With the worldwide increase in fraud and the resulting focus on corporate governance, there has been a growing demand for skilled assistance in areas of risk assessment, fraud prevention and fraud investigation and review.
Payroll fraud is often difficult to detect and will not only cost you money, but also damage the image and credibility of your company. It's a risk few companies can ignore.
To assist companies, VIP Payroll's Forensic Consulting division performs risk and process assessments and forensic reviews.
Risk assessments
A risk assessment is an evaluation of a company's payroll and the processes followed in the payroll office.
The risk assessment specifically investigates:
* Segregation of duties and system access control;
* Processes and procedures followed in the payroll office;
* Aligning of payroll processes and procedures with the complexity of the business; and
* Recommending changes to minimise the risk of exposure to fraud.
Forensic review
A forensic review is performed at a company where it appears that payroll fraud has been committed. A forensic review investigates the apparent fraudulent activity relating to:
* How the actions took place;
* Who was involved; and
* The total monetary value involved.
The findings of the forensic review are documented in a written report, with a detailed description of the steps followed in the review process, and the review's findings and report in Excel, where the total amounts involved are detailed.
Importantly, companies are obliged to report fraud to police in accordance with the Prevention and Combating of Corrupt Activities Act No 12 of 2004. Section 34 (1) (b) states that any company must report:
The offence of theft, fraud, extortion, forgery or uttering a forged document, involving an amount of R100 000 or more (and, the company) must report such knowledge or suspicion or cause such knowledge or suspicion to be reported to any police official.
In one recent example, a company became suspicious of their salary costs as they seemed high compared with the number of people employed at the company. VIP's Forensic Consultants were asked to review the situation.
The review process began with nett pay total of the remuneration list and the EFT export being compared with the month-end nett pay summary reports. This comparison showed a difference between the two totals, where the EFT and remuneration reports exceeded the month-end nett pay summary reports.
The system audit trail was printed for the period under review. This revealed that four employees were added and paid salaries every month. After the export of the EFT and general ledger files (and the printing of reports), the employees were deleted from the list. Once the system had been rolled over into the next month, the employees were again added and the same process would be followed in the new month.
A detailed print-out was drawn from the system that showed that the four "employees" had the same bank details loaded on the system. These bank details were investigated and it emerged that the system user was the holder of these accounts.
Once the trend had been established, the forensic consultants began working from historical system reports. They extracted final nett pay records for each month and compared them with the nett pay payments actually made for those months, as per the bank statements and general ledger.
The differences were documented and tied back to the same four employees and the one bank account. The review process covered a period of 19 months until the differences amounted to nil for a period of four consecutive amounts. This gave an indication of when the fraudulent payments began.
The total differences for the 15-month period amounted to R397 000. How do you protect your company?
Companies can avoid similar situations by ensuring there is sufficient segregation of duties in their payroll departments. Another useful way of dealing with potential problems is for managers to familiarise themselves with the reports available from the system and to use them to check the payroll. This can be used, for instance, to check for duplicate bank accounts.
Implementing a full reconciliation process as part of the monthly payroll process is another way to protect against misuse of the system.
Expert assistance
Jaco Spies, a forensic accounting specialist, assists VIP Payroll's Forensic Consulting Division. He advises that when dealing with employee-related matters it is very important to consider the following before taking action:
* Current labour legislation;
* Employment agreement with the alleged perpetrator;
* Agreements with unions, if applicable;
* Other legislation such as the Prevention and Combating of Corrupt Activities Act, Act No.12 of 2004;
* Are you covered by an insurance against loss through fraud? If so, take note of the actions required so as to ensure you do not jeopardise your claim; and
* Do you wish to proceed with any of the following actions available to you, namely: disciplinary action, and or criminal action, and or civil action, and or claim of the loss from your insurer.
To be able to make an informed decision and ensure you succeed, you have to analyse the available information and consult with appropriate internal or external specialists, such as VIP's Forensic Consultants.
For more information on VIP's Forensic Consulting service, please contact Christine Witthoft on (012) 420-7000 or e-mail forensic@vippayroll.co.za or visit our Web site at www.softlinevip.co.za.
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