Payroll Fraud Costing Firms£12 Billion Each Year

Payroll Fraud

Payroll Fraud Costing Firms £12 Billion Each Year

 17 Mar 2017

In simple words, payroll fraud is defined as employees cheating the payroll system at their place of employment in order to receive funds that they are not entitled to.

The statistics state that private sector businesses are losing £144bn to fraud in which payroll fraud costs up to £12 billion each year in the UK. The figures come from The Annual Fraud Indicator 2016, with research conducted by the UK Fraud Costs Measurement Committee with Experian, PKF Littlejohn and the University of Portsmouth’s Centre for Counter Fraud Studies.

As the CIPD reports, the types of fraud vary outrageously. Sometimes it is in the ‘low level’ form of an employee adding a few minutes to a time sheet, or claiming a few extra miles on an expense claim. And sometimes the frauds are large scale and ambitious. This report identifies long-standing wrong bank transfers and payments to employees who don’t exist as typical acts of higher value fraud.

There are a number of ways by which payroll fraud can be committed as well as there are ways to prevent and detect it. As an employer, you must be diligent so that you can prevent the occurrence of payroll fraud.

At Payroll.co.uk we assist businesses by providing comprehensive payroll services that will ensure that there are no chances of payroll forgery. Here are some insights on payroll fraud that you should know in order to be on the safer side.

How Is Payroll Fraud Committed?

For employees who receive a salary, the most common form of payroll fraud involves falsely boosting the amount they should receive or adding a non-existing employee to the list and collecting these wages.

For workers who are paid hourly rather than on a salary, payroll fraud methods can include changing the number of hours worked, signing in and out of work at incorrect times or claiming to have worked shifts when they were not actually at work.

Commission workers or employees who work in manufacturing plants and are paid by how many units they produce can also commit payroll fraud. This is done by falsifying records such as how many sales they have made or units they have produced.

The final common form of payroll fraud occurs through forged claims for expenses. This can range from a meal with friends or family being claimed as being part of business with a client, to taking trips away falsely labelled as meetings or business trips.

How to Detect Payroll Fraud?

Clearly, while payroll fraud is not common, there are plenty of examples where it has happened and it can cost employers a significant amount of money and potentially lose business. A study in 2011  found that businesses in the UK lose around £38 billion a year due to payroll fraud. Five per cent of all expenses claims were found to be false, accumulating to a total of over £150 million. However, this figure just covers what is detected, so the actual figure is likely to be considerably higher than this.

Due to the high financial cost of payroll fraud and the serious nature of such offences, a number of methods have been developed to help to detect payroll fraud and provide evidence if it is suspected. Some of the key signs that payroll fraud is taking place in your organisation are as follows:

•    Signs of an employee living a highly expensive lifestyle for their earnings

•    Multiple employees who are not family members sharing same address or bank account

•    Payroll audits

•    Having a member of staff unfamiliar with the payroll system check records

•    Irregularities in payroll records

Identifying the problem

Before employees can deal with issues with fraud, first they need to be aware of them.

Payroll.co.uk recommends two key measures every business should put in place:

  • Audit the payroll- Regular checks on employees and systems can not only identify errors and fraudulent activity but the knowledge that regular checks are carried out can even help in preventing fraud occurring in the first place.
  • Due diligence-The responsibility is on HR departments to ensure that the checks are completed that should take place before employing a new member of staff. Reference checks should include asking whether a prospective employee has any history of fraudulent activities.

Preventing Payroll Fraud

While it is crucial to detect if fraudulent activities are taking place at a company, it is equally essential to do everything possible to ensure that it does not happen in the very first place. Apart from frequent checks of the payroll records, this can also be done by making sure employees are aware of the full consequences surrounding payroll fraud. The punishments for payroll fraud can go far beyond a work disciplinary or have to repay the money, with significant jail sentences frequently being handed out for offenders.

Getting an outside body such as Payroll.co.uk or a member of staff from outside the team to check records often increases the likelihood of wrongdoing being discovered. Not every case of an employee being overpaid has to be necessarily fraudulent, mistakes can be made and frequent checks of the system can also help to quickly rectify these errors, without any significant financial loss to the company or the employee involved.

The legal experts who specialise in fraud believe that payroll fraud is committed as it is seen as a ‘victimless crime’ and that such actions are commonplace anyway. Ensuring employees know that their actions are damaging and will result in significant sanctions is a good way to prevent this behaviour, and may encourage anyone who has been committing undetected payroll fraud to abstain from their actions.

By hiring, payroll experts from Payroll.co.uk businesses can ensure they have trustworthy and reliable staff that can pick up on any suspicious activity from the employees.

Ways to Detect & Prevent Payroll Fraud

Failure to safeguard your business from payroll frauds can be a serious threat and in many cases, it leads to account complications and employers losing hold of their business and employees. The best way to prevent payroll fraud is to have a safe and secure system. A few ways to have such a system are explained in detail below. One way to safeguard your business against a payroll fraud is to use a trusted payroll provider.

Detection and Prevention of Payroll Fraud

  • Checking Information

When employees’ details change, they switch their role within the organisation or quit working at the company; the payroll data should be updated. This task is usually accomplished at the department level with the concerned manager providing an approval for the proposed payroll. This way the department heads are updated with the changes in the organisation at their level.

Payroll experts at Payroll.co.uk can put procedures in place to ensure regular checking.

  • Monitor Payments

It could be the case that payroll fraud could occur within the department itself, with people paying out to names that are not registered as working at your company and more. Early detection is the best way to avoid costly losses to your company. Regular auditing through an external company is one way to look out for errors and making sure that payments are all in order.

  • Go External

Seeking assistance from a payroll agency doesn’t necessarily mean just outsourcing your payroll activities. In fact, many agencies offer support and bureau services along with it which mean they can do things like approve payroll, check for irregularities and other services which could provide a helpful way to pick up on anything which may appear fraudulent.

Payroll.co.uk is a trusted agency and is recognised by the HMRC. By using our services to process your payroll, you can eliminate in-house fraud caused by employees and feel secure in knowing that your payments are being handled appropriately. There are also a number of other benefits to hiring payroll agencies that could help save your business money.

There are a number of ways in which your business can tackle payroll fraud. From driver remote tracking to time and attendance systems, it all can create the certainty and assurance that were previously unavailable to businesses. Outsourcing payroll presents an immediate fraud protection measure to any employer. By placing payroll with a third party, the opportunities that may present themselves to fraudsters by retaining every operation in-house are removed.

At the very least, businesses should avoid assuming that fraud ‘isn’t happening here’. The first step to tackling fraudsters is to accept the potential for fraud in every workplace and to take the simple measures including reviewing permissions, checking references, and auditing payroll to assess whether your business has an issue.