Skip to main content

Risk Management in Payroll

What are the risks in a payroll department?   There are many variations of the three below, but it all comes down to them.
  1. Fraud
  2. Error
  3. Confidentiality
Good processes and governance go a long way to preventing all of them, and, of course, the positive effect of getting it right the first time, is so much better than having to constantly correct problems.   Payroll errors have a very negative impact on morale.

Fraud   

From ghost employees to duplicate bank accounts, payroll fraud is wide ranging and yet we are frequently told that payroll administrators manage the full process from data entry to EFT without anybody else checking the output.   While it is clearly not good governance, it is also quite simply putting temptation on the table.

Another concern is that there are many repeat offenders out there, protected by the employer who chooses to not take action, and by the companies who do not insist on full background checks when hiring into such a sensitive role.

Errors

Payroll departments work under extreme pressure, and deadlines are not always adhered to by the rest of the company.   This increases the opportunities for errors of omission, unclear communication or a lack of understanding of the requirements.

The majority of people operating in payroll departments have grown up in the position, ie they have no formal training in payroll administration, are trained on the job, and their skill set is often deep knowledge of a particular payroll software package.

We have also noticed that there is very little formal training in spreadsheet products which can be very valuable for controls.

The risk of an underpayment not being reported is low, but overpayments and incorrect calculations are frequently unreported.

Confidentiality

With the PoPi bill on its way, keeping people information confidential has never been more important, and yet there is significant risk in many payroll departments.   Some of the main areas of concern are:
  • Designing security levels that allow only the relevant people access to the information
  • Setting up firewalls correctly
  • Understanding whether the IT department has access to the encrypted data, and ensuring that there is full signed contractual confidentiality.   For convenience, in larger IT departments, the access is spread quite broadly, and it is in the interests of companies to confirm who should and shouldn't have access.
Governance and controls need to be in place.   The way the payroll is checked each month should also be standardised.   Variance reports are particularly useful as a first step, so that it is easy to see where the differences are, month on month.   Line management need to sign off on their direct reports, and should have a check list to work through eg
  • Employees who are in their last month of work
  • Employees terminated in the previous month
  • New employees
  • Increases given
  • Bonuses given
  • Savings and loans
  • Commissions
  • Travel claims
  • Reimbursements
This checking by line management subjects the payroll to an external review process, and reduces risk immediately.  Terminations and new hires should be checked with the employment contract at hand.   Audit reports should also be checked each month to confirm that all changes in the system are valid.

No matter what systems are in place, it is possible to commit fraud, make errors and break confidentiality, particularly as processes often become less tight over time.   It is advisable to ensure that payroll departments are regularly submitted to an external risk management /health check process, which confirms best practice, as well as process flows and reporting models that highlight anomalies.

Risk Management
e-Mail: support@accsys.co.za
Enquiry: Contact Form 

Payroll Training
Payroll Administration Diploma


Popular posts from this blog

Thinking of leaving - should you discuss it with your manager?

The exit interview is not the time to tell your manager that you would have stayed if.....   When you are serious about your career, and really enjoy your job, except for one key component, take the time to talk before you resign.

While sometimes the grass is greener, more often than not you just inherit new issues at a new company.

It is a difficult labour market in South Africa right now, there is a skills shortage, and yet there are millions of people without jobs.   Working for a stable company, with people you like, and a job you enjoy is important, and yet there are often those frustrations that give you itchy feet.

In your current position, your manager might really want to keep you, and be very interested in finding out what would make you a happier, more productive, employee.   It is also sometimes much easier to have that conversation with somebody you already know, than have it in your first weeks in a new position.

When you know you have choices, as well as know that you …

Agile workers & workspaces - a new way of working..

Being an agile worker is still a work in progress…
Is flexibility now a reality in the workplace?And is it really working? We keep renaming it – remote, activity based and agile work being some of the current terms. The assumption of control over one’s own time and deliverables does look like a great way to work and live, and it seems to be is a high priority for those entering the business world. There is also the development of the agile work space, where people come to the office each day, but don’t have a fixed work area.We used to call it hot desking back in the day and it met with mixed success.Today, office designers have started to create work spaces which are intended to encourage innovative thought, cross departmental collaboration and improved productivity. My research indicates that the mix of engaged and disengaged employees in an open plan workspace does not always have the desired effect of the positive workers influencing the culture.In fact, a case study of a senior execut…

Setting Budgets and Targets

Does too much of a stretch impact motivation?    Over many years of setting (and trying to achieve) targets and budgets, getting the balance right between stretch and motivation remains a challenge.

I love Jim Collins and Jerry Porras and their BHAGs in their great book, Built to Last, but if the goals are seen as unachievable too early in the business year, what then?

Is there a way for businesses to achieve success without budgets and targets in place?

Two old favourites " You can only manage what you can measure" and "People do what managers measure" suggest that they can't.  I am sure there must be successful businesses with different methodologies, but most of us need to work towards something.

With that in mind, I think there needs to be stretch, and there needs to be a sense of achievability.

Why would you race against Usain Bolt unless you think you could win?

The same goes for budgets and targets, people need to believe they are possible.

So how do you…