The ghost workers that haunt the halls of government institutions in Nigeria are frequently in the news.
Just recently, the Accountant General of the Federation announced the Federal Government has saved N274 billion over the past two years by using an integrated personnel and payroll system to exorcise ghost workers and leakages from its payroll.
Yet public sector institutions and large businesses are not the only organisations that are vulnerable to payroll fraud.
Small & Medium Businesses in West Africa are also vulnerable to a range of payroll scams and schemes; they need to take the necessary steps to safeguard their businesses.
Some examples of payroll fraud include:
- Ghost employees – an employee sets up other fake employees and arranges for these ‘ghosts’ to be paid along with everyone else on the payroll. This crime is more common in larger companies where it is easier to add a few ghost employees with real bank accounts.
- Inflated expenses – employees who claim expenses submit requests that are higher than they should from the company.
- Falsified hours or payrates – employees who are paid by the hour overclaim hours worked (especially overtime) so they can be paid more. They may collude with someone in the payroll department to inflate their salary or hourly rate.
In some instances, it can take months to detect payroll fraud, and it is often discovered by accident only after your company has lost a lot of money.
The good news is that the risk of payroll fraud can be mitigated by putting the right processes and systems in place.
Here are five best practices that will not only help you combat payroll fraud, but also increase efficiency and accuracy across your payroll function.
1. Segregation of duties
Enforcing segregation of duties in the payroll department will dramatically reduce your exposure to the risk of payroll fraud.
The person in the business who calculates pay rates and accumulated hours for the payroll should be a different individual to the one who processes the payments.
Different people should have responsibility for capturing payroll data and for managing access to the system, as well as adding and removing employees from the payroll. Then, you can also get someone else to check the payroll each month.
2. Automation of Payroll Processes
An automated system will make it harder for a would-be criminal to get away with payroll fraud.
Such a business solution will also help ensure calculations of wages, salaries and deductions are accurate, make it easier to compile tax submissions, simplify compliance with tax laws, and streamline the recording of employee information and transactional data.
Payroll software gives managers better visibility into transactions, provides an audit trail, and offers a set of controls and checks – all of which make it harder to tamper with personnel records or disguise attempts to defraud the company.
An affordable, cloud-based solution such as Sage Business Cloud Payroll Professional can be rolled out relatively quickly and will enable you to simplify and transform your payroll operations.
3. Mandatory Leave
Any person who has access to sensitive financial records or has responsibility for managing money in the business should be obliged to take annual leave for at least a week or two.
One of the signs that a person in the payroll department is up to no good is that they don’t want to leave their desk for a couple of weeks while they’re on holiday.
The reason for this that a fraudster will fear being discovered as soon as someone starts going through their work.
4. Frequent Audits
A senior manager should look at the payroll each month or at least once a quarter, and check for discrepancies. If he or she is from a different department to the payroll, so much the better.
The more often you audit your payroll, the less likely a potential wrongdoer will try and defraud your business. It also means you’ll be able to pick up fraud when it occurs so that you can curtail your losses.
5. Zero tolerance Policy
Companies are often reluctant to prosecute employees for payroll fraud because it can be time-consuming and there is no certainty of a successful conviction.
Sometimes they also prefer to avoid the bad publicity. Reporting fraudsters to the authorities and working with the system to prosecute them sends a strong warning to anyone who may think the risk of defrauding your business are low.
The Article was by Abiola Adegbite, Senior Sales Director West Africa at Sage