10 Red Flags of Payroll Fraud

Payroll fraudAccording to the Association of Certified Fraud Examiners, payroll fraud occurs nearly twice as often in small organizations with less than 100 employees than in large companies and the average instance of payroll fraud lasts about 36 months.

Common payroll fraud schemes include:

  • Ghost employees – a person not employed by the company who is on the payroll
  • Falsified time – a company pays an employee based on falsified hours or rates
  • Commission fraud – the amount of sales made or the rate of commission is fraudulently inflated

When examining payroll files and employee personnel files, look for the following 10 red flags to detect payroll fraud:

  1. Blank social security numbers for employees on the payroll
  2. More than one employee using the same bank account number for direct deposit, social security number or address
  3. Employees with no deductions for payroll taxes or benefits
  4. An employee who shares an address, telephone number or bank account number with an accounts payable vendor
  5. An employee who is on the payroll but not on the company’s employee list
  6. Duplicate pay checks
  7. A terminated employee who is still on the payroll list
  8. Unusually high overtime pay
  9. An employee who has been paid for working more than 24 hours in one day
  10. Employees on the payroll register before their start date or after their termination date

Reviewing payroll records should be part of a monthly audit process. To learn more, email jjames@arastl.com or call 636-346-9273.