The largest expense for most employers are the wages and benefits paid to its employees. As such, there are many ways in which employers can expose themselves to risk. Either intentionally or through a lack of awareness, staff members within the payroll department often times cost their employers large amounts of money.

Effective internal controls can significantly reduce the amount of exposure employers have to these areas. Documentation of these internal controls is critical to ensure they are followed on a consistent basis.

Some simple activities that can greatly reduce intentional fraud include:

  • Separation of duties

  • Rotating job assignments

  • Physical payouts


The separation of duties is important even within small payroll departments. No task should be relegated to a single individual. Payroll departments should periodically switch up the responsibilities of the various staff members. This can be very helpful from a cross-training perspective for unplanned absences as well. In addition, having unannounced physical payouts that require all employees to display a photo ID prior to receiving their payroll check can ensure that phantom employees are not being paid within the organization.

Set up internal controls in your payroll department

Staying up-to-date on regulatory and administrative changes is critical to organizations; ensuring they are compliant with ongoing changes that affect payroll processing. Such as: