Common examples of Payroll frauds

Payroll fraud, like many other frauds, often starts out small and grows over time as the perpetrator finds success. Some common examples are as follows:

  • Ghost Employees ― Fake or fraudulent employees created by an individual who processes payroll. Checks are then deposited into an account in which the individual can access the funds.
  • Inflated time records ― Time cards (or equivalent records) that include hours that were not worked. The most obvious example would be an hourly employee attempting to gain additional compensation by inflating the hours worked on his/her time card. However, salaried employees whose compensation has a bonus component tied to a goal involving hours worked would also have motivation to inflate time records.
  • Unauthorized payroll or bonus checks ― Fraudulent payroll disbursements made to an individual without proper approval.
  • Manipulation of leave time ― A payroll claim and disbursement for fictitious or inflated leave time.
  • Manipulation of withholdings ― Failure (by an individual with payroll processing authority) to withhold items such as 401(k) or health insurance deferrals from an employee’s paycheck, while funding the items from company cash when initiating transfers to benefit administrators.
  • Expense report fraud― A claim and reimbursement for fictitious, inflated or personal expenses.