Reducing the Risk of Payroll Fraud

Payroll fraud is one of the most common and costly threats to businesses, particularly for small to mid-sized companies with fewer internal controls. Whether it’s inflated hours, ghost employees, or falsified expense claims, payroll fraud can have a long-lasting financial and reputational impact.

Here’s how your business can reduce the risk—backed by best practices, internal controls, and modern payroll technology.

Common Types of Payroll Fraud

Understanding the different types of payroll fraud is the first step in preventing them. Some of the most common include:

• Timesheet Fraud – Employees exaggerate their working hours or claim overtime not worked.

• Ghost Employees – A fake employee is added to payroll and payments are redirected.

• Pay Rate Alterations – A legitimate employee’s rate of pay is increased without authorisation.

• Expense Reimbursement Fraud – Submitting fake or inflated expenses for reimbursement.

• Commission Fraud – Sales employees manipulate results to receive higher commissions.

How to Avoid Payroll Fraud

1. Implement Segregation of Duties

No single person should be responsible for preparing, authorising, and distributing payroll. Split responsibilities between team members or departments to create accountability.

2. Conduct Regular Internal Audits

Perform routine payroll audits, ideally quarterly to detect discrepancies or unusual activity. This should include reviewing pay rates, employee lists, and expense reports.

3. Use a Cloud-Based Payroll System

Modern systems offer secure, automated processes and real-time reporting, making fraud much harder to conceal.

4. Enforce Timesheet Controls

Require all staff to submit electronic timesheets. Ensure line managers or supervisors review and approve submitted hours.

5. Maintain Accurate Employee Records

Regularly update employee data to ensure accuracy and remove any inactive staff. Verify new hires through a structured onboarding process.

6. Set Approval Workflows

Create tiered approval processes for salary changes, bonuses, and overtime pay. This prevents unauthorised changes from going unnoticed.

7. Enable Direct Deposit and Payment Verification

Pay employees via direct deposit into verified bank accounts. Cross-check account details with HR records to avoid ghost employee fraud.

8. Use Role-Based Access Controls

Limit access to payroll systems based on roles. Only authorised users should have access to sensitive functions like editing pay rates or generating reports.

9. Train Managers and HR Staff

Educate those involved in payroll on how fraud can occur and the signs to look out for. Awareness is critical for prevention.

The Role of Payroll Software in Preventing Fraud

Cloud-based payroll systems like Biznus Payroll  offer built-in security, automated workflows, and real-time reporting that minimise manual errors and detect inconsistencies early.

With features such as:

• HMRC-compliant submissions

• Secure employee self-service portals

• Custom payroll reports

• Audit trails for every change made

• Support from certified payroll experts

you can protect your business against fraud while simplifying your payroll process.

Final Thoughts

Payroll fraud can be costly, but it’s also preventable. By putting strong controls in place and using secure, intelligent payroll solutions like Biznus Payroll, businesses can significantly reduce their risk.