Collaboration to Find Payroll Fraud

This past Friday an interesting thing happened to me, and I am excited to share it with you because it relates to my last two blogs. A manager in HORNE’s healthcare practice asked for a few minutes of my time to discuss an upcoming project. She was planning an internal audit involving a client’s payroll department and wanted to discuss some fraud risks that should be considered and tests that may help uncover potential fraud.

Of course, I responded with a resounding, “Heck Yeah!” 

In our meeting she provided me with a little background about the company as well as the scope and goals for the project. I asked a few questions and we collaborated on the project. We discussed the type, quantity and format of data that would be available.

The following are a few fraud risk areas that we discussed and possible ways to test for them:

• Potential ghost employee. A ghost employee can be identified if an employee receives multiple payments on the same payroll run or there is personal information shared among employees. With data analytics software, it is easy to perform a duplicate check for bank routing information related to payments processed or any other personal information data fields (e.g., address, phone number, emergency contact).
• Employee receiving funds from terminated employees. It is possible for a supervisor or payroll employee to push the termination date further into the future to steal funds from the company. A test can be performed related to terminated employees to compare exit interview dates (or the dates on other termination-type forms) to the termination dates in the system. The dates should be close if not the same. If the dates on the form are greater than a few days prior to the termination date in the system, then you should begin to evaluate any payments processed after the dates on the forms.
• Employee changing the payroll file sent to the bank for processing. You may remember late last year when I wrote a blog about payroll fraud - 5 Questions You Should Ask Payroll. The blog covered various questions to ask the person or people who send the actual electronic file to the bank. There are a lot of risks in this area with the biggest one relating to an employee changing information that was processed through the payroll system. A good test would be to re-perform a prior period payroll by downloading the exact information that was approved in the payroll system and electronically comparing it to the actual information processed by the bank. It must be done in detail, which isn’t a significant task if completed electronically. The key pieces of data relate to employee, account, and amount. Any variances should be researched because the detailed data should match exactly.

Of course, the majority of these procedures require the appropriate data. Another caution relates to the ability to rely on the completeness of data. If possible, you should obtain the data from someone outside the payroll process to ensure the data hasn’t been changed.

I wanted to take a moment, as I write this post, to reflect on the current events in my hometown, Baton Rouge, LA. For those who know me, you know that I love Louisiana and Baton Rouge. I have lived here all of my life. I hope all remains peaceful in Baton Rouge and across our great nation. Please pray for Baton Rouge and all involved in these events. #BRProud

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