Payroll Fraud

Vel Marie Santillan 19th Mar 2017
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In a separate blogpost, we’ve talked about Clock-in Fraud. Now, we’ll be tackling Payroll Fraud. Payroll fraud might happen when there is a ‘’dysfunctional’’ payroll system. It will most definitely happen if you DON’T have a payroll system.

Here are scenarios of payroll fraud:

  • Advances not paid back
    This happens when you don’t have an effective payroll system that monitors deductions. If you don’t have a system yet, chances are you haven’t been deducting your employee salaries with their cash advances. Which means, you are getting the shorter end of the stick.

  • Buddy Punching
    As mentioned in the previous post, buddy punching is also a clock-in cheating that involves employees clocking-in for each other. This is bound to happen as employees have ‘’each other’s backs’’ while you are left paying them or their unworked time.

  • Ghost Employees
    Especially if your business has a lot of employees, enrolling non-existent employees in the payroll is easy. A fraudulent employee can falsify information in the system and lo and behold – you’ve been paying a dead person for decades now. This usually happens in government units where monitoring is lax. Yes, I said it.

  • Pay check diversion
    Pay check diversion happens when, let’s say, Marsha is absent during payday and Nora holds the check for her. Then, Nora cashes it for herself. This works hand-in-hand with ghost employee fraud.

  • Pay rate alteration
    This happens when a payroll systems clerk colludes with another employee and change pay rates to pad salary. This can be done covertly days before payday and can be altered back to the original rates so as to veer away from suspicion.

  • Unauthorized hours
    The most common type of payroll fraud is altering of time sheets by employees, usually in small amounts to escape the notice so supervisors won’t be suspicious. This is a particular problem when supervisors are known to make only cursory reviews of time sheets.

What these payroll fraud scenarios have in common is the lack of secure payroll systems. These scenarios can be prevented if you have a system that has a limited access where you can personally choose who gets to be the admins. For sure, you can choose people who you trust so much. You can sleep at night knowing you haven’t been cheated out of money.

Credit: Modified photo from Sg SMU | Singapore Management University


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