Payroll & Human Resources
Payroll fraud ranges from the mere overstatement of time worked, leave accrued or rates paid to “ghost” employees.
In its simplest form, an employee, frequently with the collusion of a supervisor or manager, is paid for time or overtime not worked. The employee splits his or her excess pay with the supervisor or manager who approved the fraudulent timesheet.
In more complex schemes, an employee or employees are merely fabricated out of thin air and their pay is diverted to the fraudster. This is particularly hard to detect in large, decentralized operations where people are unfamiliar with, or rarely see, certain other employees.
Without proper segregation of duties, an employee’s rate of pay can be illicitly increased.
Sometimes, payroll fraud doesn’t directly involve money. Benefits, such as additional vacation days, can be inappropriately added to accumulated leave balances.
Certain types of payroll fraud are abetted by today’s information technology. Some of these schemes used to be deterred by the largely outdated process of handing out paper paychecks.
Employee Time Reporting Fraud
Inconsistent overtime hours for a cost center.
Overtime charged during a slack period.
Overtime charged for employees who normally would not have overtime wages.
Budget variations for payroll by cost center.
Employees with duplicate social security numbers, names, and addresses.
Falsified Wages
Large or unusual hours worked in a given pay cycle.
Time card hours differ from job order hours.
Hours on payroll reports differ from timecard hours or job order.
Number of days worked and salary are inconsistent with occupation.
Employee works more hours than specified on certified payroll reports.
Review of supporting documents.
Adequate time tracking mechanisms.
Authorization and approval of hours worked.
General Guidance
Payroll schemes are varied and common. Payroll schemes can be carried out by an individual or by two or more people working collusively. Payroll schemes cover both those perpetrated by employees of the victim and those perpetrated by those contracted by the victim. The result is the same — additional, unwarranted cost to the victim. The cells below contain indicators of payroll schemes and steps that can be taken to contain them. To the right is a link to a questionnaire to help reduce the likelihood of payroll schemes.
Ghost Employees
No evaluations, raises, or promotion over an extended period.
Terminated employee still on payroll.
Payments to employees not on employee master file.
Employees with duplicate addresses, checking accounts, or social security numbers.
Employees with no withholding taxes, insurance, or other normal deductions.
Employees with P.O. box, drop box address, organization's address, prison or no home address.
Unusual work location or no work phone.
No annual/sick leave used over a reasonable period.
Data analysis: payroll reports, data analytics for vendor/employee matches on name/address/TIN/bank account.
Confirmation of employees' identities.
Background checks.
Verification of payroll distribution.
Time Overcharging
Unauthorized alterations to timecards and other source records.
Hours and dollars consistently at or near budgeted amounts.
Timecards are filled out by supervisors, not by employees.
Photocopies of timecards submitted where originals are expected.
Inconsistencies between consultants’ labor records and their employees’ timecards.
Frequent payroll adjustment entries with descriptions such as “charged wrong accounts,” etc.
Labor charges are inconsistent with contract progress.
Personnel files cannot be found or are “found” after a delay.
Lack of a clear audit trail to verify propriety of labor charges.
Job misclassification – apprentice workers billed out at higher rates.
Adequate time tracking mechanisms.
Authorization and approval of hours worked.