Payroll fraud risks

Who is this guidance for?

The guidance on this page is for leaders, Local Counter Fraud Specialists and staff working in NHS human resources, finance, and payroll teams. The guidance provides awareness to senior managers and staff of the most prominent payroll fraud risks during the COVID-19 pandemic.

What are the risks?

Whilst the NHS and government’s response to the COVID-19 pandemic is evolving, we know that criminals will take advantage during times of crisis. NHSCFA’s immediate concern is that changes in working practices along with a relaxation in the usual controls at a time of unprecedented pressure for the NHS may create opportunities for fraud to happen.

The vast majority of NHS staff and volunteers are honest, however organisations should accept that there is an inherently high risk of fraud, and it is very likely to happen.

It is important that managers and staff remain vigilant about the potential for fraud in the following areas:

Payroll systems
Timesheets
Sickness absence
Expenses and allowances

What should you do?

It remains critical during the NHS response to COVID-19 that NHS bodies, and particularly staff working in human resources, finance, and payroll teams, continue to comply with their legal responsibilities, standing financial instructions, organisational policies and procedures and governance requirements in relation to payroll.

It is important that staff continue to maintain robust working practices:

Verify: Check the accuracy of all payroll related claims to ensure that documentation such as expense sheets, claims for reimbursement, claim/allowance forms and timesheets are fully completed, verified and signed by an authorised officer.
Communicate: Where processes and policies have changed as a result of COVID-19, these should be communicated to staff at all levels to ensure compliance with the changes.
Identify: Fraud prevention controls should be in place to identify fraudulent activity within salary payments, overtime payments, expenses and sickness absence payments.
Report: Where fraud is suspected or identified, it should be reported immediately in line with the guidance below.
Mitigate: Create post-event assurance to mitigate against fraud losses and ensure audit trails are maintained.

Payroll systems

Payroll processes should be followed to ensure prompt payment of staff salaries. As significant numbers of new staff may have been recruited during COVID-19 (including permanent staff, temporary staff, volunteers and agency staff), there may be an increase in the following payroll-related fraud risks:

Increased volume and complexity of salary payments may make it more difficult to apply verification procedures.
Exaggerated claims for reimbursement may result in salary overpayments.
Duplicate salary entries may be made for the same employee record.
There may be more potential for ‘ghost’ employees to be added to the payroll roster.
Staff recruited as volunteers or on a temporary basis may continue to remain on the payroll system after the COVID-19 pandemic is over.

Recommendations to prevent and detect fraud in payroll systems include:

Employee records created in the payroll system solely for COVID-19 should be reviewed periodically to check for anomalies and ensure records are kept up to date.
Information should be reviewed on a regular basis to identify where multiple payroll records are paid into the same bank account.
Employee checks should be made to ensure employees are genuine.
Making use of the new COVID-19 resource hub which has been developed by the NHS Electronic Staff Record (ESR) team, which supports organisations in their use of ESR during this pandemic.
Prolonged absence notifications for employees should be sent to payroll.

Further information is available on the ESR web pages.

Timesheets

The risk of timesheet fraud may increase where effective oversight and control measures in a high-pressure work environment are difficult to manage. More specifically, there may be an increase in the following risks:

An increase in timesheet form submissions, putting pressure on processing operations.
More limited verification capabilities.
Fraudulent claims for additional working hours, failure to deduct break times or falsification of working days.
An increase in the volume and complexity of claims submitted from temporary staff, volunteers, staff in flexible working arrangements and agency staff.
Lack of clarity over line management responsibility for individuals.
Lack of oversight by line managers.
If working remotely, there may be a failure to complete contracted working hours.

Recommendations to prevent and detect timesheet fraud include:

Clear policies and procedures should be in place for all staff and managers for completing, submitting and authorising timesheets. These may have changed during this pandemic so any changes should be communicated to staff to ensure compliance.
If staff are required to work from home, they should have a clear understanding on what is required of them during this difficult period and the hours they are required to work as this may have changed.
It is beneficial that policies and procedures in relation to home working are communicated to all staff members, particularly those who are new to home working.
Verification checks should be undertaken to ensure timesheets submitted are from the correct individual, are legible, have been completed daily with the correct information and the signed declaration signed by both the staff member and authorised (where possible the authoriser has physically been present at the time of the shift).
Authorisers should check that original timesheets are submitted.
Record retention policies should be maintained as this will assist post event assurance and ensure audit trails are maintained.
Ensuring an authorised signatory list is kept up to date.
Ensuring clear procedures are in place with respect to rest breaks and when management are reviewing and considering the volume of hours worked by staff to identify potential conflicts.
Training and guidance should be reinforced to staff on the completion of timesheets.
If electronic timesheet systems are in use, users should ensure login details such as passwords are regularly changed and not shared with colleagues.
Staff access to the timesheet system should be stopped immediately upon termination of an employment contract.
If there are any suspicions of timesheet fraud during this period, they should be brought to the attention of your Local Counter Fraud Specialist as soon as it is possible.

