Managing and preventing payroll fraud

We assume that by automating systems and implementing computerised solutions the risk for fraud and error will be reduced but in reality, it is merely a case of closing one gap while opening up a different loophole.

It is true that automated payroll and HR solutions reduce the risk of incorrect calculations and provide accurate data for reporting purposes. Computerised systems also mean more efficient processes and reduce time spent on tasks of a repetitive nature. Very few payroll administrators still write manual pay cheques on a weekly or monthly basis and prefer to make use of electronic funds transfers to pay their staff wages and salaries. Most payroll software solutions allow you to process the salary transfer directly from your software application and generates a text file you can upload into your banking system for approval of the transfer.

This opens up new avenues for committing payroll fraud. One of the most common occurrences is the so-called “ghost employee”. Persons that have access to payroll systems have the opportunity to create phantom employee records, include their own banking details and then transfer an amount of money from the company’s bank account as a salary payment. This practice can go on for years until the payroll administrator leaves the company or a proper internal audit is completed. In the meantime, the company could be losing thousands of Rands they probably would never recover. The same could be done by editing the text file exported from the payroll system with all the salary information. This method doesn’t leave any evidence behind when auditing the payroll system as the data was manipulated after it was extracted from the payroll database and then uploaded for payment to the banking system.

Risk management solutions like Pastel Connect, recently launched by Sage Pastel Payroll & HR, can help prevent these activities from taking place. One of the additional services available as part of the Pastel Connect product is the secure transfer of salary payments. No text file export and import – salary information is encrypted immediately and uploaded through a secure connection to an online environment where a member of senior management (preferably not the payroll administrator) can log in, check the payment information to make sure no additional ghost payments exist and then authorise payment. This process leaves very little room for data manipulation that will result in fraudulent transactions being processed.

The Pastel Connect product also provides bank account and ID number validation services. This online service confirms that an employee’s ID number is valid and belongs to the specific employee. The same service validates that an employee’s banking details are correct and verifies that the specific employee is the legitimate account holder. By making use of this service, you can prevent payroll administrators from replacing valid employee banking details with their own to process fraudulent payments and at the same time, take away the “payday blues” by ensuring when your salary transfers are processed you won’t be left with rejections from the bank due to invalid or incorrect branch or account numbers.

An additional service you may opt for, is online credit reports. You may want to check the credit ratings of your finance staff to ensure they won’t be tempted to access company funds to settle their own debts. An employee with a positive credit rating might be more trustworthy than an employee with loads of personal debt when it comes to providing access to company financial resources.

Implementing a proper risk management strategy and supporting systems in your payroll and HR departments might require a small investment initially but could save your company from becoming another victim of internal fraud and corruption.



1 Comment

Filed under General, HR, Industry Information, Partner Payroll

One response to “Managing and preventing payroll fraud

  1. Deidre

    It is very true. it differs with the organisation, the payroll administrator process the payroll, it is then checked by the Finance Manager. Bank transfers are then checked and authourised by the CEO and the Finance Director so there is limited or no fraud at all

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