Payroll Schemes

Payroll fraud ranges from mere overstatement of time worked, leave accrued or rates of pay to the payment of “ghost” employees.

Payroll schemes are perpetrated by an employee against his or her employer. In its simplest form, an employee over-reports his hours worked with the intent of receiving more pay than was earned. In such schemes, it is not unusual for the employee and a supervisor to collude in over-reporting the employee’s hours and then to split the unearned compensation. A variant of this scheme involves the under-reporting of leave taken.

Where ineffective controls over establishing compensation rates in the payroll system exist, it is possible for the employee to inappropriately raise his or her pay or have it raised by a confederate with whom the illicit excess is shared.

In more complex schemes, an employee or employees are merely fabricated out of thin air and their pay diverted to the fraudster. This type of payroll scheme is particularly hard to detect in large, decentralized operations. The migration away from handing out paper paychecks towards electronic deposits has had the effect of eliminating some detective controls

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.