'If you have paper timesheets or paper leave forms, that should be your number one priority to get rid of them', executive says
One of the most important things to do when it comes to preventing payroll fraud is to be proactive, says Tracy Angwin, executive director at the Australian Payroll Association.
“There are multiple ways to defraud a payroll,” Angwin told HRD Australia.
“A payroll fraudster [has] knowledge of the payroll process. As an employer, if you don't have a really sound knowledge of your process and make sure that the appropriate governance and controls are in place, it’s like leaving the till open.”
So what can employers do to ensure they protect their organisation from payroll fraud?
Preventing payroll fraud
Angwin provided key tips for HR teams to prevent the instances of payroll fraud. The first step is for them to pay attention to payroll systems and processes.
“Mostly when payroll systems or payroll processes are set up, they’re set up for the appointed time and then they’re never ever considered again,” she said. “And the problem with that is that legislation, technology and the actual processes just change over time. So we get this situation, I call it a ‘set and neglect’ mentality around payroll – that employers think they can set it up once and never look at it again.”
Angwin also suggested having an independent view on your payroll process by someone who fully understands the complexity of payroll.
“You've got multiple inputs, you've got multiple outputs, you've got a whole heap of calculations that happens in the payroll,” she said. “So it actually needs to be looked at with an independent view but that person, or those people, that review your payroll process need to have specialised payroll process experience. And that will include knowledge of how payroll fraud happens.”
Further steps to reduce payroll fraud
In addition, Angwin shared further steps to protect against payroll fraud.
Encourage payroll staff to take annual leave: This is to ensure you can verify their payroll procedures. Angwin used an example the banking sector, which she said has best practice procedures around financial governance.
“They have a policy in general that certain employees, when they take annual leave, they have to have a minimum term,” she said. “It could be two weeks, for example. And then they can see if there are any changes in money movement over time.”
The due diligence process: This is about having a strong understanding of your payroll process.
“Having a deep understanding of the process, testing that the process works and having an annual independent audit from a payroll specialist - not just a big four auditor - around the governance and controls into payroll,” Angwin said.
Getting rid of paper: Angwin advised against paper payroll processes.
“If you have paper timesheets or paper leave forms, that should be your number one priority to get rid of them,” she said. “Not only is it incredibly inefficient, you'll leave yourself wide open to both fraud and compliance risk.”
Angwin added that while some may argue that technology “fixes everything”, payroll is still run by people.
“You can automate parts of the payroll, absolutely,” she said. “But there's about 20% of it where a human has to make a decision and that human has to know what they're talking about. They have to be well trained and well supported. Most payroll errors that we see are because a human has made an incorrect decision about something.”
Provide more training: This is to ensure employees are up to date on changes across payroll, whether it relates to awards, tax or superannuation.
“If your people are not kept up to date, of course you're going to be at risk,” Angwin said.
