By Ayomide Otitoju
Payroll fraud is causing significant financial losses for South African companies and taxpayers, according to industry experts. The Public Servants Association reports that ghost employees are costing the public sector nearly R4 billion, while the Chartered Institute of Payroll Professionals estimates that payroll fraud drains at least R100 million annually from businesses, accounting for roughly 10% of all business fraud cases.
Despite the high financial impact, payroll fraud is often relatively simple. Fraudsters typically exploit employee records by adding ghost employees, manipulating records of departing staff, or targeting infrequently paid employees like contractors and freelancers. They often change banking details before or after payroll runs to divert payments, hiding their activity within legitimate payroll processes.
Yolande Schoültz, founder of YSchoültz Attorneys | Conveyancers | Notaries, emphasises that altered bank account details are the common thread in most payroll fraud schemes. “For payroll fraud to work, money must be misappropriated and fraudulently paid into a bank account,” she said.
Experts recommend organisations perform monthly checks on new hires and terminated employees, ensuring that bank documentation matches payroll records. Key red flags include: New employees on payroll without corresponding banking documentation, Active profiles for terminated employees, Bank account changes for infrequently paid staff, Duplicate bank account details across multiple employees,Changes to banking information immediately before or after payroll runs
Regular audits—quarterly or biannual—focusing on banking detail changes can help detect and prevent fraud.
Challenges persist, including unclear payroll oversight. Payroll departments often operate independently of finance, limiting scrutiny over employee payments. Many companies also rely on outdated payroll software, lacking remote access, integrated reporting, and robust oversight features.
Sandra Crous, MD of South African payroll and HR platform Deel Local Payroll, says modern payroll systems with role-based access can mitigate fraud. “If heads of HR or Finance can log in remotely and generate reports, they remove isolation and can easily verify new and terminated employees, especially checking for bank account changes,” she noted.
While payroll fraud may not be sophisticated, its cumulative impact is substantial. Vigilant monitoring of banking details and leveraging modern payroll systems are simple yet effective strategies to safeguard organisations from significant financial losses.