Sickness absence

During the COVID-19 pandemic, the NHS will see higher levels of sickness absence being reported. NHS Employers has issued new guidance stating that "normal sickness provisions as detailed in the NHS terms and conditions of service handbook for Agenda for Change (AfC) staff (section 14, England), will be paused for the duration of the pandemic for sickness absence related to COVID-19. For normal sickness absence that is not related to COVID-19, normal provisions will apply as usual".

As a general rule, there is nothing to stop employees from working for more than one employer. However, if they falsely declare that they are unfit to work for one and continue to work for another this may constitute fraud.

In light of the new provisions introduced in this area, it is important to be aware that fraud risks may increase in this area due to:

Staff members falsely declaring to be on sick leave for a definite or indefinite period of time whilst working elsewhere.
Working extra bank shifts to gain supplemental hours/pay whilst on sick leave and receiving the usual salary.

Recommendations to prevent and detect working elsewhere whilst sick include:

Policies and procedures on employees undertaking secondary employment should be reinforced and communicated to staff at all levels.
Staff should be aware of the requirement to inform their manager of any secondary employment, and this should be reinforced and included in the employees’ code of conduct.
Return to work interviews should be conducted and recorded on the sickness/absence notification form sent to payroll.
Appropriate measures regarding return to work/standards of business conduct form declarations should be completed.

For further guidance on staying at home and proof of sickness for employees during the COVID-19 pandemic, see Guidance to Employers on Sickness Absence terms and conditions and the GOV.UK website.

Expenses and allowances

Fraud risks related to expenses and allowances claims may increase as more staff are recruited to assist with the pandemic, which may lead to insufficient training and induction programmes and a lack of awareness of policies and procedures.

In addition, there may be a need for staff to work additional hours with increased travel and subsistence expenses (e.g. for accommodation, parking, meals etc) and a quick turnaround required for expense payments. This may result in the following risks:

Increased volume of travel and subsistence payments, putting pressure on checking/processing operations.
Claims being made for expenses that were never incurred.
Inflated expense claims.
Falsified or manipulated receipts.
Multiple expenses claims submitted for the same item.
Bank details not checked for accuracy.
Claims for expenses and subsistence that exceeds the daily allowance.
Inflating mileage claims when seeking reimbursements.
Collusion among employees who claim separately for travel or mileage when they travelled together.

Recommendations to prevent and detect fraud in expenses and allowance claims include:

Undertaking checks to verify the accuracy of claims (including checking of receipts, date of purchase and value of purchase to match the claim). Ensure evidence of original expenditure is attached with every claim including verifying itemised receipts for all purchases/expenses.
Claims should be authorised by an appropriate officer.
If the claim does not appear to be accurate or raises suspicions, it should be challenged – could it be false claim? It is OK to reject a claim pending further information from the claimant.
Budget holders should be mindful of increases in travel and subsistence cost during the pandemic and ensure claims are being monitored.
Management should ensure regular reviews and monitoring are undertaken if corporate credit cards are in use.
If the claim process has been changed due to COVID-19 (e.g. changes to expenses forms, changes to processing times), employees should be informed of these changes, including a reminder issued to all staff that original documentation such as receipts should be maintained for a period of time for audit purposes.

Other resources

Please see NHSCFA’s wider advice on the prevention of payroll fraud on our NHS Fraud Guidance page. Find information and definitions for the different types of fraud affecting the NHS in the NHS Fraud Reference Guide.

Please find other relevant resources:

How to report fraud

Report any suspicions of fraud to the NHS Counter Fraud Authority online at https://cfa.nhs.uk/report-fraud or through the NHS Fraud and Corruption Reporting Line 0800 028 4060 (powered by Crimestoppers). All reports are treated in confidence and you have the option to report anonymously. You can also report fraud to your nominated Local Counter Fraud Specialist.