The concept of a “ghost employee” is one that all business owners and HR professionals should be aware of. This fraudulent activity occurs when an employee is added (or kept) to your payroll, even if they are not an employee or have left the company. Ghost employees could be as innocent as individuals who have passed away and accidentally kept in the payroll system, but they are most commonly fraudsters manipulating the payroll system. Either way, ghost employees leech onto your company’s bank account and can cost you a fortune.

To prevent becoming a victim of payroll-related fraud within your business, DM Payroll Solutions explores how you can identify and eliminate ghost employees.

How It Happens

Whether intentionally or accidentally, ghost employees occur under the watch of HR professionals with at least one of the following responsibilities:

• Creating and deleting employee records
• Approving payroll disbursements
• Posting time and attendance information

After an employee gains access to the payroll system, they can easily create fake records to hire ghost employees and pay themselves and/or others the fake employee’s wages.  

Tax deductions are programmed to fall within a specific range of employees. When ghost employees are added to an employee count exceeding that range, they fall at the end of the list and are not selected for deductions. From there, it is easy for fraudsters to use direct deposit to receive the wages. Typically, financial institutions do not verify the name of the employee being paid with the name on the bank account. On top of that, it is not common for payroll departments to audit employees’ bank account information against their names.

How Do They Get Away With It?

While this sounds like a scheme that could easily be exposed, the larger the company, the easier it is for an unsuspecting supervisor to sign off on the fake payroll summary. Users can easily modify an existing summary and present it for approval, or even create copies of fake paychecks. To a busy supervisor overseeing hundreds of employees, a few new employees here and there wouldn’t raise any red flags.

Detecting Ghost Employees

If you’re concerned about the potential of ghost employees within your business, here are some strategies to audit your organization before more money is stolen:

1. Ensure the payroll process is distributed amongst multiple employees, so no one person oversees running payroll, disbursement and distribution.
2. Phase-out paper paychecks in favor of direct deposit to remove the possibility of forged checks.
3. Even after implementing direct deposit, consider hand-delivering paychecks every few months to discover leftover paychecks.
4. Audit your payroll records on a regular basis to check for duplicate names, Social Security numbers and bank accounts.
5. Thoroughly review payroll reports before each pay period to identify trends and potential discrepancies for out-of-scope labor costs.

At DM Payroll Solutions, we take payroll fraud seriously. Our software and processes are designed to proactively detect any discrepancies, allowing you to see fraud as it happens and stop payment on any suspicious activity. For more information on how DM Payroll Solutions can prevent ghost employees within your organization, contact us today.