18 June 2024

We know that payroll is an area where fraud is a possibility, and that possibility comes with costs if it is allowed to occur within an organisation. But how much could it cost?

That is what the Association of Certified Fraud Examiners (ACFE) has researched and found out just that. The figures are in Dollars as the study has been conduced on a global sampling of businesses, the results can still be shocking but help us understand the scale of the problem.

Payroll fraud was seen in 190 cases, representing 10% of the total fraud cases seen: putting this type of asset misappropriation near the middle of the risk scale. The median loss seen was around $50,000. Such cases typically lasted 18 months before being detected, costing around $2,800 per month undetected.

For small businesses, a concerning fact is that payroll fraud is about 1.5 times more likely to occur in businesses with less than 100 employees, 9% of cases seen in large businesses involved payroll fraud versus 14% is smaller businesses.

The industry in which payroll fraud was seen at a higher percentage than all others was construction at 23% of cases in this sector. Government and public administration came in second with 18%.

Scarily, payroll fraud was among the least commonly referred as a crime. Across all cases (not just payroll fraud) the reasons not to refer were stated as; Internal discipline sufficient (49%), fear of bad publicity (34%), private settlement (24%) and too costly (21%).

So how do we stop this from happening in payroll? Luckily, the report explores detection methods and antifraud controls. As always, these figures are useless if we don’t learn form them and understand how to mitigate the risks in our own businesses.

Controls being in place reduces losses and detects fraud quicker. One of the most effective controls is surprise audits, reducing losses by 63% compared to where that control was not in place. Surprise audits also reduced the time to detect fraud by half.

The report also highlights the importance of active detection methods such as audits and reconciliation, rather than passive detection such as being notified by law enforcement or confession.

At 106 pages, it is a lengthy report, so I hope the above details teased out help you understand the impact payroll fraud can have on you and the company you work in.

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