South Africa’s government has put payroll fraud in its crosshairs.
In its latest Budget Review document, the National Treasury prioritises digital payroll systems for state entities, combatting what some outlets have reported as over R4-billion in annual losses through fraudulent payroll payments.
This problem is not limited to the public sector. The Chartered Institute of Payroll Professionals estimates that South African businesses lose around R100-million annually through payroll fraud.
Many of the cases involve manual and paper-based payroll systems that are easy to manipulate.
The adoption of digital payroll platforms can reduce and catch fraud before it becomes a serious issue.
However, going digital is not enough, says Yolande Schoültz, founder of YSchoültz Attorneys and a payroll fraud expert.
“There is no doubt that digital systems are better than paper-based payroll management. But a digital system only makes it much easier to track down and stop fraud. The organisation must still put the right measures in place, such as approval policies and oversight checks.”
Payroll fraud red flags
Perpetrators of payroll fraud commit their crimes in several ways.
A lone individual might skim money unnoticed by creating ghost employees or redirecting payments. They might collude with former employees, leaving the latter’s details on the system and splitting their salary payments.
Whatever the method, the most common aspect of payroll fraud is an administrator operating under little or no oversight, says Schoültz.
“There should be a chain of custody, such as someone signing off on salary calculations and doing spot checks to ensure everything is legitimate.
“But it’s amazing how often, even at large companies, the payroll administrator is working on their own and is the only one with proper access to the payroll system.”
Payroll fraud has several red flags, including:
- Unapproved bank accounts or changes to banking details.
- Changes to employee, account, or reporting information right before or after a payroll run.
- Excessive overtime, since payroll fraudsters often put in disproportionate hours to maintain control.
- Strange login and backup hours, another attempt to maintain control and avoid scrutiny.
- No system locks during payroll runs that would avoid manipulation of records and calculations.
- Manually feeding calculations into other systems.
- Frequent payment errors.
- Payroll software isolated to one device that only the payroll administrator can access.
Individually, some of these warnings can be innocuous. They can be signs of an overworked administrator or lacking workplace strategies.
But the presence of several is reason to be concerned, and some (such as changed banking details) are immediate cause for alarm.
Preventing payroll fraud with technology
Modern payroll platforms help organisations reduce fraud, but only when used correctly and alongside other safeguards.
“There is no magical app that just changes how you operate,” says Sandra Crous, MD of payroll provider Deel Local Payroll. “A nutrition app won’t automatically get you to eat less, and a fitness app won’t suddenly get you to exercise more. You still have to make changes and use the app to reinforce your new behaviours.
“A payroll platform gives a business the tools to oversee and manage payroll through different layers, but the business must use those tools in accordance with its policies.”
Spot checks can quickly reveal issues that require more scrutiny. Payroll platforms support fraud detection and financial diligence in several ways:
- System and bank account changes: The platform provides reports and audit trails, and generates custom reports for authorised employees.
- Isolated access: Modern payroll platforms operate as cloud software, accessible to multiple authorised users and devices.
- Single users: Secure accounts that give different people, such as auditors, finance directors, and HR heads, access to dashboards and reports.
- Manual data entry: Payroll platforms integrate with other systems of record, sharing payroll data automatically and leaving no room for interference.
- Obscure payroll information: Employee self-service (ESS) features enable employees to access payslips and other information directly, helping them spot irregularities.
An organisation must create oversight through clear policies, spot checks, and leadership oversight. The right payroll platform can even help people with limited payroll knowledge uncover strange behaviours.
“You won’t spot payroll fraud if you keep looking for big changes and payments,” says Schoültz. “Most payroll fraudsters siphon money over a long time and across multiple bank accounts, making it harder to detect. That’s much easier with paper-based systems, spreadsheets, and older payroll software.
“But if you can access regular reports and integrate payroll data with other systems, it becomes much harder for people to commit fraud, and much easier for you to catch them if they do.”