Fraud Detection And Control In The Payroll Department



The dictionary of the payroll define fraud is an act or a course of deception deliberately practice to gain unlawful or unfair advantage. Such deception is done to the detriment of another.Adedokun while writing on the topic “malpractice in the banking industry describe fraud as a practice which are not only just contrary to the ethnic of the bankers profession but also constitute infringement of the various banking laws and regulation. to defraud , D.I Thorne (1985) opined that it is to deprive a persona an advantage dishonest of something which is his or of something which would or might be for perpetration of fraud entitled.

Fraud can therefore be describe as any premeditated act of criminal deceit, trickery or falsification by a person or group of person with the intention of altering facts in order to obtain undue monetary advantage. Although criminal and other malpractice are peculiar to ministries, in deed what is commonly referred to as white-collar criminality permeates all fact of criminal activities.

Wole Adewumi (1986), see fraud as a generous pre – determined action of a person or a group of person with the intention of altering the truth and fact for selfish monetary gain. It involves the use of pranks, tricks and some time highly intelligent, cunning means. The actions usually take the form of forgery, falsification of document, unauthorized document and outright theft.

From the above, it is clear that fraud is synonymous with wicked act especially those that confers illegal profession on some others peoples wealth on the fraudsters


The present day fraud in the ministry one increasing with a varying degree of sophistication and formula. There it not possible to highlight or pin point or enumerate all the various forms of fraud in payroll department. The first reason being the recognition of the dynamic nature of business environment and secondary the continual divaricating of device employed always by fraud perpetrator. Above all authors is a misymist and have the ability to predict future behaviour of the criminal in other words, there is persistent and every day evaluation of strategies statistical procedure which not one can predict with accuracy and certainty.

An interview conducted with the director general of civil service commission Enugu to the opinion that fraud emanates as soon as new breeds join the organization. However a question which still seen unanswered is who are this new breeds and when do they join the organization. Therefore it is the auto opines that fraud and malpractice reared its ugly head even before the enactment of the new decree. The idea of the act of fraud, which is dated back since the creation of man. According to J.U.T Okolo, (1987), he classified fraud into two major categories namely,


  1. Defalcation of money: a dictionary define defalcation as detecting shortcoming, fraudulent, deficiency of money owing tot h breach of trust, misappropriation and the amount misappropriated. The most straightforward case of misappropriation is a situation where money is received and not accounted for. He further sub-divided defalcation of money into salaries and wages where there is not proper system of internal check and control.

Mis-appropriation can be affected by

  • Inclusion of dummy names on the salary sheets
  • Use of wrong rate in the calculation of salaries
  • Deliberate use of wrong salaries scale in the preparation of salaries for selected individual
  • Claiming of overtime not worked
  • Deliberate error on the payroll to give a higher salaries then is actually due

(a) Non- recording of the receipt:

Money could be received and not recorded in the books of the organization. In many cases this is done when the cashier or some other officials charged with the receipt of cash print take the receipt that he uses for the customers.

 b) Over – stating expenditure:

By the use of recite expenditure that was never incurred could be recorded and equivalent amount misappropriated.

Carry over fraud or terming and lading” this is a situation where a cagier makes an unauthorized borrowing from the collection and make up a day collection with the collection of the following day. The tendency is for this type of borrowing to become large and large until the cashier is unable to make good of amount borrowed.

In bank, a seminar present by J.F Sydney on “ fraud “ he listed the following as common type of fraud in the banking system. There is forgery on current account forgery of transfer instrument. Such as draft mail transfer etc. diversion of bank funds embezzlement or outright theft of cash operating of the false credit balance and suppression of cash lodgments.


Several weaknesses have been identifies as root cause of fraud. Some of them are;

  1. Lack of reference to staff recruitment:

This is on of the fundamental cause of fraud in the ministries payroll. References are requested from the previous employers and dependable citizen who can vouch for the conciliation. Sometime some of office like the office of the director general, commissioner is recreated on the basis of their relationship of the staff. This of course led to the recruitment of unqualified and dishonest staff.

According to Bunmi, F. (1986), the greatest challenge to fraud prevention in our society identifies tow major course of fraud

These include:

  1. Avariciousness

The primary course of payroll is avariciousness or over-emphasis on wealth. At least, the volume of money one is able to accumulate, most Nigerian today, wants to be classified and include in the class of wealth millionaires even where they have not worked hard for their accumulated wealth. The next to get rich quickly and become one of the millionaires can only be possible as the believe through fraudulent acts.

