Payroll fraud is the leading form of employee theft from businesses in the U.S.  According to the Association of Certified Fraud Examiners, payroll fraud occurs in 27% of all businesses.  Smaller businesses (those with 100 or fewer employees) are twice as likely to be victims of payroll fraud (16.5% versus 8.2%) than large businesses. 

Payroll fraud can go undetected for an average of 36 months and smaller businesses take a greater hit with the median loss of $154,000 versus the overall average of $145,000. 

There are several ways employees can use the payroll system to their advantage and steal from their employer.  Contrary to popular opinion, cloud-based payroll services are no less vulnerable to these common fraud methods than on-premise solutions. 

1. Unauthorized hours – working unscheduled hours or into overtime without supervisor permission is a common method of stealing from employers.  Timesheets can be ‘padded’ with a few hours a week that over time can accumulate to real theft. 
2. Buddy Punching – employees work out a deal with their co-workers to punch in for them, allowing them to steal time – and hence money – from their employer.  Employees can use the trick of having a fellow employee punch in for them while they are on vacation, allowing them to ‘double dip’. 
3. Paycheck Theft – stealing other employees checks either because a fellow employee is absent on payday or due to lack of control of paychecks by payroll and supervisors. 
4. Ghost Employees – Often in collusion with the payroll clerk, supervisors or others may create ghost employees who are fictional or terminated employees who are still being paid.  
5. Payroll Alteration – payroll clerks can modify pay rates in collusion with an employee, then edit the payroll record or void the checks out of the system.
6. Scammers – while not directly tied to employees, payroll records are ripe targets for Internet scammers.  Once access is obtained, via phishing email for example, scammers can run ghost employees or other payroll scams within the system. . . or simply steal and sell employee data on the dark web. 

This Summer, Net at Work is hosting User Group meetings for our Employer Solutions clients. Payroll systems are vulnerable to theft, but proper controls can minimize the opportunity for crimes to be committed.  Join us at one of our User Group meetings to learn more about how you can put checks and balances onto your payroll system to protect your company’s assets. 

• July 19th |  Boston MA
• August 23rd  | Tampa FL
• September 12th  | Atlanta GA

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