The worldwide increase in fraud and the resulting focus on corporate governance is driving the demand for skilled assistance in areas of risk assessment, fraud prevention, and fraud investigation and review.

Payroll fraud is often difficult to detect and will not only cost you money, but also damage the image and credibility of your company. It’s a risk few companies can ignore, says Christine Witthoft, Forensic Payroll Consultant, Softline VIP.

When a company suspects that payroll fraud has been committed, the first step is to enlist the help of professional forensic consultants to conduct a forensic review.

This review investigates how the apparent fraudulent activity took place, who was involved, and the total monetary value involved. The findings of the review are documented with a detailed description of the steps which were followed in the review process.

The monetary findings are detailed in Excel documents, and these may then be used in legal or internal procedures.

A risk and process assessment usually follows such a review. This process is an evaluation of a company’s payroll and the processes followed in the payroll office. During such an assessment, the following are some of the items covered:
• segregation of duties
• system access
• processes and procedures followed in the payroll office
• aligning of payroll processes and procedures with the complexity of the business

The assessment investigates the resources, software and output of the payroll, and the findings and recommendations are then documented and discussed with the client for implementation by qualified consultants.

Witthoft explains that in a payroll environment, the major fraud threats arise from a lack of processes and segregation of duties, and ineffective checking and reconciliation.

Particular hotspots are the adding on and paying of ghost employees, incorrect payments, duplicate employee records, and the manipulation of leave records. To counteract this, companies must ensure that user access rights support the segregation of duties.

Also, a payroll should be checked on at least two levels. This second-level check should make use of audit trails and system-generated reports to identify the most common risk areas. Training for this level of payroll user is therefore also of utmost importance.

The integration of skills, such as accounting, auditing, legal, and investigative, into a single team is the most effective way to expose and stamp out fraud and corruption. A payroll team with a good knowledge of tax principles, for example, can identify possible fraudulent activity around the manipulation of tax calculations and deductions.

“Knowledge of payroll best practices and procedures is also important as we make recommendations to our clients of how they can effectively manage or lower risks in their payrolls. Payroll skills allow us to make recommendations suited individually to our clients. “The legal skills we acquire through consultants are necessary when our forensics consultants become involved in internal and legal proceedings, allowing us to lay bare the hard facts in the best possible way for such proceedings,” says Witthoft.

Risk management consultations and training are an integral part of preventing commercial crime, she adds. By being involved in reviews, forensic consultants gain the skills necessary to identify possible risk areas and they can also use their payroll knowledge to make expert recommendations to clients about how to utilise their payroll system to best manage and lower risk areas.

If such measures are implemented commercial crime can be prevented or at least detected early.