Prevent Payroll Fraud
Payroll Fraud – The Enemy Within
The UK’s Fraud Prevention Service, CIFAS, has published its report “Employee Fraud- The Enemy Within” showing in a survey of 127 organisations all but two had experienced employee fraud. Payroll fraud is a hidden crime, which often goes undetected.
What motivates people to commit payroll fraud?
We have experienced one of the worst recessions on record this century, making fraud all the more tempting for those struggling to pay the bills. PFK Accountants and the University of Portsmouth recently conducted research into this area and they found fraud rates have increased by a third during the recession. While the majority of people have no inclination to get involved in high-level fraud, there is one type of fraud that is easy to fall into and which many people will take part in guilt free – payroll fraud.
What types of payroll fraud are there?
There are three types of payroll fraud that companies may be victim to:
- Ghost employee frauds
- False wage claim frauds
- False expense reimbursement frauds
The first two frauds attack the payment system, the third attacks the expense reimbursement system.
Ghost employee frauds
A ghost employee is someone recorded on the payroll system, that does not work for the business. The ghost can be a real person that is placed into the system or a fictitious person invented by the fraudster.
False wage claims
False wage claim fraud is falsely adding extra hours or other relevant factors to wage information to increase remuneration. This fraud is done simply by altering time sheets sent for processing, the time recording system directly, or by any other factor like overtime payments and sales commission.
False expense reimbursements
False expense reimbursement fraud is the making of improper claims for the reimbursement of business expenses. There are four major types of this fraud:
- Mischaracterised expenses
- Inflated expenses
- False expenses
- Multiple claims
10 Tips to Help Combat Payroll Fraud
Recruitment Combating fraud commences at the recruitment stage. Ask for thoroughly checked references from previous employers.
Limited access Make sure employees can only access what they need to perform their role.
Undertake regular reviews of your controls Familiarity with the processes often means that staff members shortcut or fail to follow the correct procedures.
Password management You have a password to protect your systems from unauthorised access. So use it, change it often and don’t make it obvious. Implement a password policy for all employees.
Segregation of duties Split your payroll processes to involve more than one person, ensuring that one person alone does not control, create and pay the company payroll.
Outsource your payroll By outsourcing your payroll you are automatically introducing a third party into your payroll process and lowering the chances that a payroll fraud would go undetected.
Lock it up Keep your physical payroll files under lock and key. Anything printed needs to be either stored securely or destroyed with a shredder.
Keep sensitive information sensitive Allow your payroll people separate printers to avoid the chance of pay information being accidentally left on a general printer.
Conduct random checks If staff member do not know that a check is about to take place, they are unable to correct details prior to an audit
Hot review Most importantly make sure you review your payroll before it is paid
Payment – ask employees to sign for their payment in cash
Deductions– check employees with no tax or NI
Duplications – check for duplicate names, addresses, NI numbers and bank accounts
Employee reference numbers – make sure they are not re-used
Physical headcounts – ask manager to physically approve their employee records
HR database – if you have one cross check employee records
Budget variations – Query why any variances are happening
Absences – check for unusual activity on absences
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