Research reveals that payroll fraud costs businesses more than cash-in-transit heists.
According to research conducted by Alexander Forbes, dishonest administrators siphon millions from companies’ salaries through various tactics.
“There are a lot of tricks that people use to commit payroll fraud,” says Yolande Schoültz, a payroll fraud specialist and founder of YSchoültz Attorneys & Conveyancers & Notaries.
She shares different tactics used to commit payroll fraud: “Everyone knows about ghost employees, being employees who don’t exist, but you still pay them. A different tactic is with employees who don’t get paid every month, so someone changes the banking details to take a salary in the off month and then changes the details back. Changing bank details is very common – I often caught people who would sneak such changes in at the last minute because nobody checks. Other examples include weird overtime patterns or re-enrolling previous employees. If there is a gap, people will take it,” says Yolande.
Why does payroll fraud thrive?
According to Yolande, it takes 18 months to notice payroll fraud – and often by accident. The Alexander Forbes research shows that companies with single payroll administrators are most likely to experience such fraud.
Yolande notes there is often even a pattern to this: “I don’t want to make you suspicious of hard-working employees. But we regularly found that a single payroll administrator who always arrives very early and leaves very late might be hiding something. One person in charge of all of the payroll is bad practice. We place a lot of trust in payroll administrators, but that’s not good policy, and it actually just means others are ignoring their responsibilities,” explains Yolande.
She points out that there is an ongoing debate about whether payroll is an HR or finance function. She says that very often, it is seen as part of HR because it involves employees.
“But payroll is literally about paying employees – frequently the largest single financial cost to a company – and that is a finance responsibility. Payroll belongs to both HR and finance. The finance director owns payroll because it’s a big financial cost. But proper payroll requires HR and finance to work together. If there isn’t collaboration, there will be undetected fraud.”
She says lacking access controls and segregation of roles are other significant catalysts for fraud. “If one person can access all of the payroll system, they can manipulate the system. And since payroll systems are complicated and layered with data and compliance, we often delegate it to the experts.”
Stopping payroll fraud
According to Yolande, using modern cloud payroll software platforms such as PaySpace is guaranteed to reduce payroll fraud. “If you do minor checks each month, you will pick up payroll fraud. For example, print a report that shows you changes in banking details. For each change to the banking details, you must have a supporting document.,” Yolande says.
Collaboration between HR and finance, Yolande says, will also quickly flag strange payroll activities. “The biggest issue in payroll fraud is that you don’t know what you don’t know. Finance and HR must work together. It’s so easy to load a ghost employee, especially if you’re in a very big company. But if each month, for example, you generate a report that gives you new employees, terminations, and reinstated employees, and both departments sit together when they check this, if there’s something funny, you will pick it up.”
Focus on the small things
“Modern payroll systems give you the tools,” says Yolande. “They give you access control that can be defined. They give you reports that you can use for monthly checking. But most importantly, they make it much easier for the right people to do these things. Payroll fraud happens because of small changes. And it’s small changes that make a big difference to detect that fraud.”
