Payroll fraud tops cash-in-transit heists

South African companies with single payroll administrators are most vulnerable to payroll fraud and costly administration mistakes, costing South African companies more than cash in transit heists.

“Crooked payroll administrators or staff in their client companies create ghost employees, continue paying employees that have long left the business or simply pay themselves fraudulently – and its often years before they’re found out” says Johannes Booysen, head of Alexander Forbes Payroll Services.

Moreover, the cash nature of payroll fraud means that even when detected the chances of retrieving money is limited.

For example, in a recent case a payroll manager was channeling salaries to a private account. By the time the fraud was discovered there wasn’t a cent in the account - and every withdrawal had been made in cash. Since there wasn’t a single item that had been purchased electronically there was no way to prove that any property had been purchased with stolen money. As such there was nothing to attach by way of recovery.

And even where there is no intent to commit fraud, evolving tax and labour laws often see payroll administrators unwittingly exposing companies to penalties for non compliance or illegal practice.

In short “there is just too much that needs to be taken into consideration for in house administrators to successfully manage payroll in any modern business” says Booysen.

The solution, Booysen believes, is outsourcing.

Outsourcing allows high quality, efficient and cost effective payroll administration for all types of business, irrespective of the location or complexity of that payroll.

Furthermore, in cases where loss does occur professional payroll providers have professional indemnity cover “preventing them going bust in the event of a claim” says Booysen. It is very unlikely that smaller ‘work from home’ payroll providers or in-house one man bands have the kind of professional indemnity cover that counts when something goes wrong.

“All responsible and professional payroll providers should carry this insurance. As such, clients should request copies of their payroll providers insurance certificates before engaging the services of a bureau” advises Booysen.

Booysen, who from 1998 to 2008 ran his own payroll business before setting up a payroll outsourcing practice within Alexander Forbes, says a major concern of many people who approach him for payroll assistance is a desire not to look bad as a result of managing their payroll badly. In short, payroll administration has become such a hot potato that very few people want to touch it – for fear of all that can go wrong if companies try and do it themselves.

Interesting evolutions that Booysen is seeing are the many additional functions that companies increasingly expect payroll administrations to manage.

For example, professionally managed payrolls now allow employees to check and apply for leave, and register and manage overtime payments themselves. They can also check the status of payments and tax submissions - all online.

The advantages of these kinds of electronic applications speak for themselves.

“Leave application or overtime forms can’t get lost - while having the entire application history available on each leave application or overtime inquiry is immensely useful. Furthermore, since pay slip histories and other information is instantly available staff can access this information themselves eliminating a whole tier of administration along with associated delays and opportunities for error and fraud” explains Booysen.

More recently, electronic expense claim management allows employees on a business trip in Hong Kong, for example, to submit expense claims electronically. The employees’ account is then reimbursed off the client company’s cash book in South Africa. All this happens remotely without even bothering the company concerned while doing away with faxes, paperwork and other delays.

Every outsourced payroll system that Booysen and his team manages is different – each tailored to suit individual organisations needs ensuring that “payroll processing is done accurately and on time while limiting the risk of internal fraud and providing liability cover in the event of error or loss” concludes Booysen.