06 June 2011
The real value of payroll and HR software should never be underestimated, particularly as a means of detecting and pinpointing “phantom employee” theft and fraud. The software also enables companies to correctly and accurately deal with disciplinary procedures, employee records and contracts, supply of IRP5 tax certificates and other legal documentation.
“Theft and fraud by existing employees creating phantom employees is more common than many companies think,” says Grant Lloyd, managing director of Softline Pastel Payroll, part of the Softline Group and Sage Group plc.
“There have to be checks and balances in place, including month-on-month salary analysis and salary variance checks. Companies that don’t use payroll and HR software to conduct such checks could easily find that they have been diminishing their profit by paying phantom employees that simply don’t exist.”
One way to prevent fraud through phantom employees is to conduct regular detailed checks and without payroll and HR software the phantom fraud method is much more difficult to detect and control.
Lloyd recommends that SME companies, whose existence can be severely threatened by theft and salary fraud, need to establish checks and balances as a first step. A month-on-month analysis of the payroll must be conducted, including a check of all employee names of the current month against the previous month, confirming that new employees do actually exist and picking up discrepancies in amounts paid.
“It is also essential to check the banking details of all employees because if two employees have the same bank and account numbers it is highly likely it’s because one of them is a phantom employee.”
Another check point is to ensure that the employment contracts and new employee forms actually correlate. Often one person is responsible for the capture of personnel details, the electronic funds transfer (EFT) file and the release process for the salary payment. Even with reviews and the approval of senior management, this is an area that can be exploited. Payroll and HR software can make the checks and balances process quicker, easier, more accurate and more effective.
“Beware if there is one employee who has total control of the process and particularly so if that person never takes leave, is never ill and is invariably the first to arrive at work and the last to leave. It is quite likely that this person is trying to ensure that no other employee or manager has an opportunity to enter his or her space and discover that all is not what it is supposed to be,” says Lloyd.
With automated payroll and HR software systems in place management will find it easier to implement appropriate checks and balances. Lloyd points out that with a manual system such checks and balances are not only tedious but costly in so far as they tie up employees who could be spending their time on more profitable tasks.
The software ensures that there is rapid access to the payroll masterfile and variance reporting functionality will immediately flag discrepancies in employee names, number of employees, banking details, salaries and payments which are indications that a full audit should be undertaken.
Lloyd says payroll and HR software also ensures that talented, honest, dedicated and hardworking employees are motivated and well managed. “In today’s frenetic, high technology working environment, payroll and HR software are an essential and no longer a nice to have.”