresses, dates of birth, tax file numbers or other masterfile details, you must look into this issue further to eliminate the risk of ghost employees.
4. Out of hours access
Most fraudulent activity occurs outside of normal office hours, and even through remote access to the payroll system. If people at your organisation are regularly accessing the payroll system outside of business hours, then you might have to investigate the need for this access.
5. Loose security
It’s crucial to ensure only the individuals involved in the business of paying people have access to the payroll system.
Any other personnel, including senior management, should have restricted or ‘read-only’ access.
Not only does this reduce the possibility of payroll fraud, but it also protects those with read-only access from suspicion.
6. Sharing logins or using obsolete logins
Sharing logins or passwords is an absolute no-no and concerns should be raised about anyone found doing this.
If you have a genuine reason to access the payroll system, then you need to have your own login and password.
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When there is a turnover of payroll staff, it is vital you ensure old logins are deleted so a third-party cannot use them.
7. High percentage of casual employees
Casual workers are not necessarily always to blame, however, payroll fraud is more often committed when there is a casual workforce.
If your company has a high percentage of casual employees, then you must pay careful attention to the payroll processes, to minimise or eliminate the opportunity for payroll fraud.
Hiring external payroll professionals can help organisations implement and manage a secure payroll system to mitigate the risks associated with payroll fraud.