Preventing Payroll Fraud

Payroll can create a golden opportunity for less than honest employees or advisors to steal funds from a business. The key to preventing it is to put in place the proper checks and balances, or internal controls, to be sure you know how much your paying and to whom. These are important in all sizes of businesses, but small businesses seem to be the hardest and most often victimized.


There are two leading types of payroll theft. In the first, an employee pays themselves more than their authorized salary, or pays relatives or friends who are not employed by the business. In the second, an individual trusted with making payroll tax payments takes them money for themselves, rather than paying it over to the proper taxing authority.


There are some simple steps that can prevent this from taking place.


  • Require that all paychecks be approved by another member of management prior to being authorized, and also have that manager check the paycheck against the current pay rates for the employees.
  • Reconcile your bank account monthly, and be sure the amounts authorized for payroll match what was disbursed from the account.
  • Check to be sure all tax payments were received by the IRS or state revenue department on a monthly basis, and in the correct amount.
  • Keep a 0 balance payroll account. Put in the exact amount of approved funds to the account the day before payday, and check to be sure it is 0 after paychecks are cashed and taxes are paid.