Preventing payroll fraud with your HRMS
Payroll fraud is a real and present danger; the Association of Certified Fraud Examiners estimates that payroll fraud occurs in 27% of businesses. While you cannot completely prevent fraud, there are steps you can take using your HRMS to minimize your risks and catch problems early. Here are some key areas where your HR staff can utilize your HRMS to maximize fraud prevention efforts.
Actively audit ‘hotspots’ of unusual activity
There are some basic, quick wins in payroll fraud prevention that you cannot afford to miss. For example, how many employees in your HRMS share a bank account but not the same home address?
There may be instances where this is a possibility, but it’s also a red flag situation which should be reviewed, particularly if one of those employees works in a function with access to change bank accounts. Frequent bank account changes should be another area of interest. While employees may change bank account at will, if a certain account keeps re-appearing as a destination account across multiple employees over time, it’s time to investigate this further.
Use your HRMS reporting to ensure segregation of duties or cross-checks
A frequent find during HRMS audits is an employee who has the ability to perform multiple major payroll functions such as hiring, paying and terminating an employee without the oversight of another HRMS user. Small companies often have employees who wear multiple hats, but you need to ensure accountability, such as having a second employee review all the new hires to ensure ‘ghost’ employees are not created and paid. These fictitious employees often have the same bank account code as the person who created them, so this is often picked up by the activity audits explained earlier.
Another area of interest is employees who are hired and quickly resign, often after one or two pay periods. While it might be a poor hire choice it can also be a small time fraudster flying below the radar by slipping one or two paychecks to a ‘mystery’ employee.
Monitor working days and hours for outliers
Payroll fraud can happen at any time but it tends to occur outside of the normal 9 to 5 day. A fraudster often performs illicit activities late on a Saturday or early on a workday when fellow employees are less likely to notice. HRMS software usually allows you to set restricted log-in times but it’s also helpful to review your HRMS attendance data, particular for anomalies where colleagues would not be present to notice questionable behavior.
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