In other words, the end shall justify the means.

  1. Social norms

He classified this as a secondary cause which base on the society norms. It is quite to common to see many unrepentant criminals go with some unraveled title just because of their dirty Naira. In addition wealth should not be seen as the end of everything in any well-meaning society.

According to Chieazo, the knowledge of a a personnel background and experience will help in detecting fraud because most payroll fraud will not succeed if there is no internal collaboration..

Police incompetence is hardly fraud causes. The protracted and unnecessary delay in the police investigation and the eventual persecution of cause involving in the payroll has not aided in the effort of checking payroll but in fact has contributed to perpetrate the activity of fraudsters.

The police slow in concluding their investigation and charging cases to court. The ghost mobilization exercise made in Enugu state ministry in 1995 three (3) staff was suspected in the dummy of name and were charged to court. Such cases suffered long delay following numerable adjournments, which in some cases appears unwarranted.

Bunmi F. while writing on the topic “ fraudulent activity in 1986, declared has always held that in order to have a successful Nigerian account system in the Nigeria, the police and the patrollers should be partners in progress. He went on to say that in our kind of society, the kind of fraudsters know that hey can always have their way with the police.

Adekanye F,. Also identify the following causes of fraud:


  • Employment of fraudulent staff who normally collides with the dishonest staff in the organization and defraud the organization.
  • Cross filing of cheque or killing. This is a situation where a payroll official use the uncollected funds of the paying bank and pay it into his account and this cause by over case of salaries sheet and filling in of dummy name in the salary sheet.
  • Legal inadequacies in checking fraud: Fagbemi while writing on fraud and law – X – ray the relationship between X – fraud and the legal system wrote very often rogues lay their hand on the salary list, forge the staff signature to their own and item in the current payment.. Because the researcher felt that the recommendation made by Bello and Adekanye are not quite updated, he therefore deems it quite necessary to state the causes and give subsequent solutions.

(i)      Dishonest Staff

The cause of fraud can be bearded on the untried desires of some unsouplouese citizen who are consumed in the get rich syndrome. in the society in some cause, their fraudsters are born criminals.

This born character are always hard to be giving up hence the lat opportunity open to such organization is t terminate such appointment. Other people perpetrate fraud as a result of companionship with someone who do it and succeed.

And of course the out born contributed in no small measure in destroying our society. Some people in our society are more opportune to make the easy money income intoxicate with the alliance that the rate race for money becomes the order of the day.

(ii)     Break Down Of The Internal Control System

This is one of most latent problem by which are perpetrated in our organization. Once the internal control system is break down, the dishonest staff who we have just mention will appear to have a field day in carrying out their notorious operation and activities.

(iii)    Looses and ineffective security system:

This is also one of the means by which fraud are perpetrated in payroll, in chequebook, draft, etc. are not properly kept. That is- it is accessible to unauthorized staff, the unscrupulous payroll usually take advantage of that to perpetrate fraud.

(iv)    Low rate of detection and lack of deterrent punishment:

Fraud by its nature cannot be detected easily and this tends to encourage fraud in our organization because fraudsters sincerely but dishonestly believed that they would not be caught. And really a number of fraud have taken place without any body been identified. With them, fraud is an operation in secrecy, which cannot be detected without the divine guidance of God and working operation of the organization and the members of the general public. It is more unfortunate that when fraudster are caught and are charged to court and found quite, they are sentence to such term of imprisonment which are not certainly commensurate with the offence committed. There was a case of a cashier who physically stole 40,000.00, he was arrested, prosecuted and tried and was found guilty, the court fined him 2000.00 or imprisonment for three months, off course the cashier paid the 2000.00. The court probably expected to the employer to take civil action for the recovery of the stolen money, a fatal exercise that dose not recommend itself t to the organization generally. The loopholes or inadequacies in the legal system by providing an escape rout for fraudulent individuals nourished the ground for blossoming of fraud in our society.



Fraud in the ministry often affects the government. In the view of Leslie F. Howard. He state that the nature of work to carried out in the event of fraud or in order to ascertained whether they have taken place will depend on the type of fraud and the instruction received by the accountant.

According to him, if the fraud should concern only a section of the work such as the entry of a dummy workman on the salary sheet by one clerk, the extent of investigation should be restricted. On the other hand a fraud that involve collusion between responsible officials will necessitate work of an extensive nature while the normal audit procedure will still apply, the following matters should receive special attention.

