These ghost employees can be fictitious or real people who have their names used by a fraudster. The fraudster has to have access to payroll at least once. Usually the fraudster is in payroll with very few overseers who check and double check for fraud. Most ghost employee fraud involves someone within payroll. Either they are the fraudster or they are the accomplice.
The hardest aspect of this type of employee fraud is getting the money from the ghost’s account to the fraudster. Presumably, the criminals wouldn’t use their own name as that would limit the checks a single company can issue to them but also would lead the authority’s right to their door. Following the money trail is how most employee fraud is detected.
Direct deposits can significantly reduce the chances of ghost employee fraud as it requires a checking account in someone’s name. You can hire a business consultant that has third party payroll services to do this. In addition, direct deposit means a forger cannot simply print up their own checks to pass off as genuine. However, if the payroll staff is not diligent in comparing bank accounts, addresses, Social Security Numbers, and names, then a fraudster may simply assign multiple employee deposits to the same bank account.
Another easy method of reducing the risk of ghost employee fraud is manual delivery. Periodically hand-delivering paychecks allows payroll to assign a face to the account and also eliminates fictitious workers. If all paychecks have been passed out to the people who actually attend the company and a stub is leftover, then you know you have a ghost in the machine.
Look for paychecks without deductions for tax or Social Security. The fraudster is looking to make the most money. Therefore, they rarely set up the ghost account with Social Security or taxes withheld.
Finally, look for higher labor cost than budgeted. If you have five employees making $500 a week but you pay out more than $5,000, you might want to investigate as the budgeted labor costs are routinely exceeded.
Payroll preparations, their disbursement, and their distribution should be separated from each other. Essentially, a three-tiered system of checks and balances to prevent one person from holding all of the power and burden for fraud detection should be in place. What one section may miss another could pick up.
Overall, with diligence and common sense, you can guard yourselves and your company from ghost employee schemes.
Matthew Walden is a partner at Infinity Consulting Solutions (ICS), one of the top IT staffing agencies in New York City. As an expert in the recruiting field, Walden offers over 20 years of expertise. If you would like to reach out to him send him an e-mail at email@example.com.