How Can Internal Control Overcome Payroll Fraud?

Establish internal controls requiring separation of payroll duties. Personnel who create or maintain payroll data and lists should not be allowed to make changes or add employees without management approval. Payroll changes should be approved by two designated individuals. People who compute pay rates and accumulated hours for payroll should not be allowed to write payroll checks or submit the hours for payment by a payroll service without supervisory approval.

Have payroll accounts reconciled monthly and reviewed by management. Audit payroll information for duplicate deposit account information and repeated Social Security numbers or addresses.

Most banks provide a positive pay service where check numbers, amounts and employee names provided by the company are checked against any incoming payroll check. If direct deposit is used exclusively, require employees to pick up their paychecks in person with photo ID at least once per year at human resources or another designated department.

Small business should consider outside sourcing of payroll to a contractor, but this does not remove the requirement for a monthly audit of all disbursements made to assure that only certified employees are being paid.

ACFE Fraud Conference discusses fraud trends and prevention tools

DUBAI, 9th May, 2023 (WAM) – Under the patronage of the Ministry of Finance (MoF) and in collaboration with the Association of Certified Fraud Examiners (ACFE), Dubai is currently hosting the 2023 Association of Certified Fraud Examiners (ACFE) Fraud Conference Middle East. With over 300 anti-fraud leaders and experts in attendance, the two-day conference seeks to explore the latest trends and tools used in the detection and prevention of fraud in various sectors in the Middle East.

During the opening speech, Mariam Al Amiri, Assistant Undersecretary for Government Financial Management Sector at Ministry of Finance, expressed gratitude to the ACFE for hosting the conference in the UAE and acknowledged their role in executing sustainable initiatives in secure business environments. Al Amiri highlighted the significant progress made in the online payments segment since its inception in the mid-1990s. However, she also cautioned that technological advancements and digital initiatives are empowering fraudsters with new tools to breach security measures. She further noted that fraud cases have significantly increased worldwide in recent years, with billions of dollars reportedly lost by consumers, particularly in the Middle East.

In her speech, Al Amiri emphasised the importance of working collaboratively to combat fraud, which she described as a serious threat to economies. She expressed her pride in coming from a country that is a frontrunner in this field and that is dedicated to creating a secure investment climate.

Al Amiri highlighted the UAE's efforts to raise awareness about fraud detection and prevention through nationwide initiatives such as the National Fraud Awareness Campaign. She also discussed the Ministry of Finance's role in safeguarding the business climate, regulating financial services, and implementing best practices to reduce the risks of fraud.

Al Amiri went on to discuss the Ministry of Finance's anti-fraud manual, which was developed in 2018 to combat fraud in the federal government. She noted that the manual is implemented by all federal entities and that the ministry holds training workshops on an annual basis to enhance its application. Al Amiri also mentioned that the ministry has established a secure and confidential communication channel for stakeholders to report any cases of corruption or violations without fear of retaliation.

At the end of her speech, Al Amiri stressed the UAE’s commitment to supporting the region’s ongoing efforts to combat fraud and maintain the stability and integrity of the fiscal systems. Al Amiri said: “Together, we can promote accountability and transparency in the public and private sectors and create a secure business environment to boost prosperity across the region. Today and tomorrow, we look forward to discussing ways of safeguarding our investment climate, and sharing our experience and expertise to help reduce fraud cases in the Middle East.”

Bruce Dorris, President and CEO of Association of Certified Fraud Examiners (ACFE), said, “We greatly appreciate the support and partnership with the UAE Ministry of Finance for our eighth Middle East Fraud Conference. With new fraud threats arising everyday, it is important to have events like this one to learn from financial crime experts and one another so that we can prevent these frauds from greatly impacting our businesses and governments. The Ministry of Finance has demonstrated their commitment to the anti-fraud community by being a part of this conference.”

The first day of the conference included two panel discussions; the first was titled “Operational shifts and their impacts on the financial industry”, and the second was titled “Managing fraud risks in sustainability initiatives”. Additionally, a panel session was held on the evolution of fraud in the global financial market, in addition to an optional session on how to pass the CFE exam.

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The Impact of AI on Fraud Prevention and Detection in Latin America

In an increasingly connected and virtual world, technology has become a double-edged sword. While it allows the creation of new tools to prevent fraud and corruption, it also provides criminals with new ways to commit crimes.

The question being asked by Latin American experts is how the development of artificial intelligence (AI) will affect the future. “Technology is like a knife,” says Juan Ignacio Ruiz, president of the International Association for Cooperation in Fraud Prevention (ICPF), “because depending on who uses it, it can be used to eat a good steak or harm a person.” Ruiz and other experts shared their experiences at the VI Latin American Congress for the Prevention of Organizational Fraud (CLAPFO) in the Costa Rican city of Heredia, near San José.

Fraud is currently a “global problem” with a cost of 3.6 billion dollars in the corporate sphere, according to the Report to the Nations 2022 of the Association of Certified Fraud Examiners (ACFE), the world’s largest anti-fraud association. The NGO Transparency International confirms in its Corruption Perceptions Index 2022 that levels “have not changed” over the last decade in 95% of the 180 countries analyzed.

The Costa Rican company specializing in fraud prevention Capacita is betting on training and technology as “the most powerful weapons to fight corruption,” according to its director, André Barrantes. “(Fraud) can really have a direct impact on what is involved in the growth of the organization and even put its finances at risk. At the public sector level, this is schools, hospitals, we are mortgaging our society for this kind of cost of fraud and corruption,” said Barrantes.

He points out that, according to ACFE data, each year fraud consumes 5% of companies’ revenues, which could reduce their profits by as much as a third. Eastern Europe, Central and Western Asia, and Latin America and the Caribbean are the regions where fraud generates the most losses for companies, according to the ACFE.

Barrantes proposes taking advantage of technology to prevent, detect, and report fraud, as well as getting ahead of the development of artificial intelligence to project possible applications. “AI is going to imply new fraud risks because there are going to be new typologies,” he warns, “but it’s not all bad.” According to Barrantes, “artificial intelligence, like technology at the moment, is becoming an ally to be able to combat it.”

Julio Jolly, director of the Panamanian consulting firm Global Advisory Solutions, says that technology must be seen as an investment and not as an expense. “Technology should be seen as an ally. We are now in an era of artificial intelligence where we are already seeing that certain threats are being enhanced or enabled by the use of these intelligence systems,” warns Jolly.

AI burst onto the scene as a technology whose boundaries are yet to be determined, and its applications, for better or worse, are in full swing. “We are seeing more intelligence issues, internet backup, artificial intelligence interaction on the cognitive side, where there is more collaboration between humans and machines.

This means that if we are going to continue promoting it, we should not discard the issue of minimizing risks,” says Jolly. The expert considers that AI can both help to make fraud and prevent it, which is why training in programming and technological education is important to keep up with the pace of evolution.

“It puts us at a great disadvantage to criminals because there are no longer borders, and from anywhere in the world, governments, companies, individuals, can be highly vulnerable,” says Jolly.