Payroll fraud is a real risk. The Association of Certified Fraud Examiners says that payroll fraud affects 27% of all businesses. The crime manifests in several ways, but is most commonly set-up through falsified timesheets and ‘ghost employees’. It’s incredible to think that companies can pay a salary to a non-existing staff member for years without even noticing it – but they do.

It’s difficult to prevent payroll fraud altogether. Especially if your company still relies on excel spreadsheets to manage its accounting. However, you can put in place certain measures that will make it harder for employees to steal from your company. New technologies are key here. Modern payroll software is defined by three critical characteristics: automation, workflow and transparency, all of which greatly reduce the room for employee error or theft.

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Automation

The big benefit of automated payroll software is that your employees are only involved in the process when they need to be. It’s difficult to steal if you don’t have access to the safe. An automated system can manage a range of important business functions without human intervention, minimising fraudulent activities significantly.

Employee leave management is a good example. When this function is automated, it can be fed directly into the payroll system. The self-service function enables employees to view their leave balance, submit a leave request or cancel one with manager and/or further approval. Any changes are immediately updated and accurately reflected on the payroll. This means that none of your employees will be able to take more leave than they are entitled to without your knowledge.

Commission is another weak spot in most businesses’ current payroll systems. The rules vary from company to company and can become quite complex. New technologies can automatically calculate the commission owed to an employee based on various input options. For example, if a salesperson is paid according to the number of units sold, payroll may have to take into account their leave in order to pay an average for the leave days taken. A commission calculator built into your payroll system will ensure that only the correct earned commission can be paid to an employee.

Ideally you want your payroll system to integrate with your accounting software. When all the necessary data – such as recurring earnings and deductions – is automatically assigned by employee type or grade for instance, before the first payroll cycle, your company finances are protected from mistakes – whether deliberate or not.

An electronic payroll system can even confirm the validity of an employee’s identity. Essentially, each time a new employee’s details are loaded, your software will validate their ID number based on birthday, gender and citizenship using a digit check algorithm. Their bank details will be checked against a bank merchant number, account type and account number. In some cases more in depth verification can be performed with the institutions via integration but this comes at a per verification cost.

Transparency

With modern payroll software, payroll managers, administrators and employees can access relevant payroll information on any device at any time. Different access levels can also be allocated to different roles to ensure confidentiality and data security. Transparency also allows for an efficient audit trail functionality that can track various access points and see who is doing what at all times. This makes it far more difficult for employees to commit payroll fraud as there’s a greater chance that they’ll be found out.

Real-time analysis and insight into what is actually happening in your business is crucial. A fully transparent payroll system with cloud-based analytics enables you to filter data according to various fields, percentage or amount fluctuations compared to a previous period and create daily reports, which means you’re much more likely to see if something untoward is going on in the company.

Payroll is one of the biggest expenses in any business. For many companies, employee costs account for over 75% of their operating expenses. There is no doubt that payroll fraud or errors in capturing your payroll data can be costly. A fully integrated, automated and transparent payroll management system can help you track how money moves through your business.  When a door is left wide open, there will always be someone tempted to walk in and take what they can. Unfortunately, there is no magical cure for fraud and dishonesty. However, the right technology can close the door and prevent payroll theft before it happens.

Featured image credit to Lobster.media

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As one of the founding members of PaySpace, Bruce has over 16 years of experience in designing, conceptualising and implementing functional payroll and HR solutions for various local, multinational and blue-chip organisations. Bruce heads up the Finance and Sales departments at PaySpace with a love for entrepreneurship. He has many years of experience in developing legacy and cloud based Microsoft solutions having started his career in software development after graduating from Van Zyl and Pritchard. He is also extremely familiar with complex payroll client requirements having worked for an international payroll vendor as well as a large corporate insurance house where he got critical insights into the receiving end of the payroll and HR product world. His exposure to the technical, consulting and client requirements in the industry have given him vast experience in solution design, comprehensive international tax legislation, quality human resource approaches, talent trends and client relations.