Preventing payroll & timesheet fraud

  • Payroll fraud committed by small business employees is common in the US, with 27% of businesses impacted by the practice. 
  • With an online payroll solution, it’s easy to detect if employees are attempting to manipulate your payroll data. 
  • Homebase can help by finding errors on your timesheets and payroll records, and automates the entire payroll process for you. 

What is payroll fraud?

Payroll fraud occurs when an employee steals funds from a business by falsifying timesheets or committing timesheet fraud.

Timesheet fraud happens when an employee of a business clocks in too early, clocks out too late, does not work during their scheduled time, takes too long or extra breaks, has someone else clock in for them, or somehow steals time from a company resulting in time theft or timesheet fraud.


What are the causes of payroll fraud and timesheet fraud?

There is more than one common types of payroll fraud in regards to small business payroll that can occur within a small business. First, employee fraud can happen when an employee manipulates the payroll process, falsifying wages that they have not earned. Business owners can also commit payroll fraud by withholding rightfully earned wages or the taxes they owe on those wages. 

Another type of payroll fraud is when business owners include “ghost employees” on their payroll. A ghost employee scheme involves a fraud scheme when the business owner is paying this ghost employee, or fake employee, a salary or wage despite the fact that they do not work for the business. 

Employees can also participate in payroll fraud through timesheet fraud. This occurs when employees inflate hours worked on their timesheets, or steal time for co-workers through “buddy punching,” when they punch in a time card for another employee before they arrive for their shift.

In terms of employee theft, 27% of businesses in the US are impacted by the practice, and when it comes to payroll fraud risks, you’re actually more susceptible to financial losses through your employees who could commit occupational theft than you are through payroll department fraud or cloud payroll fraud. 

The best way to gain internal control over your pay periods and pay rates is to use a high-tech, modern software solution like Homebase to keep your employee data secure. And since Homebase offers full-service payroll services, your secure data will be used to ensure accurate and precise wages and hours.

Time clock app punching in employee pin

How do I know how to detect payroll fraud and timesheet fraud?

There are many ways to detect if an employee is committing payroll fraud by manipulating their wages through whatever type of payroll system you are using. You can compare your pay data with your payroll budget to detect any inconsistencies, and you can also have a manager approve all timesheets before they are submitted for the payroll process.

If this is what you do, make sure the timesheets are completed and reviewed on schedule so that the manager doesn’t forget how many hours a certain employee worked for the shift.

You can also set up surprise audits by fraud examiners from a third-party company to take a deeper look at your timesheets and the actual schedule to detect any anomalies before your payroll summary reports are made.

Homebase time tracking can also help detect any timesheet errors made by your team members. Before running your online payroll process with our payroll app, we’ll look at your electronic timesheets to make sure there are no mistakes. We will also alert both the employee and you as the business owner if a team member did not clock out after their shift.


“We grew so attached to Homebase that I almost didn’t switch to a better POS system because I was worried about not being able to integrate Homebase. Luckily, we were able to upgrade our POS and keep Homebase - best of both worlds!”

Marko Sotto

Owner at Barzotto

Work from anywhere using timeclock app

How do I know how to prevent payroll fraud?

There are several ways to prevent payroll fraud if you are running your payroll process yourself and not using an online payroll provider. Aside from keeping a sharp eye on time tracking and the submissions for hours worked and comparing all data before submitting it for payroll, the best option is to use electronic services that detect and prevent the fraud for you. 

Homebase has many options for fraud prevention. As we mentioned before, our online time clock will detect if an employee has not clocked in or out before or after a shift. They will get a notification if they failed to do so, and you will as well so you can determine if the employee is attempting to steal time. 

Homebase’s digital timesheets make the errors very easy to correct, so if the fraud is in fact an accident, it can be easily fixed. When it comes to time theft in the form of buddy punching, our time clock prevents this practice easily. 

Our time clock will not only detect if an employee forgot to clock out after a shift, but it will also take a photo of who is clocking in and out. This way you will be able to detect if another employee is clocking in for someone who may not have arrived for their shift yet, or possibly not even be working that day.