6 sins that lead to charity payroll fraud

23rd October 2019

Charity Payroll fraud is high on the agenda during Charity Fraud Awareness Week. Your charity’s payroll should be the first to be protected. Losses incurred through payroll fraud can be devastating to a charity, creating financial and reputational carnage. NCVO Trusted payroll supplier IRIS FMP share their experience of this type of fraud, and how to avoid it with six simple rules.

We’ve blogged extensively highlighting the problems of fraud in charity payroll. The week of awareness from the Fraud Advisory Panel should be picked up by every charity or not for profit organisation. Hard-pressed charities, where staff often wear multiple hats, are particularly vulnerable.

In the UK there are three basic types of internal payroll fraud:

• Ghost employees
• False wage claims
• Overinflated expenses claims

Most people would commit fraud if they thought they could get away with it according to the Countering Fraud for Competitive Advantage book. Certainly, false wage claims and overinflated expense claims are often quite common to an organisation. The creation of ghost employees often involves someone at the heart of the organisation’s payroll department and can include external help.

According to insurer Hiscox 40% of fraud occurs from a finance or accounting professional.  The rest is predominantly made up of employees in senior roles, right up to CEO.
Externally charities are also increasingly becoming targets for sophisticated external Spoofing, Vishing and Phishing/ Whaling attacks.

Spoofing, Vishing, and Phishing – The facts

• Spoofing – A type of scam where an intruder attempts to gain unauthorized access to a user’s system or information by pretending to be the user.
• Vishing – This is where a fraudster makes a telephone call posing as a bank representative to persuade the victim to hand over financial information.
• Phishing – Fraudsters seeking to obtain sensitive information by electronic means. Sensitive information includes passwords, usernames, bank details or other financial information.  This could include emails, pop-ups or fake websites from seemingly trustworthy sources.

What can be done to combat charity payroll fraud in the not for profit sector?

1. Let everyone know what’s expected.
   To understand the impact of fraud in your organisation have clear guidelines, coaching, and training.
   Bring fraud into the open and discuss it openly from the top down. Ask your employees to be vigilant, and let you know of any weaknesses in your systems – you may not have thought of all possible failures in your systems.
2. Take away the risk.
   Use an outsourced provider for your payroll and build your internal audit procedures and practices around that, ensuring anything handled internally carries dual signatories or ongoing audit checks. If you can grab the extra time to spot fraud through outsourcing then you should take it.
3. Thoroughly check who you’re employing – both internally and externally.
   Comprehensive employee screening should be the norm internally. Ensure any outsourced payroll provider has ISO 27001. The CIPP Payroll Assurance Scheme accreditation provides an additional level of security. The key is to ensure security is at the top of the agenda.
4. Know your team
   Always be on the lookout for anomalies – e.g. employees with the same address, and thoroughly check employee expenses.
5. Never leave just one person in charge
   It’s hard, especially in smaller charities, to have more than one person in charge of payroll, but it’s risky. If you cannot do that in your organisation then consider rotating roles on a regular basis or get someone independent to sign off payments.
6. Stay on top of leavers
   Make sure your procedures when someone leaves are watertight.

The Fraud Advisory Panel, Government and the NCVO provide useful advice on fraud prevention, and a reputable payroll provider will give you the secure service you need to maintain your hard-fought reputation.