Types of Ghost Employee Fraud
There are two primary types of ghost employee fraud:
A real person (who may or may not know they were added to the payroll system). This type of fraud typically involves an insider, such as a payroll employee, who adds someone to the payroll system without authorization. The ghost may be unaware they are being used in the fraud.
A fictitious person added to a payroll register. In this scenario, the fraudster creates a completely fake identity and enrolls the non-existent person into the payroll system to divert funds to themselves.
4 Most Commonly Asked Questions:
- Require approval from multiple individuals to add, remove, or change the pay information of employees.
- Rotate the duty of payroll processing amongst several individuals.
- Perform periodic reviews of the payroll register report.
- Send each manager a list of employees in their department for approval.
Initial Steps to Uncover Ghost Employee Fraud
The first step to identifying possible ghost employee fraud is to diligently review the payroll register report for each pay period. This thorough examination allows organizations to spot any irregular entries or inconsistencies that might suggest the presence of ghost employees. Additionally, it is essential for organizations to be proactive and vigilant, constantly monitoring their payroll processes for any signs of unusual activity.
Organizations also need to train their payroll and HR teams to recognize the warning signs of potential payroll issues that may indicate the existence of a ghost employee. These warning signs can include unexplained increases in payroll costs, payments to employees with no corresponding personnel files, or discrepancies between employee records and actual payroll disbursements. By being aware of these red flags, organizations can take swift action to investigate and rectify any suspicious findings, thereby mitigating the risk of financial losses due to fraudulent activities. Implementing regular audits and cross-checking payroll data against other employment records can further bolster an organization’s defenses against ghost employee fraud.