How to prevent employee fraud


One of South Africa?s provincial health departments was recently haunted by 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 steal
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 that 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.'