Recent Payroll Fraud Cases Highlight Need for Stronger Controls

Payroll fraud is not just a theoretical risk but a persistent and evolving threat that has financial, legal, and reputational consequences for organisations around the world. Leadership must make preventing payroll fraud a priority. This requires more than just technical safeguards; it demands a culture of integrity, awareness, and accountability. By embedding strong controls, fostering transparency, and embracing technology, payroll professionals can not only defend against fraud but also reinforce their strategic role as guardians of organisational trust and financial integrity.

Payroll Fraud Examples in Ghana, U.S.

The following examples from Ghana and the United States show how fraud can occur in any situation where controls are weak or vigilance is low.

The High Court in Tamale in Ghana convicted six individuals in May for their involvement in a payroll corruption scheme within the Ghana Education Service. The convicted individuals, including payroll officers, school administrators, and accountants, were found guilty of facilitating the illegal validation and reactivation of salaries for a teacher who had left his position (commonly referred to as a ghost employee). This fraudulent activity led to the wrongful payment of over GHS 86,000.

In the U.S., Joseph McKeon was sentenced in May to 24 months in federal prison for fraudulently obtaining U.S. $900,000 through the Paycheck Protection Program (PPP), a COVID-19 relief initiative. McKeon, who owned a New Jersey-based company, submitted false PPP loan and forgiveness applications between February 2021 and February 2022. He misrepresented the number of employees and wages, and provided forged documents, including fake payroll records, bank statements, and tax returns. After receiving the funds, he withdrew significant amounts in cash and made large transfers, including a U.S. $315,500 payment.

The CEO of a U.S. payroll services firm based in Oregon was sentenced in January 2024 to 27 months in prison for willfully failing to pay over U.S. $22.6 million in employment taxes to the Internal Revenue Service (IRS). Between late 2016 and 2022, the individual collected payroll tax withholdings from client businesses but diverted the funds to cover company expenses and personal compensation. In addition to prison time, he was ordered to pay U.S. $14 million in restitution and serve three years of supervised release.

With payroll being the function through which, arguably, most of a company’s funds flow, payroll has historically always been an area at risk of fraud. These cases raise awareness of the need for risk and control management to detect and prevent fraud in payroll operations around the globe.

Best Practices in Payroll to Prevent Fraud

Below are six key best practices for preventing fraud in (global) payroll:

1. Segregate Duties Across Payroll Functions. Ensure that no single individual has complete control over the payroll process. Assign separate roles for inputting data, approving changes, processing and approving payroll, and authorising payments. This segregation of duties acts as a fundamental internal control and makes collusion more difficult. It also segregates duties cross-functionally, such as including stakeholders like finance and treasury in the payments controls process.
2. Implement Strong Access and IT Controls. Use multi-factor authentication, role-based system permissions, and encrypted platforms for sensitive data access. Limit and monitor access to payroll systems, shared drives, and payment platforms to prevent unauthorised changes or data theft.
3. Conduct Regular and Independent Audits. Schedule frequent internal and external payroll audits, with particular attention to anomalies like duplicate entries, inactive employees receiving pay, double bank accounts, or unapproved payroll adjustments. Use audit trails to trace all changes and flag suspicious activity. Solidify your own payroll department’s audit readiness program.
4. Deliver Mandatory Fraud Awareness Training. Provide onboarding and recurring fraud awareness training for all employees, especially those in payroll, HR, and finance. Cover topics such as phishing, spear phishing, social engineering, and internal fraud signals. Encourage a culture of vigilance and whistleblowing.
5. Leverage Technology and Data Analytics. Adopt AI tools or payroll analytics platforms to detect patterns, flag outliers, and identify risks in real time. Automating routine checks, such as matching payroll data against HR records or identifying duplicate bank accounts, can significantly reduce exposure to fraud.
6. Strengthen Cybersecurity and Phishing Defenses. Equip staff with tools and training to detect phishing emails, vishing calls, and social engineering attempts. Implement secure email gateways, antivirus software, and intrusion monitoring systems. Ensure employees know how to verify unexpected requests, especially those involving financial transactions.

When embedded into payroll governance and supported by cross-functional collaboration, these practices create a resilient framework that defends against fraud and strengthens trust in payroll operations worldwide.

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Max van der Klis-Busink, MCIPP, RPP, is the Owner of Passion For Payroll and Vice President of Global Strategy on PayrollOrg’s Board of Directors.