Payroll fraud is any scheme whereby employees are paid funds for which they are not entitled.
Although there are numerous types of payroll scams, there are three primary methods in which payroll fraud is carried out, as listed below:
- The creation of fictitious employees
- False wage and benefit fraud
- False expense reimbursement frauds
Payroll Fraud Case Study
Mandy Marshall’s fraud scheme began like many others. Mandy unintentionally committed an error by filling out a taxi receipt for $20 instead of the correct amount of $10.When the expense report was approved without question, it gave her cause for thought. Mandy surmised that the review and approval process by her supervisor was superficial, at best. With substantial debt as her motivator, and forced to resolve massive credit card bills due to what she would later describe to forensic accountants as ‘retail therapy’, she hatched the seemingly perfect plan, or so she thought. Mandy began to submit expense claims for personal meals that she disguised as business expenses by providing only the credit card receipt (and altering the time of the transaction to 12:00pm, a likely time for lunch). She even created fictitious meeting entries in her Outlook calendar to support, and were consistent with her expense claims.
With her scheme now an unmitigated success, Mandy became more bold and brazen, as most fraudsters tend to be. This is especially true when greed or desperation set in. In Mandy’s case, advances were processed for her through Accounts Payable, while her expense reports were processed through the payroll department.
Mandy would also requisition an advance several months prior to an overseas business trip to purchase the airfare at the best rates, which was in accordance with the company’s employee travel policy at the time. When it came time to prepare her expense report following her return from this business trip, she would submit the expenses, but conveniently neglect to consider the advance that she received several months ago. Since Mandy’s advance and expense reports were approved by two different individuals working in separate departments, this fraud was not detected for several months.
Over the course of several weeks,an attentive colleague observed a marked improvement in Mandy’s wardrobe. This, of course, was noteworthy, since Mandy had neither been promoted, nor had she received a pay raise. Her stunning new dresses were also inconsistent with her frequent complaints about how she had financial issues.With all of this taken into consideration, Mandy’s co-worker decided to call the company’s whistleblower hotline to report her. Mandy Marshall’s charade came to its predictable conclusion in the same manner as many other fraudulent schemes do. Surveys have consistently and repeatedly indicated that tips are the most common way by which to expose a fraud.
Our investigation of Mandy’s case would include (but not necessarily be limited to) the following procedures:
- Securing and reviewing all of Mandy’s expense reports that were submitted during a prescribed period of time (a time frame that encompassed the period during which the suspected fraud took place)
- Acquiring and reviewing all cheques issued to Mandy from Accounts Payable as well as any documentation supporting her advances – such as requisitions, cancelled cheques and bank statements
- Obtaining a forensic image and analyzing Mandy’s company-issued computer as well as other electronic communications (such as texts and emails) for relevant evidence
- Reconciling Mandy’s expenses to her Outlook calendar, timesheets, security pass and other relevant sources. This would determine what would constitute a reasonable amount of claimed expenses for Mandy, relative to her authorized business-related activities
- When possible, determining if the costs that Mandy incurredare legitimate by confirming or rejecting – this with the third parties that she has listed in the expense report.
- Conducting a formal interview of Mandy