YOLANDE SCHOÜLTZ
Payroll fraud is more endemic than many business owners realise, and this problem is not exclusive to small and medium enterprises (SMEs).
The 2016 ACFE Global Fraud Study revealed that 12% of fraud detection in small business came from internal audits whereas, in larger enterprises, this was 18.6%. For SMEs, the detection of fraud is less frequent than in larger organisations; however, it is still a high statistic, and companies need to be aware of the risks.
One of the biggest tips for small business owners is to become suspicious if a member of your payroll department never goes on leave, arrives early and leaves late. This should raise a red flag as this person may be taking steps to ensure that nobody else does their job and cannot discover their crime.
The hardest type of payroll fraud to orchestrate and detect, but also potentially the most lucrative, is the engineering of a ghost employee. The employee that is created is either fictional or could be a real person who doesn’t work for the company he is being paid by.
I recently worked on one of my biggest fraud cases yet, where an HR manager defrauded the company. He orchestrated this by creating ghost employees where he made changes to 11 bank accounts. This went unnoticed by the company for four years, and it cost them R6.8 million. This has had a massive impact on the business.
False wage claims: for employees who want to pad their monthly income, false wage claims are filed. Incidentally, it is also one of the types of payroll fraud where the employees experience less guilt.
They could be adding extra hours to their timesheets for hours not worked, getting colleagues to clock in and out for them or, if they are sales executives, to exaggerate their sales figures to get paid extra commission.
False expense claims: the most prevalent type of payroll fraud is the submission of false expense claims These include personal expenses being submitted as business expenses, expenses submitted for events or purchases that never happened, submitting duplicate claims, and inflating claims.
In addition to the financial loss experienced by the business, this type of fraud has tax implications where a company may be unable to deduct tax, or be liable for penalties, if they don’t have the correct paperwork for the expenses.
One effective way to mitigate the risk of payroll fraud in your business is to assign responsibility for different payroll duties to different people. This gives you a clear audit trail, ensures a clear line of accountability, and puts strong checks and balances in place.
In this sort of environment, someone should quickly pick up if there’s something unexpected happening in the payroll.
A robust payroll solution will reduce the possibility of human error in or tampering with your payroll – reducing opportunities for payroll fraud and enabling you to more easily provide accurate and timely information to Sars.
To identify ghost employees, you need to follow a few steps when you pay a person on your payroll: ensure that the person exists, that he/she is the person you wish to pay, that the bank account you will pay exists and, finally, that the bank account belongs to the person you intend to pay.
A good payroll solution will feature online ID number and bank account verification to enable you to do just that.
When payments made don’t match the budget, this can immediately raise a red flag, an investigation can take place and the fraud can be stopped – before the business suffers more financial harm.
Since payroll is one of the biggest expenses in any business, payroll fraud or errors in capturing your payroll data can be costly.
A reluctance to prosecute someone for payroll fraud will mean that fraudsters get away with moving from company to company to commit the same crimes. This is why it is vital for such cases to be reported to reduce the growing risk.
l Yolande Schoültz is the manager of the risk and fraud management division at Sage HR & Payroll