Fraud Investigation > Payroll Fraud
Payroll fraud is one of the most common type of fraud committed. Often a fictitious or ghost employee is set up on a salary system with payments following automatically. This is particularly true in the case of electronic payments into bank accounts where no cheque needs to be collected. Other common ways to defraud a payroll system are by not removing leavers (terminations) and then channelling their pay into another bank account, or by submitting excessive overtime, expense or allowance claims.
In most cases payroll frauds are found by accident, perhaps a query by the Revenue authorities or a colleague who notices something suspicious. IDEA can be used on a regular, say monthly, basis to analyse payments looking for unusual items, matching payments to the payroll master file ensuring correct rates, allowances, deductions, etc. are applied and identifying any ghost employees or duplicate payments.
Most payroll files have a master file with cumulative totals and static data that should be accessed. Additionally, the monthly transactions file will be required to conduct a full investigation of payments.
The following are commonly used tests:
- Test for duplicate employees on the entire payroll file (appending or joining payroll files if necessary), using the employees' Social Insurance, Social Security or National Insurance numbers as a unique employee identifier.
- Check for duplicate bank accounts. This test may report family accounts where more than one member of a family is employed by the organisation. However, these can be eliminated from the list of duplicates leaving the fraudulent items.
- Match master information from the payroll file with the organisation's personnel file to determine whether there are "ghost" employees on the payroll.
- Compare the payroll file at two dates (i.e. beginning and end of a month) to determine whether recorded starters and leavers (hires and terminations) are as expected and if any employees have received unusually large salary increases.
- Ensure each employee's salary is between the minimum and maximum for his/her position or grade. The reasonableness of allowances to position or grade should also be tested.
- Excessive overtime and allowance claims should be investigated to ensure there has been no over-claim.
- Holidays and sick leave taken can be compared to the limits for a particular grade or position and if there is a high rate of absenteeism for sickness this could be analysed by department to identify problem areas.
- The reasonableness of tax codes can be evaluated and changes in tax code compared over a period.