When Sonya Causer stole almost $20 million dollars from Clive Peeters over 18 months in 2008 and 2009, I thought I’d seen the biggest Australian payroll fraud
That figure has been dwarfed in the past week with the alleged $165m tax fraud, involving payroll outsourcing company Plutus Payroll.
So far, this story reads like a fast moving crime novel. It includes family connections of a high ranking ATO officer, a lawyer connected to a jailed politician, young entrepreneurs living beyond what would reasonably be expected to be their means, directors turning rogue, blackmail and dawn raids by more than 300 police officers. Those raids seized items including luxury vehicles, residential property, aircraft, firearms, jewellery and a reported $1m in cash from a safe deposit box.
We are yet to know exactly how the complicated scheme worked, however there are loopholes in the way that the ATO track tax payments from employers and these seem to have been widely exploited over the past 12 months by the syndicate using an intricate structure of companies.
The ATO has stated publicly that it is rocked to the core over these allegations including one of their own.
Although the ATO has a greater level of transparency and investigative tools than a decade ago, the system isn’t perfect. Innocent employers are being caught out. A client of Australian Payroll Association called our office to ask what recourse there was in relation to their payroll outsource provider, which they discovered, had not made superannuation payments to employees. The law abiding employer had paid the funds to the payroll outsourcing company which unfortunately had not made the deposits into employee’s superannuation accounts.
With Plutus Payroll being a preferred supplier of payroll outsourcing services to several Federal Government departments, it does beg the question as to how small and medium businesses might be able to protect themselves against becoming caught up in such a scheme or any fraudulent activity by payroll suppliers or their staff.
There are certainly three things that employers can do to significantly reduce the risk of becoming a victim of such a scheme.
Fund transfers
The first and most important of these is to never send wages (including PAYG and superannuation amounts) to a payroll outsourcing company. Just as you would be unlikely to give cash to a third party to make a large payment on your behalf, you should never put your payroll funds in anyone else’s hands. You can outsource the labour, but you’ll never outsource the responsibility.
The way to manage payments is by using a TNA, or transaction negotiation authority.A TNA is an agreement between you and your bank allowing a third party, such as a payroll vendor, to make transactions on your behalf following your authorisation.
In addition to ensuring the funds go directly from your bank account to your employees’, you can also put limits on your TNA to further protect against any improper activity.
The only money you should be paying directly to your payroll vendor is for their services.
Qualified staff
All legitimate payroll outsource providers will be able to demonstrate to you that they are committed to the quality of their delivery.The main thing that affects the quality of a payroll outsourcing services is the people who are running your payroll.If you have payroll in an outsourced environment, make sure you know exactly who is accessing your payroll and insist on being briefed on their skills, experience and most importantly, payroll qualifications.What makes this person or team more qualified than you to manage your payroll function.If the supplier can’t demonstrate this commitment to you, I’d suggest the quality of the service would be lacking.
Engage employees on superannuation
It’s well known that most people under the age of forty would hardly know how to contact their superannuation fund, let alone check payments are being made.While employees are sure to notice their salary is missing from their bank account, many may not check their super funds, which have allowed unscrupulous payroll service providers in the past to keep the funds themselves.
If you can encourage your employees to regularly check their superannuation fund balances, they will soon tell you if the amounts being deposited don’t match what is being reported on their payslip.
Payroll is complicated and it’s not going to get less complicated.With eight States and Territories all with different payroll rules and calculation, plus Federal legislation covering other areas of payroll and changes in industrial agreements and technology, there’s a lot that can go wrong.
While upcoming ATO initiatives such as Single Touch Payroll will potentially close some loopholes that have been exploited by the alleged scheme, nothing will eliminate risk of an outsourced payroll operation more than taking time to know your payroll vendor and ensuring good governance and controls around the payroll processes.
About Tracy
Tracy Angwin is the CEO of Australian Payroll Association and board advisor to Payroll HQ. In 2012, she developed Australia’s first nationally accredited payroll qualifications at Certificate IV and Diploma level, paving the way for the industry to improve its professional standards and attract new talent. Tracy is the author of books ‘The Payroll Revolution; How to Identify and Leverage the Value of Your Payroll Operation’, and ‘Profit from Payroll; How to transform a business cost into an operational asset’.
