Guide to Tackling Ghost Employee Fraud

ghost employee fraud
Ghost employee fraud is a deceptive scheme where someone who doesn’t actually work for your company gets paid, draining valuable financial resources. This type of fraud can be particularly insidious as it often goes unnoticed until substantial damage has occurred, leaving companies vulnerable to considerable financial losses.
 

Types of Ghost Employee Fraud

There are two primary types of ghost employee fraud:

  1. 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.

  2. 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.

If this goes undetected, ghost employee schemes can result in significant loss of income to a business. The losses can accumulate quickly, impacting financial performance and potentially leading to severe repercussions for the company’s bottom line. It is crucial for businesses to implement stringent auditing processes and regular payroll reviews to detect and prevent this type of fraud. Without adequate checks and balances, organizations remain vulnerable to financial exploitation through such deceptive practices.
 
 

4 Most Commonly Asked Questions:

#1: Who typically commits this type of fraud?
To perform this type of fraud, the employee carrying out the scheme needs to have access to the payroll system or will need to collude with someone who has access. And once the ghost employee scheme is set up, the fraudster can simply collect the stolen funds every time payroll is run.
 
#2: How does the ghost get added to payroll?
Adding the ghost employee into payroll can be accomplished via direct access to the payroll system by the employee committing the fraud or by colluding with a peer that has payroll system access.
 
#3: How does the fraudster get the money from the ghost?
If paychecks are mailed, the employee committing the fraud will need to get possession of the check. If the ghost employee is an actual person, the two individuals can work together to cash the check and split the funds.
 
#4: How can organizations protect themselves from Ghost Employee Fraud?
Establishing strong internal payroll controls is a crucial step in preventing ghost employee fraud. Samples are:
  1. Require approval from multiple individuals to add, remove, or change the pay information of employees.
  2. Rotate the duty of payroll processing amongst several individuals.
  3. Perform periodic reviews of the payroll register report.
  4. 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.

 

Optimize Your Workforce with Rabco

Are you ready to enhance your company’s efficiency and employee satisfaction? Rabco offers specialized payroll and HR solutions that adapt to your specific business needs. Our advanced systems help detect and prevent payroll anomalies, ensuring your workforce management is as secure as it is efficient. Request a consultation with one of our experts today and start transforming your payroll management.
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