Steps To Combat Payroll Fraud

KPMG’s 2014 Fraud Barometer Report noted the amount of money lost through payroll fraud rose to £6.3 million during 2014, up from £1.2 million the year before. Many cases of payroll fraud are insider jobs where those with responsibility for business finances use their positions to unscrupulously defraud their employers.

According to CIFAS, the UK’s Fraud Prevention Service, staff fraud is now the single most significant fraud risk to all businesses, and in particular, the financial services industry. Other research by CIFAS found that 125 out of 127 companies surveyed had experienced payroll fraud. These findings paint a stark picture, highlighting a need for a proactive plan to deter and detect payroll fraud in the workplace.

Getting The Balance Right

Naturally, employers must be vigilant in combatting business fraud. However, there is a fine line between implementing a fraud-protection strategy and cultivating a work environment where staff feel they are constantly being watched. It is not good for staff morale as research suggests. According to Pressure at Work and the Psychological Contract, a report by CIPD (the professional body for HR and people development), employees who are closely monitored tend to be more negative towards work and suffer from stress. So there has to be a balance between a heavily policed business and a set-up where employees can get away with fraud.

Payroll Fraud: Detect And Protect

An employer needs to protect his/her business from fraud and be meticulous in doing so. Even if a well-defined policy for protection against payroll fraud is in place, do not let it end there. While it is important to trust their employees, employers need to stay on the ball and ensure they detect fraud.

Check Information

Employers should thoroughly screen job applicants. Check at least two references, do a Google search and make sure the candidate is making an honest application for the position.

Separate Processes

Having separate HR and Payroll divisions can ensure employees are being paid correctly. A new employee’s details can be signed off by HR and sent to payroll so one department is responsible for authorising payment, while another is responsible for monitoring payments.

Outsource Payroll

Payroll agencies that are approved by HM Revenue and Customs (HMRC) can ensure security and eliminate in-house fraud.

Monitor Payments

Regular auditing and monitoring of all payments is essential to stay on top of payroll fraud. External accounting firms spot inconsistencies that may otherwise go undetected.


If you are not in a position to hire an external auditor, do accounting spot checks. Look out for anomalies such as duplicate names or variations of the same name or duplicate bank accounts and take note of anything amiss, e.g. an employee earning a higher salary than their level within the company.


Use them! As well as that, frequently change your system passwords and adopt a password policy for all employees.

Maintain Confidentiality

Make sure your accounting department have their own printer in case confidential material is accidentally left out for all to see. Adopt a rigorous policy of locking physical employee payroll files away in a filing cabinet. Shred confidential information that is no longer in use. Payroll fraud is on the rise but you can safeguard your assets and keep your business fraudfree by adopting a dual strategy of protection and detection.