How to Prevent and Detect Payroll Fraud

7 Fraud Patterns that Could Affect Your Canadian Payroll Compliance

As Fraud Prevention Month comes to an end, I thought it would be a good time to bring to light some of the examples I've come across in my travels as a designated Certified Payroll Manager, I call them The Menacing Seven.

The Menacing Seven that threaten your Payroll compliance:

1. Reactivated Employees
2. Ghost Employees
3. Wily Recording of Hours Worked
4. Dodgy WCB Events
5. Expenses Exploitation
6. Scheduling Shadiness
7. Health Benefits Hoodwink

Now that we know the villains, what Payroll tech superpowers can we leverage to combat this evil?

How to Defeat the Menacing Seven

There are many ways that your Payroll system can help prevent and detect fraud as well as maintain your compliance. I've listed them below and I will show you how each can be used to defeat The Menacing Seven.

1. Security Access Controls
2. Pop-ups and alerts
3. Reporting
4. Approval steps
5. Electronic Time Collection
6. Calendar Views & Cues
7. Change Logs & Audit Reports – for entry, changes, and approval stages

1. Security Access Controls

The first line of defense is access control in order to assure Confidentiality, Integrity & Reliability of data, Availability of the data when needed.

‍Your Payroll System should allow you to control access to:

1. Who is allowed to View what information,
2. Who is allowed to Add and Change that information,
3. Who is allowed to Approve,
4. Who is allowed to Remove or Delete.

2. Pop-Ups and Alerts

Menace of Ghost Employees

‍When a new employee is added, your system can let you know if there are duplicate SIN numbers.

Menace of Reactivated Employees

‍When an employment status is changed, or an employee is reactivated – for a last or additional payment such as incentive or vacation payout – upon reactivation of the employee, your system can send alerts to notify you of the change.

3. Payroll Reporting

Your system’s reporting can help recognize when there are:

• Repeat direct deposit accounts being used, in the case of Ghost Employees or Reactivated Employees
• Overtime hours, in general or overtime above a certain threshold.
• The Menaces of Dodgy WCB & Expenses Exploitation

What your system should allow you to do:

1. If your system allows you to manage WCB incidents, you will be able to pull reports on the details and the Witness information patterns.
2. For expense reimbursement, there is always a lot of paper to go through. If you have an electronic expense reimbursement, your system’s reporting capabilities can help you work with data more easily.

4. HR & Payroll Approval Steps

During an electronic new employee hire process, your system will likely have steps for when:

• New employee enters info;
• Signs-off on documents; and,
• The hiring manager approves the information.

5. Electronic Time Collection

My personal favourite! Are you still collecting time manually?! Perhaps after reading this, you'll reconsider.

‍Menace of Wily Hours Worked

‍Incorrect time recording can happen by accident, by intent, and even simply by misreading handwriting! To help prevent the illegible “is that a 6 or an 8?” And situations where an employee started at 2PM, but somehow there was a 1 added to show that as 12PM.

• Time Clocks – can track time very specifically.

• Time Sheets – a great way to reduce time entry error, and misreading of handwritten time records.
• In addition, your system may allow Comments and even a document attachment option for each entry for approval & reporting purposes.

Menace of Scheduling Shadiness‍

With electronic scheduling, your system – through reporting on re-scheduled shift entries – can also help reveal patterns of shift re-assignment behavior that optimizes overtime and premiums for employees.

6. Calendar Views and Cues

Individual and Group views of both Scheduling and Time Cards may reveal patterns of absences for both individuals and groups.

Your system may employ visual cues in the user interface, such as colours for different codes, to help certain absences stand out.

7. Change Logs and Audit Reports

For entry, changes, and approval stages:

• During electronic time collection, your system will have the ability to log changes to time if you ever need to refer historically.
• In the bigger picture, changes to the system itself.

BONUS. Communication!

Finally, nothing beats a good conversation. While your payroll system would not be able to help you directly with identifying the Menace of Health Benefits Hoodwink as misuse of prescription or paramedical benefits, it might be a great idea to collaborate with your Benefits Provider to ensure that use is within the generally accepted norms and averages.