What are ghost employees?
Ghost employees are people registered as workers on your payroll who do not actually work for the business, but still receive its pay. This typically requires the fraudster involved to place a fake name on the system, falsify attendance and divert pay, which often leads to accounting employees or groups of employees that have made an agreement to siphon funds out of the company working together. They are typically either completely fictional identities or previous employees who have not been removed yet from your payroll system.
In some cases, a ghost employee could simply be someone who has passed away and still remains on your system, though more often than not it is linked to purposeful fraud. These can often happen either through a disgruntled payroll manager who believes that they deserve the extra compensation or multiple employees who agree to take advantage of their access to the payroll system.
Methods to detect them
Typically, the problem of ghost employees becomes greater as your business grows larger in size and complexity, also increasing the cost of this type of fraud for the company itself as the number of its employees increases as a result.
A good way to spot ghost employees is to keep an eye out for duplicate BACs payments or pay checks issued with identical names, addresses or jobs. If two employees are sharing the same bank account and address then this could warrant an investigation. Other oddities to look out for could include employees that have little to no deductions over long periods of time. It might not be anything to be concerned about as these things could simply be coincidences or errors, but they can nevertheless act as red flags to be investigated.
Main methods to prevent them
It is much easier for fraudsters to falsify an employee by using the details of your old workers still found on the system. This can be prevented by keeping your payroll up to date, which means regularly getting rid of redundant data of your old ex-employees, as well as similarly making sure that the details of new employees are completed and accurate before they start working.
Doing regular audits of your records can also address this issue, by regularly checking over the possibility of ghost employees existing in the system. Going completely paperless would also greatly reduce the risk of payroll records being altered due to the automated systems often pre-built in place within online financial records that are able to check for any suspicious activity. A third party could also be hired to do the audits if you want even further prevention, as their accounting workers will have almost zero interests tied to your own employees, therefore greatly reducing the chances of multiple employees collaborating over a fraud scheme.
There are also various other methods of prevention that can be used to further lower the possibility of ghost employees:
- Requiring a background check for all of your accounting employees would help lower the risk of fraudsters obtaining access to your payroll.
- Increasing the number of checks and balances when making big changes to the system could be useful, as well as the establishment of stricter and clearer guidelines as to how the financial system should be managed for your accounting employees to follow.
- Separating duties between your accounting employees might also help, as having one employee register new employees while the other verifies and signs them would prevent a fraud scheme from being easily set up by a single accounting employee.
- Paying wages through a direct deposit might also help by leaving a paper trail behind to follow up on the payments in case of a later investigation or verification.