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


Comments

Popular posts from this blog

3 things to do BEFORE you resign

or sign a new contract… 1.         Confirm your notice period ·          A lot of companies allow 30 days from date of resignation, but many ask for a calendar month 2.        Check your restraints ·          If you are joining a competitor ·          If you are joining a client 3.        Find out when your last payment will be transferred ·          Companies have been burned by paying over on the 25 th , and people not returning, so they may delay payment transfer until the last official working day, or even the first day of the following month.  You may need to make special arrangements regarding debit orders …. Both your current company and your new one deserve to be fairly treated.   Knowledge of ...

When did having it all become doing it all?

Or being all things to all people… Ruth Bader Ginsburg , U.S. Supreme Court Justice: “You can’t have it all at once. Over my lifespan, I think I have had it all. But in different periods of time, things were rough.” As a mother, a wife and a business woman, I have thought a great deal about this.    My article about #OutsideWork generated some personal mail that asked me, inter alia: “How?” “What do I need to do to satisfy everybody that needs my full attention when I am with them?”  My children, my boss, my partner – they all need me to be the best that I can be, and I am barely keeping my head above water.” “I don’t want to be selfish, but there is no time for me.” And a poignant comment: “This article made me remember that there must be time for “self” but I am not finding it.  I am mentally and emotionally exhausted and nobody seems to care” There is no one answer.  It’s different for those in a committed partnership, compared to sing...

Employment Tax Incentive Bill

While there has not been agreement from all parties on the Employment Tax Incentive (ETI) Bill, and the roll out, it was formally published on 4th November, 2013.  With the January go live date, there are still some issues that need to be finalised, but simply put, the concept is as follows: The incentive runs from January 1st, 2014 to December 31st, 2016 The employee must be between 18 and 29 years old on the last day of the relevant month The employee must earn a wage of less than R6 001 per month The incentive can only be claimed in the months when the remuneration is under R6 001  The employee must have been engaged after October 1st, 2013 The employer must be eligible by being  Registered for PAYE In good standing with SARS Not local, provincial or national government Limited to South African citizens and valid asylum seekers, the main driver is for youth employment, however, the incentive also applies to employment in Special Economic Zones (SEZ) ...