Payroll Fraud: How HR Software Can Help Prevent?

A critical process is subjected to audit reviews to make sure it is free of risks, especially when the process involves sensitive data. An organization is always susceptible to various risks, including the fraud committed by internal or external factors. When confidential data is not protected, there is a potential risk of fraud. One such procedure that requires security is the payroll process, as it holds sensitive data.

Let us take a look at some of the critical controls that payroll process should have in place:

• Accurate payroll procedures

• Approval workflows

• Payroll Checklist

• Data-security and back-up recovery plan

• Record retention

• Process measurement metrics

• Escalation matrix

Errors do occur in payroll; any error should be thoroughly examined to make sure there is no impact. Corrective actions have to be taken to identify an issue and implement strategies to prevent the same error occurring again.

The risk will be more where most critical parts of the payroll controls such as fund management, salary changes, validation process, etc. are under the management of independent teams.

Some of the controls are as follows:

• Outline a clear segregation of duties

• Document the payroll validation process at various levels

• Check for any variations in salary costs to be performed by accounting departments

Preventing Fraud

Multiple stakeholders have access to sensitive data or hold the responsibility to validate the data or authorize the transaction. To ensure there are no disruptions, cross-training of team members is required. For instance, employee managing critical activities is on leave, and another team member should handle the works. In this way, any fraudulent activities would come to light.

Another measure is to make sure someone to review the payroll requests with supporting documents regularly. Cross verification can be sought from other departments such as validating headcount from recruitment departments, funding variation analysis, etc. A random check of payroll records with time, attendance system, or personnel records to check no fraudulent employees are enrolled.

While there are some controls and security measures for internal processes, it is recommended to extend controls to vendor processes. Payroll management software can avoid human errors and makes the process simply smooth and efficient for HR professionals.