How To Prevent Employee Fraud

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As people become desperate to make ends meet more workers are turning to employee fraud as a means of supplementing their income. A recent survey revealed that fraud committed by employees in the UK alone went up by over 40% last year.


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One of South Africa's provincial health departments was recently haunted by the bad press when it was found that a total of 544 of its department workers were suspected, ghost employees.

This conclusion was reached following a forensic audit of the Eastern Cape health department, during which it was revealed that a number of people listed on the payroll had invalid identity numbers.

"Creating fictitious workers - otherwise known as phantom or ghost employees - adding them to payroll and having them receive monthly payments is just one example of the payroll and employee fraud that is commonly committed to stealing money from employers,' says David Brown, Managing Director of Profile Software.

"Depending on how weak the company's implemented internal payroll controls are, the culprit who is behind such a ghost employee scheme can be a singular employee who has access to payroll records, someone who has the ability to falsify employee records, or multiple employees working together to steal money from the company in that way.'

With people still struggling to make ends meet following the global recession, such incidents of employees embezzling their employers seem to be on the increase around the world. The UK's fraud prevention service, CIFAS, recently revealed that fraud committed by employees in the UK alone went up by over 40% last year.

To get an idea of the financial ramifications of this, accountancy giant KPMG conducted a study and found that the number of UK firms that were combating employee fraud jumped from 22 cases involving £12 million in 2011, to 35 instances and £25.1 million in 2012. South Africa is not escaping this plight. In November last year, KPMG Africa released a survey.

According to the KPMG Africa Fraud Barometer, which reviewed perceptions of fraud and misrepresentation in sub-Saharan Anglophone (English-speaking) Africa, South Africa had the highest amount of reported cases of fraud on the continent.

In the six-month period during which the survey was conducted (from January until June 2012), South Africa had a 33% prevalence of fraud and misrepresentation, compared to the combined total of 37% of all the other surveyed countries. South African government employees were revealed to be among the biggest culprits.

They defrauded the government by, among other things, placing ghost employees on the payroll and paying fictitious service providers - in other words, no differently from the way in which other employees stole from their employer, as one of KPMG?s forensics experts pointed out. Brown says despite these telling statistics, many business owners naively think that they are exempt from fraud, even if they have no fraud prevention measures in place.

"That is actually WHY they have no fraud prevention in the first place,' Brown says. "Many company owners can't fathom the possibility that their workers will ever steal from them - especially owners of smaller businesses, where the staff is regarded as members of a family.'

He says that such naivety can partially be blamed on the stereotypical perception that exists about what criminals actually look like. "We have very specific ideas about thieves and thugs in our minds. And that menacing image does not include the non-descript secretary who has been loyally working at the firm for thirty years, or the clean-cut, hardworking, family man.

So everyone is shocked to the core when those very people are caught out and charged with fraud and theft.' Brown, whose company provides clients with a generic, payroll-independent, payment system covering all garnishees, third party and salary payments, says there are a number of steps employers can take to protect themselves against worker fraud. "Implement internal controls that require a separation of payroll duties.

For example, don't allow personnel who create and maintain payroll data to make changes to it without management approval - which should also be divvied up between at least two different people. Payroll accounts should be reviewed and reconciled monthly,' advises Brown. "Alternatively, SMEs that don't perhaps have the necessary manpower to divide the labour in that way should consider outsourcing payroll to a contractor.

And lastly and most crucially, implement a system with built-in fraud detection controls, such as Profile's nett pay and salary payment system, which has the ability to detect duplicate bank accounts. After all, fraud prevention is better than cure.'

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