NCJ Number
199828
Journal
White Paper Volume: 17 Issue: 2 Dated: March/April 2003 Pages: 46-48
Date Published
March 2003
Length
3 pages
Annotation
This article discusses payroll fraud and how the payroll system breaks down when it has been compromised.
Abstract
The opportunity for fraud in payroll is high when employees have broad discretionary powers and are not supervised. The risk is that employees will make irregular payments through the payroll system. These frauds are usually not systemic. Specific employees commit them to obtain unauthorized pay for their own personal benefit. Employees often forge supervisors’ signatures to accomplish this. The fraud risk can happen almost anywhere within the payroll processing system because all employees have the ability to commit fraud. Strong internal control procedures must be implemented and monitored. Payroll costs usually range from 50 percent to 80 percent of total expenditures in State and local governments. Thus, payroll management must be taken very seriously. Some ways to help prevent payroll fraud are to require supervisor approval of time sheets, use passwords for electronic time sheet systems, and implement policies that prevent overtime in excess of a certain percentage of the employee’s base pay. Manager abuses include giving an employee a pay raise by allowing fictitious overtime charges, filing false payroll transactions to obtain funds to pay for certain costs, and obtaining funds from Federal grantors for use within the organization for purposes not authorized in the grant contract. The evidence for payroll irregularities include the time sheet, outside documents, a contemporaneous record kept by an employee whose job is to note leave for all employees, and co-workers’ spoken statements of work time spent with suspects. When investigating payroll fraud cases, it is best to use the straight-line illustration to look for a straight line from source to approval to payment.