Payroll fraud is the most common form of asset misappropriation which last for many months before it is detected. It is simply defined as a scheme that an employer issues payment to an employee following cheating in order to receive funds to which they are not entitled to.

Most of the business today faces this problem and a lot of funds are lost trying to find a solution. To understand how to prevent payroll fraud you need to understand how it occurs first.

Below are some things you can do to make sure your business isn’t prone to payroll fraud:

  • Run background checks on all employees: As an employer, your duty is to have all criminal records on what your employees have done in the past and current performance.
  • Review payroll reports frequently: Payroll should be reviewed after every pay period. Look for a professional who will help you track on how much money is paid out to ensure there is no wastage of resources.
  • Verify all individuals who receive an income: Use a service that verifies the name of the employee and their bank accounts, to avoid existence of ghost employees. Businesses today should use a web- based application to manage their payroll system to avoid payroll fraud, reduce cost on payroll and increase efficiency.
  • Segregate duties: Divide the task involved in managing a payroll system among different people thus making it difficult for payroll fraud to occur. Payroll system should only be accessed by authorized people.
  • Audit individual record: This is done by going through an employee at random and figure out whether all the entries are correct to avoid  a situation where an employee cover for another friend thus creating fraud.
  • Review PTO accruals: Take note of the employees who have taken day off and take note of their leave reports, so that it can show a decrease in their PTO balance.


Business can avoid payroll fraud by doing the following segregate duties, review of payroll reports frequently, auditing individual records, run background check of your employees and review PTO accruals.