5 ways to help prevent payroll fraud at your business

1. Segregation of duties

Entrusting one person with complete control over any aspect of the payroll process presents a huge risk.

Segregation of duties – having different people perform key payroll duties – is one of the most important payroll security measures you can take against payroll fraud.. For instance, you may entrust different people to handle payroll authorisation, distribution, and reconciliation.

You may also want to ensure senior managers from other relevant departments are involved or have oversight of the payroll process. If you have a large payroll team, it’s also a good idea to rotate tasks amongst your staff at least once per year.

2. Ensure payroll staff take annual leave

If something untoward is going on with your payroll, you’ll be better able to identify it when the perpetrators are on leave. Make sure you stay vigilant for any payroll anomalies that appear during this time.

3. Check for ghost employees

A ghost employee is a person who is on an employer’s payroll, but doesn’t work for the business. Someone in payroll creates a ghost employee and intercepts pay intended for this person.

Make sure you investigate any duplicate names, addresses, dates of birth, tax file numbers or other details found in your Employee Records.

Segregation of payroll duties can help minimise the risk of ghost employees. It’s also critical to ensure new employee records are verified by more than one department.

Automated employee onboarding offered by modern HR systems allow new employees to enter their own details via employee self-service, including their Tax Declaration and Super Forms. These details are then sent electronically to HR for verification, then to Payroll. While providing a robust defence against payroll fraud, automated onboarding also helps save time by eliminating any double-handling of paperwork.

Single Touch Payroll (STP) digital reporting provides another safeguard against ghost employees. Every time an employee is paid and their details are reported through STP, the employee is verified by the ATO.

4. Check terminated employees

It’s important to have an effective employee offboarding process in place to ensure terminated employees no longer receive pay. If an outgoing employee is paid using EFT, it’s important to remove them from this payment method once the termination process has been completed.

In some cases, payroll staff may accidentally pay a terminated employee. To safeguard against accidental or fraudulent payment, it’s a good idea to set up an audit flag in your payroll software that will send a notification when a terminated employee is paid. Ensure this notification is received and the transaction reviewed by someone external to payroll.

5. Track your payroll audit trail

If fraudulent activity is taking place, it’s likely to turn up in your payroll software’s audit trail. Ensure your software stores a log of all changes to payroll details and that you’re checking it regularly.

Some payroll solutions also allow you to set push notifications whenever an employee record is created or updated, or when there’s a variance in an employee’s pay compared to their previous pay.