How to Mitigate Payroll Fraud
PeopleKnow Your Payroll Officer and Team When employing payroll staff, there are several essential steps to take:
• Verify past employment history directly with the former employer(s)
• Sight original qualification documents or contact institutions that issued the qualifications
• Use social networking sites to gain further confirmation of your future employee’s background
Red Flags Ongoing, you should be vigilant on commonly known and accepted employee Red Flags (being an indication that there may be an issue for further consideration). Make this routine within your internal control framework.
Red Flags may include:
• Regularly working outside of business hours or rarely taking leave
• Known spending or living beyond the employee’s means.
ProcessSeparation of Duties
The person who prepares the payroll should not authorise it or create/enable the payroll payments, thereby reducing the risk of fraud and the possibility of collusion. Where the scale of operations does not allow for proper separation of duties, it is advised that you engage independent resources to conduct a frequent review of payroll transactions.
Errors of Omission and Commission
Regularly performed and properly prepared accounting reconciliations of payroll to general ledger should be conducted by a person not engaged in payroll preparation. Reconciliation should consider what should be there as well as what is there to ensure that valid external references are used. This approach should make payroll fraud concealment more difficult.
Security access to the payroll system
The system administrator should control the user access levels to system data relevant to the organisational roles and responsibilities.
Payroll system audit file
Timesheet and other critical data should be flagged to report any changes in a system audit file. Audits should include what was changed by who and when.
System reports and warnings
Your payroll software should have key payroll reports available for authorising agent. These reports include Payrun details report, pay run variation report, pay run audit report, headcount report, master file details report. Warnings should be set for exceeding set maximum limits.
Employee's times should be accurately recorded using either a physical time terminal or a mobile application.
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