The word “fraud” sometimes conjures up images of forged checks and shady wire transfers. But one of the most costly and hard-to-detect payroll issues shows up in everyday processes. A rounded-up shift here, an unrecorded break there, or a clock-in that doesn’t quite match reality. Over time, those small inaccuracies can add up, creating payroll losses and compliance risks that are easy to overlook until they’re expensive to fix. In 2025, nearly a quarter (24%) of employees admitted to inflating work hours, resulting in an average of 4.5 hours per week of stolen time.
What you’ll learn
What you’ll learn
Key takeaways
- Time theft is a globally prevalent phenomenon that annually costs organizations over $700 billion
- Fraud can take many forms, such as buddy punching or inflating work hours, with financial ripple effects beyond payroll costs
- Given that compliance is based on accuracy, rather than intent, even a minor inaccuracy in your payroll or time reporting can trigger compliance issues
Left unchecked, time theft can drain profits and undermine trust across your workforce. What looks like a few extra minutes can turn into thousands of lost dollars and a workplace culture where cutting corners is the norm.
What is timesheet fraud and why it matters
In a nutshell, timesheet fraud is when employees intentionally manipulate time records to gain unearned wages. Common examples include:
- Buddy punching: Coworkers clock in or out for their colleagues to cover tardiness or absence
- Inflated hours: Workers round up or exaggerate the time they work
- Unauthorized edits: Supervisors or employees manually change timesheets to add hours
- Long breaks disguised as work: Employees take extended lunches or breaks but record the full shift as worked
Prevalence of timesheet fraud
Unfortunately, timesheet fraud is more common than you might think. Since 2019, 30% of all investigations opened by the AmeriCorps Office of Inspector General (OIG) have related to false or problematic timekeeping.
Consequences of timesheet fraud
That said, timesheet fraud is a crime. The act of falsifying records to be paid for hours not worked can be prosecuted under state statutes for theft and fraud. While minor, one-off issues usually result in internal discipline or termination, more serious cases carry heavy consequences:
- Criminal charges: Significant or long-term fraud can lead to felony or misdemeanor charges
- Legal fines: Courts may mandate restitution and additional financial penalties.
- Compliance risk: For the business, inaccurate records can lead to costly Department of Labor audits
Now that we better understand some of the more obvious issues that can stem from fraudulent timecards, let’s take a look at some of the problems that can fly under the radar.
How to troubleshoot timesheet fraud
Catching timesheet fraud before it escalates can save you time and resources. Here’s how to catch it before it hurts your payroll.
Analyze suspicious patterns
Fraud often shows up as repeated behaviors that don’t align with actual work. In employees’ timesheets, watch out for the following red flags:
| Warning sign | What it suggests |
| Perfect round numbers | Padding hours for the timesheet to look full |
| Frequent edits | Manipulating work hours after submission |
| Unexplained overtime | Extra hours not tied to real work |
| Idle activity | Time logged without output |
| Geofencing mismatches | Clock in away from the job site
|
Use audit trails to verify changes
Enable the audit log in your timekeeping system to track every edit with a timestamp and user ID. If an employee or supervisor alters work hours, you’ll have a clear record to flag and review.
Use biometrics, GPS, or geofencing
Biometric solutions, such as fingerprint or facial recognition, prevent buddy punching, as employees must be physically present to clock in. On the other hand, GPS prevents clock-ins from off-site locations. Use geofencing to restrict clock-ins and clock-outs to designated job sites.
Cross-check with other systems
Compare employee timesheets against other tools like project management or scheduling software. For example, if an employee has logged eight hours but has no task updates on your project management tool, it could signal time padding.
Set up exception alerts
To help identify potential issues, modern time-tracking tools can automatically flag unusual entries, such as excessive overtime or double shifts. Set up a real-time alert so you can act before fraudulent errors turn into payouts. If you use time tracking to scale operations, as your business grows, the alerts can help you improve scheduling accuracy and keep labor costs predictable.
Prevent it before it starts: Policies, training, approvals, and audits
The consequences of timecard fraud range from distorting payroll and budgeting to compliance risks and decreased operational efficiency. The best approach is prevention:
- Publish a clear timekeeping policy to set expectations from day one and assist employees with time management
- Educate managers to effectively spot inconsistencies and review timesheets
- To ensure accountability, implement two-step approval for overtime and timesheet edits
- Preemptively conduct mini-audits and routine checks to identify errors or suspicious activities
- Choose a payroll software with built-in approvals, audit logs, reporting features, and automated absenteeism rate calculations to reduce fraud risks
Next, let’s cover a few strategies you can use if you suspect that something is awry.
“For small businesses where time, flexibility, and cost are all at a premium, OnPay delivers easy-to-use, low-cost payroll processing that can grow with your team. We cycle through employees regularly, so having an option that doesn’t penalize us for adding and removing employees, or scheduling more pay runs, is a huge plus for us.”
— Matt Hrdlicka, Limitless Exhibits
How to investigate and respond to suspected timesheet fraud
If you suspect one of your employees is committing timesheet fraud, you can launch an investigation:
- Secure all relevant records and evidence of time fraud before taking any corrective action to protect the integrity of your records.
- Interview the employee and any supervisor involved to gather context.
- Cross-check recorded hours against system logs, videos, or point-of-sale data.
- Document your findings, clearly noting the dates of your investigation for accountability.
- Apply the policy consistently, keeping “pay for all hours worked” compliance in mind.
In the public sector, falsifying records carries heightened legal exposure, so investigate thoroughly and maintain detailed documentation.
All-in-one automation: Integrations, alerts, and audit-ready reports
Timesheet fraud isn’t always about bad actors. More often, it’s about gaps in process, unclear expectations, or systems that make it easy to miss mistakes. Paying attention to those weak spots early can protect your payroll, your compliance standing, and the trust you’ve built with your team.
Whether you rely on simple policies, regular audits, or more automated systems, the goal is the same: accurate time data you can stand behind. When time tracking is clear, consistent, and easy to review, fraud becomes harder to hide. Honest mistakes are easier to fix before they turn into bigger problems. If you have any questions, our team is here to help!
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Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.