Fraud Prevention

Payroll fraud involves the deliberate manipulation of a company’s payroll processes to unlawfully obtain financial gain. Common schemes include creating unauthorized payroll accounts, compromising access credentials to alter records or redirect funds, falsifying timesheets, issuing unapproved bonuses and paying ghost employees or individuals who’ve been terminated. In some cases, companies engaged in tax fraud may also misclassify employees in IRS filings to evade tax obligations—another form of payroll-related misconduct.

Types of payroll fraud can include the following:

• Business or owner identity theft: Fraudsters use stolen credentials to impersonate a company or its leadership.

• Misrepresentation: Individuals falsely claim authority to act on behalf of the business, often to initiate payments or access sensitive systems.

• Account takeover: Compromised credentials are used to access payroll systems and initiate unauthorized transfers.

• Check and Automated Clearing House (ACH) fraud: Involves altering or counterfeiting legitimate paychecks, double-presenting checks for payment or initiating unauthorized electronic transfers to siphon funds.

Fraudsters exploit a range of vulnerabilities across systems and processes to commit financial crimes. Key threat vectors include:

• Credential compromise: Unauthorized access gained through stolen, phished or pharmed credentials to initiate illicit transactions.

• Insider threats: Employees or contractors misusing access privileges to bypass controls or facilitate unauthorized activity.

• Business email compromise (BEC): Social engineering tactics used to impersonate executives or vendors and trick employees into making fraudulent payments.

• Spoofed or compromised third-party vendors: Fraudsters pose as trusted vendors to intercept payments or introduce malicious code into financial workflows.

• Malware and ransomware: Malicious software used to extract sensitive data, disrupt systems or extort funds.

• Man-in-the-middle (MitM) attacks: Interception of communications between two parties—often via public Wi-Fi or compromised networks—to steal credentials, session tokens or sensitive data.

• Social engineering: Manipulative tactics such as phishing, pretexting and baiting used to trick individuals into revealing sensitive information or authorizing fraudulent activity.

• SIM swapping: Attackers take control of a victim’s mobile phone number by convincing a carrier to reassign it to a new SIM card, enabling them to intercept one-time passcodes and access financial or authentication systems.

Here are some fraud prevention best practices:

• Safeguard your identity by regularly monitoring your credit and placing a freeze with each bureau to block unauthorized access

• Protect your business by actively monitoring key data sources, including but not limited to Dun & Bradstreet, Experian, Equifax and the Better Business Bureau, for unusual activity or changes to your business profile. Additionally, routinely review Secretary of State filings to detect unauthorized amendments or discrepancies that may indicate attempted business identity theft or corporate hijacking

Here are some cyber hygiene essentials to strengthen digital defenses:

• Avoid using your email address as a username. Choose something unique to reduce exposure.

• Use passphrases instead of passwords. They're longer, easier to remember and harder to crack.

• Never reuse passwords. Each account should have its own unique credentials.

• Change your passwords, don’t just modify them. A real reset is more secure than a simple tweak.

• Be cautious with search engine links. Navigate directly to trusted sites when possible.

• Always enable multi-factor authentication (MFA) for an added layer of protection:

  • Email – Basic protection

  • SMS – Improved security

  • Authenticator Apps – Stronger defense

  • Passkeys – Modern and robust

  • FIDO Authentication – Top-tier security

As incidents of cyber fraud continue to grow, there are precautions you can take and controls you can set to help you avoid loss. Payment fraud activity is on the rise. Here are tips to prevent it:

• Never respond to pop-ups or unsolicited phone calls asking you to provide personal information or to submit or re-submit your login and password information.

• Never allow multiple people to use the same computer to process a transaction.

• Never continue an online session that makes you or any of your colleagues feel uncomfortable or unsure, discontinue the session immediately.

• Never provide sensitive non-public information within an email.

• Always validate every and all payment requests received via email – ideally verifying the sender’s detail via phone call or in person before proceeding.

• Always review email and domain names closely for accuracy and to help avoid phishing or BEC schemes. isolved emails will always follow the @isolvedhcm.com or @applicantpro.com structure.

• Regularly review and confirm the entitlements and systems access of your employees.