  1. Misappropriations of cash

All cash details and this will involve the following steps:


  • The rough cash book should be checked with the cash book with the bank paying slip obtain from the bank
  • Where receipt are issued, the copies should be checked with the cash book
  • Payment should be checked with the returned cheque and the original document checking authorization for payment, signature of the documents concerned. If voucher are missing, copies should be requested
  • Petty cash should be vouch in the any 1:0:11, outstanding should be checked with those who received them
  • All balance should be courted production of the being at one and the time at one other balance confirmed direct with pass sheet entries.
  1. Wages defalcation
  • The internal control system should be investigated and loophole noted
  • The original documents from which the salaries are compiled should be checked. This will include such matters as the charges or the salaries rate as well as the original notification of the staff.
  • Every care should be taken to ensure that all those shown as the employee are usually in the service employment list of the organization.
  • Cost and cross cost should be checked and salaries controlled account comp0-iled where they have not been checked or kept.
  • The system operated in regard to unclaimed should be checked

According to Onovo, fraud can be treated under the following heading. Viz

  • Employed fraud
  • Management fraud
  1. Employee fraud:

This involves the misappropriation of money of goods by an individual or a group of individual without the knowledge of the board of the directors with the intention of the defrauding the members.

  1. Management fraud:

This is purely the manipulation of account and records by the tope management staff. The auditor needs to be on his guard for the possibility of management fraud at the closing stage of the auditor in particular when receiving the financial statement



The first immediate impact on the economy is the prevalent fraud in the organization in loose of confidence in virtually all the mode affecting payment of goods and service, the possible exception been cash. Another effect on the economy is he disturbance in thee economic performance which such malpractice are likely to be endangered. This has resulted in the abandonment of many projects which could not contribute in no small measure to the economic growth of the nation and the general well being of the people.

Way of reporting on fraud and irregularities are

  1. Reporting to the management: in addition to the his statutory

duties to report to the shareholders of a company on the truthfulness and fairness of the account, the auditor should report to the management if the companies auditor has brought to the light any irregularity. In his report to the management, the auditor may consider it appropriate to make recommendation for the improvement in the internal control system so as to prevent such irregularities in the future. If taking account of any adjustment and regularized material affect the view given by the account, the auditor should qualify his opinion accordingly. However, he has a specific responsibility to report if the financial statement giving a true and fair view despite the occurrence of the irregularities.

  1. Reporting to the third party: in the course of his audit, the auditor may discover fraud or other irregularity perpetrated by his client. Normally, the auditor duty of confidentiality precludes him from reporting any matter to the third party without his client permission. However, in certain circumstances, the auditor may be regally bound to disclose the commission to a criminal offence if ordered to do so by a court or by a government official empowered to request such information. Furthermore, an auditor may elect voluntarily where public arise if the auditor is aware that the act id criminal offence and I likely to cause serious harm to an individual or affect large number of people. Where the auditor is not sure of his position, he should take legal advice and if his effort I frustrated by the management, he may consider resigning his appointment under the provision of the company’s Act.



In the word of J. Lowis Brown and Leslie Attoward (1995), all they highlighted was that prevention is better then cure, and that the up keep of sound system of organization and the internal check is for better than the subsequent dramatic discovery of fraud.. According to them, they said, “ if fraud is discovered, the most important is not that it has been discovered, but how it is possible.


The main factor that can help prevent fraud includes

  • The system of internal check in operation
  • Internal auditor
  • The use of machine in carrying out the office work
  • Examination for the cooperative figures
  • Personal management


In conclusion, the internal auditors can handle prevention of fraud, and the control units has he primary objective of preventing fraud and errors. This objective may be impossible to archive since fraud and error are known to have occurred even in the best system of internal control system. However, good systems of internal control system ensure that where errors and fraud take place, they are detected within a very short space of time. It is therefore expected that the effect of a good system of the internal control is to control and prevent and reduce the incidence to fraud and errors.

Similarly the prevention and detection of fraud also rest with the management. These arise out of status and control. The director are management and they act in a stewardship capacity for the shareholders, the auditor do not have the responsibility to prevent or detect error for the proper discharge of his duty, he need to remind the director of their duties to prevent and detect error and fraud. He duty of care and skill expected of the auditor require that he should obtain relevant, reliable and sufficient evidence that no material error or fraud they have been corrected or appropriately disclosed in the financial statement.

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