This article, focusing on wages, is part of HLB Mann Judd’s fraud review series which takes a closer look at potential areas of fraud and provides tips on how to mitigate fraud.

There are various ways an individual can use wages to conduct fraud. Here we examine two opportunities for fraud, being via changes to employee details and bonus or leave calculations.

Employee details

In large organisations with many employees, tracking employee details becomes more difficult and exposes the organisation to fraud risk in the form of; ‘ghost employees’, where a non-existent employee is set up with wages paid to another employee, false hours, including overtime, being processed, or higher rates paid to employees.

In each of the above cases, it is essential for businesses to have robust processes for employee data management.

Tips

  • Conduct periodic checks of employees and verify their existence, pay rate and accuracy of timesheets.
  • Review the procedures for adding and modifying employee details, ensuring all changes are approved by someone who will be supervising the employee.
  • Review terminated employees to ensure no payments are made after they leave.

High risk: Weak approval processes for overtime lead to less productive work during the day and more overtime paid.

Leave calculations

Does your business confirm if sick, annual or long service leave taken by employees is entered into the system? If not, employees could potentially apply for and take leave without it being recorded in the system, giving that employee additional leave.

Tips

  • Regularly review leave balances and discuss with managers or supervisors whether balances appear accurate.
  • Conduct random checks on leave balances for employees who have returned from leave to see if it has been entered correctly.
  • Introduce a control whereby leave taken or applied for is recorded and used to reconcile with that captured by the payroll system.

Example: An employee takes a leave day and forgets to fill in a form. The manager does not check and the employee’s leave balance remains unchanged.

How HLB Mann Judd can help you

No business is fully protected from fraud. Management must consider what their fraud tolerance is and determine what processes best mitigate fraud.

If you or someone you know are concerned with the scope of fraud in wages, or any other aspect of the business, our team can assist to identify risks, test identified areas and provide specific recommendations to protect against fraud.