How Safe is Your Payroll from Fraud?

So you’ve got your company all set up: you’ve got a nicely furnished office, your exceptional product or service primed and ready for consumption, and newly hired employees eager to start their first day. Now is the time for you to protect yourself, though you must be wondering why you would need protection when your business has barely even started.

Well, that’s exactly the reason why you need to get yourself protected. Your business, no matter what stage it is in, is vulnerable to what is called payroll fraud.

Payroll fraud is the act of taking money from the company through the payroll system of the company.  There are many ways in which an employee can commit payroll fraud, some of which are actually accidentally committed and most of which are often overlooked. This is why, as a business owner, it is your job to be vigilant when it comes to these things so you won’t suffer the same fate as many businesses today and end up losing your capital before you can even profit.

Here are just a couple of ways fraud is committed via the payroll system and how you can combat them:


Buddy punching is the act of allowing other employees to punch you in and out of work for various reasons. It could be that the other employee is just running a little bit late and doesn’t want to be marked late on the payroll, or is in fact completely taking time off from work without permission. As harmless as it may sound, the act of buddy punching is actually present in more than 50% of companies worldwide and is one of the reasons why companies lose money.

There are popular and ever growing ways of battling this fraudulent act. The first of which is to inform all employees right from the get go that it is an illegal act and that it will not be tolerated in the work place. Although this is definitely not a foolproof solution to the problem, some employees will be dissuaded by the idea of punishment that they will forget the whole thing altogether.

A more effective of way of getting rid of buddy punching is through the use of a smart attendance solution. The way these systems work is that it circumvents having to use all of the manual time accrual systems by placing everything on a digital platform with systems like PayrollHero. By of having you take a photo yourself, the system is able to accurately track where and when you clock in and out of the office, and confirms that the right person is the one in the photo, thus saving the company from losing money to the buddy punching.



Another way payroll fraud is committed is through the act of creating ghost employees. The act of creating of ghost employee is done when one of the members of the payroll staff creates a totally fake employee, or continues to approve the payrolls of an employee that is no longer working with the company.

A more deliberate act of theft, the creation of ghost employees is one that is considered to be quite criminal, and could even implicate the employee that already left, of the name of that was used in the creation of the ghost. This is problem that commonly happens within larger institutions that have more employees and thus are less prone to supervisors having to go through each of their employees compensation details and end up losing all of that supposed salary to the ghost employee. This also happens when there is a change in the supervisor as that would then be the best chance to insert ghost employees before the new supervisor comes in; they would not yet be familiar with the names and face of everyone in the company and thus would be more susceptible to falling for this crime.

Constant vigilance is the key to getting rid of ghost employees, one must play close attention to what happens during payroll audits. One thing to look out for when it comes to payroll audits is a salary that has absolutely no deductions to it. The reason for a salary to have absolutely no deductions is when the suspect wants to steal as much money as possible by taking even the deductions that are usually taken from ones salary such as tax and other payables.


These are just some of many ways in which a company can fall to payroll fraud. There are many more methods in which these acts can be committed, some as simple as changing a few numbers, and some that go as far as conniving with one of the members of the payroll staff to completely change the salary of one employee. Whatever the case may be, it must be noted that you are only as vulnerable to these crimes as you choose to be. There are many ways in which you can protect yourself from such a crime and it is only right that you do so. Managing your business comes with a lot of risks — but your payroll doesn’t have to be one of them.



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