Payroll fraud ranks as the leading source of accounting fraud worldwide. In the U.S. and Canada, payroll incidents account for 15% of reported occupational fraud cases, and these cases cost businesses $2,800 per month in losses, according to a 2024 ACFE Fraud Report.
The prevalence of payroll fraud stems from the direct access to financial systems and the complexity of payroll processes, which create vulnerabilities that bad actors exploit. For global employers, these risks multiply due to fragmented payroll compliance frameworks, decentralized oversight, and inconsistent infrastructure across borders.
Why payroll fraud is a global business risk
Companies operating in multiple regions face heightened exposure. In 2025, Florida-based payroll provider Elite Payroll admitted to a $22 million tax fraud scheme after failing to remit Social Security, Medicare, and federal income taxes withheld from client employees over eight years.
Similarly, former CEO Andrew Park was sentenced to 2.5 years in prison for withholding over $14 million in payroll taxes from his startup’s employees, despite repeated IRS notifications. These cases illustrate how gaps in cross-border controls, such as lax tax remittance protocols or inadequate audits, can lead to severe financial and legal repercussions.
In the U.K., new research from The Global Payroll Association (GPA) reveals that payroll fraud costs companies an average of £40,000 with every occurrence. The kicker? It takes on average 18 months to detect.
Melanie Pizzey, CEO and Founder of the GPA, commented on the research, stating, “The payroll system is an essential part of every company, and it’s an area that is becoming an increasing focus for fraudsters.”
“What’s more, payroll-related crimes tend to go unnoticed for far longer than any other type of asset misappropriation … This is money that most companies, and especially SMEs, simply cannot afford to lose and, more often than not, it’s due to a lack of auditing and a lack of intervention or review from business owners and leaders,” Pizzey adds.
The rise of distributed workforces further complicates fraud prevention. Variations in local labor laws, currency fluctuations, and differing banking systems create opportunities for schemes like timesheet padding, ghost employees, or unauthorized bonuses. Without centralized visibility, organizations struggle to detect irregularities, leaving them vulnerable to prolonged fraud cycles.
For employers, proactive measures are no longer optional. As penalties for noncompliance grow steeper—evidenced by Google’s $8.4 million overtime settlement in 2023—businesses must prioritize fraud-resistant payroll systems capable of scaling across jurisdictions. The stakes extend beyond finances: unchecked fraud erodes employee trust and jeopardizes operational stability in critical markets.
Common payroll fraud examples
Payroll fraud takes many forms, each exploiting weaknesses in financial systems and workforce oversight. These schemes drain resources and erode trust and compliance, particularly for organizations with global operations.
1. Ghost employees (phantom workers)
“Ghost employee fraud is a fraudulent practice where individuals are added to a company’s payroll records, even though they are not employed by the company, in order to collect unlawful salaries,” defines Himanshu Arora, Associate Director at KPMG.
A stark example occurred in Nigeria’s 2016 federal audit, which uncovered 23,000 ghost workers siphoning $11.5 million monthly through falsified bank accounts and duplicate salaries. The government implemented biometric verification and cross-checked bank details to identify discrepancies, such as payments to nonexistent personnel.
Similarly, the World Health Organization (WHO) noted Nigeria’s Integrated Payroll and Personnel Information System (IPPIS) later identified 65,000 ghost workers, highlighting systemic vulnerabilities in manual processes. These cases underscore the importance of automated identity checks and periodic audits, especially in regions relying on paper-based systems.
2. Timesheet and hourly manipulation
This fraud involves inflating hours worked, falsifying clock-in records, or claiming unauthorized overtime. Remote and field-based teams are particularly susceptible due to limited physical supervision.
“Buddy punching”—where employees clock in for absent colleagues—remains widespread in industries like manufacturing. For example, retail workers might overstate shifts by two to three hours weekly, cumulatively costing employers thousands annually. Solutions like biometric timekeeping and geolocation tracking are proven to reduce fraudulent claims, and real-time analytics further help validate employee activity during paid hours.
3. Commission or bonus fraud
Employees may falsify sales data or performance metrics to trigger unearned commissions, often in sales-driven organizations with lax oversight.
Common tactics include inventing fictitious sales or altering commission rates. In “invention of sales” schemes, retail workers manipulate point-of-sale systems to record fake transactions and earn fraudulent commissions. In an executive example, a sales director might inflate quarterly deals to claim higher bonuses. Multi-tiered approval workflows and regular reconciliation of sales records against bank deposits are critical to deterring such fraud.
4. Employee misclassification
Misclassifying full-time employees as independent contractors allows employers to evade taxes, benefits, and labor protections—a growing focus of global audits.
Uber faced prolonged legal battles in the U.K., France, and California, where courts ruled drivers were entitled to employee benefits, costing the company $8.4 million in back payments and penalties. Misclassification also skews tax contributions, as seen in Australia’s 2024 reforms mandating retrospective benefits for workers.
5. Advance and reimbursement abuse
Employees may exploit expense advances by submitting duplicate claims, inflating costs, or fabricating business expenses. Multi-country teams face higher risks due to disjointed reimbursement systems.
For instance, a nonprofit bookkeeper intercepted checks meant for the organization and deposited them into a fraudulent bank account he opened under the nonprofit’s name. He withdrew the funds for personal use, exploiting his position of trust. The fraud was discovered during an audit, resulting in financial losses and a loss of donor confidence.
Centralized platforms with receipt-matching algorithms and pre-approval workflows mitigate compliance risks by standardizing expense tracking across regions.
6. Payroll system tampering (internal fraud)
Insiders with unchecked access to payroll systems can alter salaries, redirect payments, or insert unauthorized bonuses. Small teams lacking segregation of duties are especially vulnerable.
