May 29

Written by: Leonie Pretorius
29 May 2012  RssIcon

A ghost employee is someone recorded on the payroll system, but who does not work for the business.

The ghost can be a real person who knowingly or not is placed on the payroll, or a fictitious person invented by the fraudster.

The fraud attacks the payroll system with false employees.

What is the AIM?

The aim of the fraud is to have a wage paid to the ghost and collected by the dishonest employee.

This is done by entering the ghost employee into the payroll system.

The fraud does not require an accomplice but, depending on how wages are paid, an accomplice may make the fraud easier to conduct as it will eliminate any need to convert the payment from the ghost to the fraudster.

How is this DONE?

There are three basic steps to a ghost employee fraud.

These are:

  1. Creating the ghost;
  2. Generating false time sheets; and
  3. Collecting and converting the payments.

Creating a Ghost

The first step is placing the ghost into the payroll system.

If the fraudster has access to the system, this may be as easy as using the 'Add Employee' function in the payroll program. This may bypass any controls in place.

If the fraudster does not have access to system, they may need to forge the necessary documents and authorizations to add an employee.

In large businesses with a high staff turnover, the forged documents may not be noticed amongst the number of real documents, or there may be little or no checks performed on the information submitted.

One variation to adding a new ghost is to leave a past employee on the system after they have left and redirecting the wage payments. This may be preferable if the fraudster cannot gain access the add employee process.

The risk of a ghost being added increases when there is a high turnover of staff.

It increases again when the business has part-time or casual employees and the payroll staff see a variety of names come and go from the wages list.

This reduces the chance that a ghost will be recognized amongst the numerous changing names.

Generating False Time-sheets

If the employee has access to that part of the payroll system, they can enter any required information or bypass that function and generate the payment.

If they do not have access, they will have to falsify the required information and have it processed by the payroll staff.

Having to fill in time sheets or other information increases the risk of finding the fraud and identifying the employee if discovered.

Collecting and Converting Payments

The payment must be collected by the employee and, if necessary, converted into a useable form. What steps are necessary will depend on how employees are paid: in cash, by cheque or by direct deposit.

Lessons to be Learned

Individually the amounts may appear small, but over time they may add up to a significant amount, particularly if a number of ghosts are added and retired over time.

Ghost employees may be hard to find once they have been added to the system.

Ghost employees must usually be actively sought out to be discovered.

These frauds work on weaknesses in controls over the payroll system

Some Basic Controls

Do not make cash wages payments as cash is easily stolen and leaves no trail.

Have supervisors approve payroll payments to their direct employees on a random basis.

Add and remove employees only with approval and verification by a number of people, or at least someone outside the payroll department.

Location: Blogs Parent Separator Getting Legal

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