You don’t hear a lot about large-scale financial statement frauds involving payroll accounts, as accrued payroll liabilities aren’t typically material to a company’s financial position. But fraud involving the payroll cycle is quite common. Here are 6 examples of payroll fraud: • Paying fictitious employees • Paying terminated employees • Overpaying actual employees • Incorrectly classifying labor costs • Underpaying third parties • Inaccurate disclosures for executive and/or shared-based compensation To reduce the likelihood of fraud, companies should ensure that: • Payment is made to actual employees at authorized rates for actual time worked • Gross pay, payroll deductions, and net pay have been correctly calculated • Payroll deductions have been authorized • Payroll costs are correctly classified • Withholdings are submitted to third parties in a timely manner • Full disclosure is made for any executive and/or share-based compensation Introduction 0:00 Paying fictitious employees 0:29 Paying terminated employees 1:11 …
