One Friday evening, Jimmy and Rachel are sitting on the back porch drinking a cool lemonade and chatting about how long it’s been since the business gave them a raise–three years and counting. And everyone knows the owners just bought a beautiful cabin in Aspen. The cost: $10 million. Meanwhile Jimmy and Rachel (cousins) are wiling away their time discussing what they could do to make more money.
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“Don’t you control what people make,” Jimmy starts. Rachel laughs and says, “I may be in payroll, but I can’t give anyone a raise.”
Jimmy pauses and says, “I didn’t ask if you give raises? I mean, can’t you change pay rates, like you could increase mine. You know, quietly.” He grunts “After all, the owners sure don’t need the money.”
Rachel ponders the request and replies, “I think I could. No one ever reviews what I do. I doubt anyone would ever notice. Come to think of it, I could do the same for myself. With over 300 employees, no one would know. The supervisors never look at the computer payroll files, only the physical personnel files.“
The next day Rachel increases the pay rates for her and Jimmy by 10%, just to test the waters. If anyone notices, she’ll say it was a mistake. But no one does, and after six months, she moves the rates even higher–another 30%. Easy money.
No one is comparing–on a test basis–the pay rates in the payroll master file to the approved rates in the personnel files.
Have someone in internal audit or an external CPA or CFE randomly select employees, comparing the master pay rates for each person to the personnel files. Let the payroll and human resources employees know that this test will be performed once a year. The knowledge of the test will be a deterrent to fraudulent increases in the master pay rate file. In particular, pay rates for payroll personnel should be reviewed.