The recent alleged tax fraud of $165 million carried out by Sydney-based payroll outsourcing firm Plutus Payroll has brought the payroll industry into sharp focus this past couple of weeks. The enormity of this case makes it unlike anything we’ve seen before. Details may emerge over time of how the complex scheme worked, but it’s important to note that although this case dwarfs all those before it, payroll fraud might not be as uncommon as you think.
Payroll fraud can be carried out in a multitude of ways, and by either staff in the payroll office, or employees manipulating the system. Firstly, let’s take a look at how unscrupulous payroll employees might defraud the system and warning signs that might give the game away.
The Pay Office…
In this instance a member of the payroll staff creates additional members of staff and siphons their pay into their own accounts. The ‘ghost’ doesn’t have to necessarily be a fake member of staff, but instead ‘ghosts’ are often created through the misuse of a casual workforce. This is achieved by paying staff who might not work often but changing their details in the process. If you suspect you have ghosts living in your payroll it is a good start to run checks on duplicate tax file numbers, bank account numbers, dates of birth and addresses. It’s particularly worth analysing if details are often changed before or after the pay run.
Fraudulent Payments & Inflation of Own Salary
Until Plutus Payroll allegedly defrauded the ATO, the biggest payroll fraud scandal occurred in 2009 when Sonya Causer stole almost $20 million from Clive Peeters. Being a senior member of the finance team she was listed as a signatory on the accounts, therefore meaning she was authorised to make payments on behalf of Clive Peeters. After payments were approved she would alter the details to one of her 8 bank accounts. According to court reports there were 125 payments in total, ranging from $69,941 to $572,000, often in multiple transactions over a two year period.
She was eventually caught out by another accountant in the firm who noticed a $2 million deficit between ledgers, although this amount became a much larger discrepancy after further investigation!
The major warning sign to look out for here would be the perpetrator living far beyond their means. Ms Causer’s salary was $125,000 per annum, however she bought 44 properties in and around Melbourne and several brand new cars – a touch extravagant for someone on that level of salary…
While someone living a lavish lifestyle can not be a reason alone to suspect fraud, it’s worth bearing in mind. It is always worth monitoring leave patterns and any associated changes in financials during periods of leave, or whether or not employees in positions of financial power take their allocated leave. Also, monitor times that the payroll system is accessed and keep note of odd times and out of hours access, as these can be warning signs too.
And the rest…
So, now that we’ve covered staff in the payroll office, let us take look into the types of fraudulent activity that employees from anywhere in your organization can try and get away with.
This occurs when an employee overstates the number of hours they have worked and expect to take payment for. This isn’t always just putting an extra hour down on the time sheet, but it could be overextending breaks, taking excessive personal breaks, or internet theft, whereby people waste their time at work on the internet not doing work.
Fairly self-explanatory. Claiming non-work related items on expense bills or inflating prices of work expenses.
This one is a bit more complex. It happens when an employee has their leave approved by their manager but then does not lodge the leave with the pay office, thereby creating a situation where their manager is not expecting them at work however the leave does not get deducted from their leave allowance.
So, how do we go about protecting ourselves from this happening?
The most critical thing to get right here is implementing good processes and ensuring all managers are on the ball. An employee self service system can greatly reduce leave theft in particular. Running a payroll compliance audit is also recommended, and pay specific attention to employees with unusually high overtime payments which may indicate time theft.
A final step you can take toward stamping out payroll fraud is to bring on a third party (like Payroll HQ) to look after your payroll function. If you only have one person in the payroll office, engaging an outsourced payroll provider negates that person having sole control of your payroll function, giving you peace of mind.
If you do use a payroll outsourcing company it is important to never send wages directly to them. Instead, use a Transaction Negotiation Authority, or TNA, whereby an agreement is in place between you and your bank allowing the payroll company to make transactions on your behalf following your authorisation.
Want more protection?
Download your free ebook In Safe Hands, co-written by Andre Atton, General Manager at Payroll HQ and industry expert and CEO of the Australian Payroll Association, Tracy Angwin. Tracy regularly speaks at length about payroll fraud, and by working together with Andre, In Safe Hands provides a blueprint for transitioning to a managed payroll model, providing best practice guides, as well as insight into strategic benefits.
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