Charity payroll fraud: What can be done?

Gary Webb looks after PR, marketing and communications for FMP Global. He has over 25 years of experience working with National Express, Halifax Bank of Scotland and Camelot (The National Lottery). Gary is also a member of the Chartered Institute of Marketing.

With lots of media attention around payroll theft, with some stories making national headlines, charities need to be especially on guard against externals threats and internal misconduct, detecting and ultimately preventing payroll fraud. Recent research from the Centre for Counter Fraud Studies at Portsmouth University suggest they are particularly at risk.

Last year insurance company Hiscox in America provided eye popping statistics and tell tale pointers for organisations, and with over half of money obtained through frauds never ever being recovered, it provides real food for thought for organisations, particularly charities.

In the UK there are three basic types of payroll fraud:

1. Ghost employees
2. False wage claims
3. Over inflated expenses claims

Mark Button, in his book Countering Fraud for Competitive Advantage has suggested  that most people would commit fraud if they thought they could get away with it, and certainly false wage claims and overinflated expense claims are often quite common to an organisation. The creation of ghost employees, however, often involves someone at the heart of the organisation’s payroll department, and can include external help.

What the numbers tell us

Statistics taken from the Hiscox report, looking at voluntary organisations in America.

• Voluntary organisations accounted for 11% of payroll fraud in America
• Almost two-thirds of the cases involved either cheque fraud (33%) or outright funds theft (30%)
• Over half (56%) of the crimes were committed by individuals in management positions, with a median loss of around £125,000
• Two-thirds of the cases involved organisations with fewer than 50 employees, with a median loss of around £363,000 (90% of payroll fraud involves organisations with less than 150 employees)

• 40% of fraud occurs from a finance or accounting professional, with the rest predominantly made up by employees in senior roles, right up to CEO

What can be done to combat payroll fraud?

1) Let everyone know what’s expected

Have clear guidelines, coaching and training on the impact of fraud in your organisation.

2) Lead from the front

Bring fraud into the open and discuss it openly from the top down. Ask your employees to be vigilant, and let you know of any weaknesses in your systems – you may not have thought of all possible failures in your systems.

3) Take away the risk

Use an outsourced provider for your payroll and build your internal audit procedures and practices around that, ensuring anything handled internally carries dual signatories or ongoing audit checks. If you can grab extra time to spot fraud through outsourcing then you should take it.

4) Thoroughly check who you’re employing – both internally and externally

Comprehensive employee screening should be the norm internally. Ensure any outsourced payroll provider has ISO 27001 and Payroll Assurance Scheme accreditation so that you can be sure security is at the top of the agenda.

5) Know your team

Always be on the lookout for anomalies – eg employees with the same address, and thoroughly check employee expenses.

6) Never leave just one person in charge

It’s hard, especially in smaller charities, to have more than one person in charge of payroll, but it’s risky. If you cannot do that in your organisation then consider rotating roles on a regular basis or get someone independent to sign off payments.

7) Stay on top of leavers

Make sure your procedures when someone leaves are watertight.