Using Payroll Audits to Detect Errors and Fraud
BenefitsAs a finance professional, you probably are expected to safeguard your company's money. Unfortunately, there is no typical picture of the fraud perpetrator and embezzlement of funds is all too common place, so you have your work cut out for you! An excellent place to start is with Jeffrey G. Matthews' 'Using Payroll Audits to Detect Errors and Fraud' teleconference. You will learn about what payroll fraud is and how it is committed, detected and deterred. Coverage begins with an explanation of the fraud methodology, followed by detailed examination of the most prevalent payroll fraud schemes used by employees, owners, managers and executives.
Heed the warning of the proverbial saying: 'An ounce of prevention is worth a pound of cure.' When appropriately applied to your payroll function, this practice could result in substantial savings.
Agenda
|
Overview of Payroll Fraud |
|
- Asset Misappropriation Category
- Most Common Schemes
- Ghost Employees
- Inflated Commissions
- Falsification of Hours and Salary (Overtime Fraud)
|
|
|
|
Ghost Employee Schemes (Median Loss = $275,000) |
|
- Two Main Schemes
- Fictitious Employee Receives Payment
- Payroll Kickback Scheme
- Preventing Ghost Employee Schemes
- Separate Personnel and Payroll Functions
- Maintain Personnel Records Independent From Payroll or Timekeeping Functions
- Verify Payroll Changes Through Personnel Department
- Separate Payroll Preparation, Disbursement and Distribution Functions
- Use Direct Deposit
- Monitor the Payroll Budget Variations in Expense May Indicate an Issue
- Consider Hand Delivering Checks and Require Positive Identification Leftover Checks May Be Indicative of Ghost Employees
- Detecting Ghost Employee Schemes
- Common Red Flags
- Conduct Personnel and Payroll Data Reconciliation to Identify
- Perform Payroll Data Analysis to Identify Potential Anomalies
- Consider Additional Tests
|
|
|
|
Inflated Commissions Scheme (Median Loss = $200,000) |
|
- Employee's Pay Is Based on Revenue Output Rather Than Hours Worked or a Set Salary
- Two Main Schemes
- Falsifying the Amount of Sales
- Increasing Commission Rate Manual Alteration of Payroll or Personnel Records
- Preventing Commission Schemes
- Incentive Should Be Based on Quantity and Quality of Sales (i.e. Collectability)
- Ensure Sales Staff Do Not Have Access to Payroll or Personnel Records
- Ensure Proper Segregation of Duties in Calculation of Commission Amounts Commissions Should Be Independently Provided by Individuals Outside of Sales Department
- Detecting Commission Schemes
- Compare Commission Expenses to Sales Figures to Determine If There Is an Unusual (Nonlinear) Relationship
- Compare Commissions Earned by Salesperson to Identify Those With Commission Amounts Significantly Larger Than Others
- Analyze Uncollected Sales Amounts by Salesperson
- Conduct Random Sample of Confirming Sales With Customers
|
|
|
|
Falsification of Hours and Salary Scheme |
|
- Two Main Schemes
- Falsifying Hours
- Increasing Pay Rate Manual Alteration of Payroll or Personnel Records
- Preventing Falsification Schemes
- Require Manager Approval of Manual Time Cards However, This May Be Overridden in Three Ways
- Segregate Duties Related to Posting of Time Records Into Payroll System
- Monitor Large or Unreasonable Time Entries (Hours Worked, etc.)
- Require Supervisor to Be Present at Beginning and End of Shifts to Ensure Employees Do Not Punch Time Cards of Absent Coworkers
- Ensure Proper Custody Procedures Are Practiced Timecards Approved by Management Should Be Sent Directly to Payroll to Prevent Alteration of Approved Hours
- Detecting Falsification Schemes
- High Overtime Can Be Defined in a Number of Ways, Based on Dollars, Hours or Percentage of Overtime Dollars to Gross Pay Dollars
- Compare Employee Overtime Hours Percentage With Overall Department Overtime Hour Percentage
- Compare Employee Percentage of Overtime Dollars to Gross Pay Dollars; Review If Above an Established Threshold Percentage (Defined by Company)
- Review a Summary of Overtime Hours and Overtime Pay by Employee to Identify Anomalies
|
|
|
|
Common Threads of Payroll Fraud |
|
- Perpetrators – Highest Fraud Risk Employees Are Department Timekeepers, Personnel Department or Those Managing the Payroll Accounting System
- Vulnerabilities Providing the Payroll Fraud Opportunity
- Large Payroll Expenditure for Many Organizations
- Payroll May Be Part of the Human Resources Department
- Payroll Accounting Function May Not Be Independent of General Ledger Function
- Poor Accountability of Vacation and Sick Leave
- Inadequate Supervisory Controls Lack of Verification, Excessive Ability to Access and Change Employee's Time Records
- Poor Payroll Report Creation and Review
- Lack of Reconciliation Between Payroll Registers and General Ledger Control Accounts
- Basic Methods of Prevention and Detection
- Adequate Segregation of Duties
- Strong Internal Controls
- Periodic Payroll Review and Analysis
- Routine Reconciliation of Personnel and Payroll Records
|
|
|
FacultyJeffrey G. Matthews, CPA, CFE, LECG
Jeffrey G. Matthews, CPA, CFE, LECG
- National director of the Economic Advisory Services – Forensic Accounting and Litigation Support Group at Grant Thornton LLP in Dallas
- Helped formalize Grant Thornton’s local forensic practice after spending many years practicing for state, local and federal governmental bodies
- Significant experience in financial investigations, forensic accounting and litigation support
- Investigated and provided oversight for investigations of federal and state criminal violations, including many types of fraud
- Certified public accountant and certified fraud examiner
- Calculated damages resulting from breach of contract, breach of fiduciary duty, diminution of value and misappropriation of trade secrets
- Clients include the nation’s top law firms, FORTUNE 100 legal departments and government investigative agencies
- Extensively involved on a local and national levels in assisting companies comply with various sections of Sarbanes-Oxley
- Recently voted as an All Star Speaker by the Institute of Internal Auditors
- Member of the AICPA
- B.B.A. degree in accounting, University of Louisiana at Monroe
- Can be contacted at 214-561-2420 or jeff.matthews@gt.com
These Materials are Designed ForPayroll managers, human resource and benefits professionals, controllers, CFOs, accountants, business owners and attorneys
| CD & Manual | - CD Set with bound 22 page manual |
| Podcast | - 83 Minute MP3 with 22 page electronic manual - Immediate Access and No Shipping Cost |
