DPP Business Tax

How To Prevent Payroll Fraud

Payroll fraud is still a massive issue in business. In fact, 2012 report released by the National Fraud Authority, suggested that it cost the public sector in excess of £334 million a year alone.

On top of this 11 per cent of payroll, departments interviewed admitted that they had experience fraudulent activity in the previous twelve months.

With something to widespread, and seemingly so easy to commit, how can you put steps in place to reduce the risk to your business – if not stop it completely?

What Are The Types of Payroll Fraud?

Traditionally, there are three types of payroll fraud: ghost employees, false wage inflation and false expense claims.

1. A ghost employee is someone who has been put on the payroll and falsely paid. This could be a fictional person, a relative of the fraudster, but on most occasions, it’s an ex-employee whose bank details are amended to go into the account of the fraudster’s choice. As well as wages, pensions can also be exploited. When a pensioner dies, for example, the payments are diverted to a new account.

2. False wage claims are quite common and can include exaggerating the hours worked, increasing benefits and increasing pay rates beyond the worker’s entitlement. Other techniques include reducing the person’s tax, inflating sales figures to maximise commission and bonuses and paying normal wages or salary when the person is on sick leave or annual leave.

3. False expenses are the most easily to carry out. Fraudsters can create expenses based on fictitious items or events that never took place. Claims can be duplicated, and the cost of genuine expenses (like fuel) can be inflated.
When it comes to reducing payroll fraud, it’s not down to one set rule. There are many strategies that need to take place. Here are some practical things to put into place:

  • All staff recruitment should come with references from previous employers that are thoroughly checked.
  • Do not entrust staff with data and information that is beyond what they need to perform their role.
  • Finance systems should be reviewed and updated every few months. Over-familiarity with procedure often means that personnel take shortcuts and don’t follow procedure. Have a strong set of rules when it comes to submitting and recording expenses.
  • Password management is vital. Use a software system that protects passwords. Change them often, and don’t make them obvious.
  • Divide your payroll processes across a team of people, to avoid only one person being involved. This stops only one person from controlling and creating a payment on payroll. The same thing should take place with expenses, ensuring that there is a counter signature when signing off expenses.
  • Consider outsourcing payroll to an independent third party. While this doesn’t get rid of payroll fraud risk altogether, it does mean that if it is committed by a third party, that they are liable for covering the cost of that fraud.
  • When it comes to paperwork and files that contain confidential data, make sure that these are well looked after by only a small, trusted party. That might mean separate printers, a closed secure file within the CRM system, regular confidential data destruction etc.
  • Conduct regular but random checks – these act as a strong deterrent to anyone willing to commit payroll fraud.

While these cannot be guaranteed to eradicate all risk of payroll fraud, what they can do is instil a mentality within an organisation that there are tight reins on the finance department and little to no room to commit fraudulent activity.

Contact DBT & Partners Today

If you’ve been accused of committing payroll fraud, contact our team of expert solicitors who will advise you of your next steps in complete confidentiality.

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