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Fraud and error in the payroll environment is common.

 

Controls

A strong system of controls, however, is effective and necessary for the protection of the organization and the staff working there.

 

Staff

Recruiting staff with proven levels of moral integrity is essential. Careful examination of police records, referrals and testimonials from school and other institutions may assist in this process.

 

The main fraud opportunities that are exploited by staff include:

- Inclusion of 'Ghost' employees on the payroll, engagement of casual and contract employees is particularly sensitive.

- Exploitation of cash payments. Cash payments are more open to fraud than payments made into bank accounts where the transactions can be more easily traced back to individuals.

- Failure to discharge an employee from a payroll

- Employees paid for work not done.

- Payment of unauthorized amounts of overtime hours, allowances and expense claims

- The inflation or manipulation of overtime hours, allowances and expense claims

- Incorrect entry of medical credits

- False claims for tax credits, this would include the entry of incorrect dates of birth to claim elderly credits

- Non, or under, processing of leave transactions

- Incorrect classification of leave transactions e.g. processing annual leave as sick leave

- Incorrect grades being applied to an employee

- Incorrect rates of pay being applied

- Non processing of shorttime hours

- Unauthorized processing of loan amounts, interest, repayment terms

- Staff engaging and then discharging employees and running more than one payroll, one payroll for the transfer/ payment of staff and the second payroll for management

- Running more than one payroll, one payroll overstated used for the transfer/ payment of staff and the second payroll for management.

 

Error

Generally overpayment goes undetected for longer than underpayments since staff, themselves, are more enthusiastic to point out an error causing an underpayment.

- Incorrect grades being applied

- Incorrect/ unauthorized pay rates being used

- Incorrect/ unauthorized overtime being paid

- Overstatement of Allowances

- Failure to discharge an employee

 

Unauthorized Access

Unauthorized access may result in significant losses to the organization.

It could result in:

- staff lacking confidence in management to protect their interests

- unwanted comparison of salary rates by staff members leading to disgruntlement,

- exposure of sensitive organizational salary expense information may bring damage if brought to the attention of competitors, trade unions or other external bodies. What controls can be instituted to prevent fraud and error? See FAQ topics under the heading 'Controls'