Identifying Payroll Fraud

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Identifying Payroll Fraud

Payroll fraud can be defined as intentional acts to misappropriate funds from the payroll system. Some statistics to help paint the picture of what is happening:

  • According to Alexander Forbes, payroll fraud occurs more often than cash in transit heists in South Africa (
  • More than 9% of workplace fraud in the United States is associated with payroll fraud (Association of Certified Fraud Examiners)
  • According to the same survey by the Association of Certified Examiners, it can take up to 36 months to discover a fraud scheme from the time it was first started

It is clear that these acts are thoroughly thought through and planned; thus it is imperative that you are able to identify the most common types of fraud that exist:

Buddy punching: fellow colleagues use each others’ information to clock in for one another, when they are not able to or are not in the office to clock in for themselves. You will find that actual head counts on some days will not balance with time sheets submitted.

Ghost employees: these are either former staff members that have not been discharged from the payroll or fake staff members that have been created, that payroll staff use to accrue funds. These funds are usually transferred to bank accounts linked to these fraudulent staff members.

Fabrication of payslips: Payroll staff alter their own or fellow colleagues’ payslips in order to secure contracts or credit based on false information.

Unauthorised claiming of hours: staff may fluff up their time sheets by claiming inflated overtime, attempting to reduce lunch break times, avoiding clocking out during break times etc.

Employee and Supervisor time sharing: an employee records extra time to get overtime pay, and splits it with his superior who approved of the overtime.

Other types can include:

  • Workers compensation fraud
  • Duplicate EFT files created
  • Pay rate alteration
  • False expenses or exaggerated expenditure
  • Exaggerating sales commissions