Fraud Awareness Surrounding COVID-19
As the world responds to the COVID-19 pandemic, there is still an unchangeable fact that payroll departments must continue paying those entitled to payment. This applies to all payroll departments regardless of whether they are part of a private company paying employees or a government agency issuing payments to any of the 26.5 million people who received jobless aid as of September 12. However, payroll departments have not remained isolated from COVID-19 impacts highlighting the importance of fraud awareness and prevention under these conditions.
It is not uncommon for a company to consider internal support staff when reevaluating its staffing model. While payroll leaders plan for a certain amount of employee turnover within their department, changes stemming from the pandemic may have accelerated future planned retirements or even caused a reduction in headcount. In either of these situations, a payroll leader would need to find a way to complete the scheduled payroll tasks and still meet the set of deadlines.
One reaction could be, “We just need to pitch in and get it done.” If the expectation is that the reduction is temporary, this reaction might be even more plausible. Unfortunately, organizations have extended those temporary reductions. Consequently, a preferable approach would be to review the existing payroll controls and determine how to allocate the work within the current payroll department’s controls. Additionally, a payroll leader would need to revisit this process if a payroll member were to test positive for COVID-19 and unable to perform their duties.
These staffing issues, heightened now because of coronavirus, are ripe for payroll fraud.
System Vulnerabilities With Remote Work
Many organizations have moved to either a partial or full remote workforce model, depending on the industry. An organization supporting a remote workforce requires a particular technological infrastructure to make working remote secure and possible for even a partial workforce. For instance, an organization’s payroll system would need to support employees completing tasks remotely, which leads to these initial questions:
- Are the capabilities of the current payroll system adequate?
- Are there security standards sufficient to protect personally identifiable information (PII) and meet HIPAA and other applicable standards?
- Does the organization have appropriate policies in place, especially around approver roles and responsibilities?
If the expectation is that managers and the payroll department will also work remotely, then the same questions need to be addressed, but the scope of controls’ expansiveness will likely need to be broader. An organization that does not have this functionality existing in payroll production should approach any adjustments with a documented approach with the appropriate resources and support from leadership.
The Many Forms of FraudAs mentioned, how an organization approaches supporting a remote workforce is critical. While this has focused on potential staffing changes to the payroll department, staffing changes have occurred throughout the entire organization in many instances. A site tracking COVID-19 at Statista.com reported that as of October 1, there were around 7.2 million total cases of COVID-19 in the United States and 34.1 million total cases globally. The global spread of COVID-19, coupled with the limited response time for organizations, both public and private, has created a real opportunity for fraud.
Reported instances of fraud occur at a variety of levels. For example, the U.S. government has filed charges repeatedly for identified violations of the Paycheck Protection Program (which provides loans for small businesses). The U.S. Food and Drug Administration (FDA) has posted warnings on its website regarding fraudulent coronavirus disease products. Many of these fraudulent products are targeting individual consumers.
Payroll fraud existed well before COVID-19, and based on history, will continue in the future. The list below contains areas where there may be an increase in fraud based on the disruption to the workforce:
- Inaccurate reporting of time and attendance
- Working unauthorized overtime hours
- Lack of adherence and enforcement of existing internal controls, especially the separation of duties
- Missing approvals or deviations from the approval structure
- Company policy is not the foundation for promotions, salary increases, work schedules, staff layoffs, or reduction in force
While payroll should already have controls in place, the impact of COVID-19 on staffing could allow people to take advantage of others assigned additional work or filling in for sick colleagues while also constrained by strict deadlines. Additionally, another critical factor is the stress caused by COVID-19. One can observe the effects of this stress at both the individual level and the national level.
For example, a colleague may have lost a loved one. People are impacted by reductions to work schedules or layoffs. Some families have gone from a two-income household to a single-income household because of job losses. Added stress includes parents having to stay home with their children because schools are practicing distance learning. According to the Centers for Disease Control and Prevention (CDC), everyone reacts differently to stressful situations.
Stress may cause colleagues to act in unexpected ways with unexpected consequences. For example, there was a report of a Georgia man who cost his Fortune 500 Company about $100,000 after he allegedly lied to them about testing positive for COVID-19, causing them to close the business for cleaning and sanitizing while continuing to pay workers. He was charged with wire fraud (the email he sent to his employer was deemed an interstate wire communication).
The changes resulting from COVID-19 differ from those most organizations have encountered in recent history. However, changes are not unfamiliar to payroll professionals. Being detail-oriented and accommodating are common personality traits that can often be found in payroll departments. While coronavirus has brought new considerations, those payroll professionals who make sure an organization’s updated policies and procedures address challenges their payroll department may encounter are preparing themselves with tools to help work through this time of change.
Michael Dupuis, CPP, PMP, SHRM-SCP, is a functional consultant specializing in implementing payroll, HR, and time and attendance systems. He is also a member of the APA’s Board of Contributing Writers Committee, the Electronic Payments Committee, Certification Item Development Task Force, and the Education Advisory Committee.