Internal payroll tampering most often occurs in organizations with inadequate oversight. A 2023 case at B.A. Blacktop Ltd. and Eurovia BC Inc. involved a payroll administrator who diverted almost $2 million by altering employees’ banking details and issuing unauthorized payments to herself. Over two years, she exploited her access to modify direct deposit information, rerouting salaries to accounts she controlled.
The fraud was detected when employees reported missing payments, prompting a forensic audit that traced discrepancies to her login activity. The companies now enforce multi-tiered approvals for banking detail updates and conduct monthly payroll audits.
By recognizing these schemes, employers can deploy targeted safeguards. Such measures include regular audits, biometric verification, real-time analytics, and decentralized approvals to secure cross-border payroll.
Global challenges in detecting payroll fraud
Detecting fraud across global payroll operations requires navigating a labyrinth of logistical, regulatory, and cultural obstacles. Multinational employers face unique vulnerabilities that localized teams might avoid, compounded by the following challenges:
- Fragmented oversight in global teams. Decentralized payroll management across subsidiaries allows discrepancies like duplicate payments or ghost employees to persist. Without centralized audits, regional teams may lack the tools or authority to flag irregularities.
- Disparate payroll infrastructure. Inconsistent software, tax systems, and banking protocols create reconciliation gaps. Variations in regional platforms obscure unauthorized transactions, making fraud harder to trace.
- Language and regulatory barriers. Divergent labor laws and different languages complicate documentation reviews. Fraud indicators in untranslated records or unfamiliar compliance frameworks often go undetected.
- Vendor transparency gaps. Outsourced local payroll providers may operate with limited oversight, which can lead to unreported discrepancies. Third-party processes can introduce vulnerabilities, especially in regions with inadequate fraud controls.
- Currency and exchange complexities. Fluctuating exchange rates complicate tracking cross-border payments. Discrepancies in multi-currency transactions may mask fraudulent adjustments to salaries or bonuses.
- Cultural differences in fraud perception. Regional tolerance for minor infractions, such as timesheet padding, can normalize risky behaviors. This cultural leniency may delay the detection of larger, systemic schemes.
- Data privacy restrictions. Strict privacy laws (e.g., GDPR) limit cross-jurisdictional data sharing. Auditors may lack access to employee records, stalling multinational investigations.
Best practices for employers to prevent global payroll fraud
Proactively safeguarding payroll systems demands a strategic blend of oversight, technology, and cross-border collaboration. Employers must adopt globally scalable frameworks that address both localized risks and overarching compliance requirements. Below are actionable strategies to fortify payroll integrity across international operations.
1. Conduct regular internal audits of payroll systems
Routine audits are critical for identifying discrepancies like ghost employees or unauthorized payments. The 2024 ACFE Report found that organizations that deploy surprise audits and management reviews reduce fraud by 63% and 60%, respectively.
To detect irregularities, payroll auditing should cross-check payroll registers against employee records, tax filings, and bank deposits. For example, reconciling time-tracking data with payroll outputs can expose timesheet padding or buddy punching.
2. Standardize payroll systems and processes
Adopt a unified payroll platform that integrates regional tax laws, currency conversions, and compliance requirements into a single platform. Standardization reduces manual errors and ensures consistent payment cycles, tax withholdings, and reporting formats. This approach also simplifies training for local teams and minimizes gaps that fraudsters might exploit in fragmented systems.
3. Restrict system access with role-based controls
Role-based access controls (RBAC) are an effective form of fraud prevention that ensures payroll systems remain secure and transparent. Administrators define strict permissions hierarchies where employees only access data or functions essential to their role—such as restricting salary adjustments to HR directors or limiting bank detail modifications to verified finance personnel. By segregating duties (e.g., separating payroll processing from approval and reconciliation), organizations eliminate single points of failure that enable internal collusion.
4. Automate time tracking and attendance verification
In regions with significant timesheet fraud, biometric tools like facial recognition or fingerprint scanning curb manipulation. A case study by CloudApper revealed that biometric time clocks reduced buddy punching by 90% at a utility company. Geolocation tracking further validates remote workers’ hours, while AI-driven alerts flag anomalies like sudden overtime spikes.
5. Partner with a trusted global Employer of Record (EOR)
Employers of record mitigate compliance and fraud risks by managing payroll through their localized expertise, multi-country connections, and global knowledge. As a typical example, misclassification fines can be avoided by leveraging EORs’ knowledge of regional labor laws. EORs also provide standardized reporting and audit trails that deliver consistent payroll execution across jurisdictions.
By prioritizing these strategies, employers can create a globally compliant payroll ecosystem that deters fraud while adapting to the unique demands of global operations. The focus on standardization, automation, and collaboration ensures compliance and financial security scale alongside business growth.
Prevent payroll fraud with global EOR solutions
EOR services provide a strategic defense against payroll fraud by centralizing oversight and standardizing compliance across borders. EORs eliminate fragmented systems and consolidate payroll management into unified platforms that prevent ghost employees, duplicate payments, or unauthorized adjustments. EORs also mitigate compliance-related fraud risks, such as employee misclassification or tax evasion.
For employers seeking scalable fraud prevention, partnering with a trusted EOR provider like Velocity Global streamlines compliance while safeguarding payroll integrity. Velocity Global’s platform combines centralized payroll management with localized compliance expertise, enabling businesses to detect anomalies early and maintain audit-ready records across 185+ countries. For more info, get in touch.
Disclaimer: This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. The content in this guide is provided “as is,” and no representations are made that the content is error-free.
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Topic:
Payroll
