How to Process Payroll in 8 Simple Steps
Effective payroll processing is critical to your business operations. It ensures your workforce is compensated accurately, reduces the additional tax...
3 min read
Kayla Kelly : Jan 03, 2022
The ghost employee is an employee added to your payroll to collect a wage, even though they aren’t employed by your company. It could be a deceased person who is not removed from your payroll by accident, but it far too frequently is a person added purposefully to commit fraud.
Either way, the money continues to flow from your bank account into the account of potential fraudsters who aren’t contributing a minute of their time to your organization. Here’s your guide to auditing, detecting, and eliminating fraud related to ghost payroll.
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Companies with large numbers of employees are most susceptible. A large organization’s payroll specialist might not be personally familiar with each employee payment goes out to, and might therefore fail to recognize a fraudulent name.
Catching ghost employees becomes especially difficult in companies with high turnover, or where employees are spread over multiple locations. These scenarios create more paperwork where fraudulent documents can be easily missed amongst the real ones.
Unless your company has a process to review every single paycheck that goes out, or automates this process with third party payroll software, there’s no way for you to know if ghost employees have been added to your database. A false name only has to be entered once and then that name can continuously receive payment in what appears to be normal payroll.
When it comes to ghost employees the common element is your money paying non-existent employees. The common HR role involved in the appearance of a ghost worker is someone in a position responsible for at least one of these tasks:
In the case where such tasks are performed by separate individuals, you can reduce the risk of ghost employees receiving payment. However, it’s as simple as a co-worker discovering someone’s passwords, to allow them to create and pay ghost employees. And this is easier than you might think. They can rifle through authorized employee’s papers, or simply peer over their shoulder when they log into the system.
Once an employee has access to payroll files, they can create fake master records to “hire” and pay ghost employees. Their workaround is based on the fact tax deductions are programmed to fall within a given range of employee numbers. By adding the ghost employees with employee numbers higher than that range, when the payroll summary report is run, the ghost workers fall at the end of the list, and they aren’t selected for deductions.
Making ghost payroll fraud even easier, people in these positions can easily use direct deposit to take the cash. They use their own bank account for the direct deposit with the knowledge that in most cases, financial institutions don’t check the name of the employee with the name of the person holding the account. As well, very few payroll departments look for issues such as matching bank accounts among their employees.
You might be thinking no one can accomplish this thanks to payroll disbursement approvals. However, the larger the company, and the more trusted the fraud, the easier it is for a supervisor’s signature to be obtained for the fake payroll summary. Anyone can easily use an existing summary to copy the information required, type it up with the necessary information and present it for approval. Another trick is to create fake copies of paychecks.
If you want to detect ghost employee fraud, introducing precautionary steps and audits makes it easier to detect. Some safe policies to adopt include:
These tips can help you spot potential ghost employees so you can investigate before more money is stolen.
The bottom line is you need a payroll system that allows you to avoid mistakes. A system that automatically monitors every payroll means your payroll is checked so you identify potential ghost employees before they are paid. Tax and payroll software is proactive allowing you to remain on top of any mistakes or discrepancies as they happen. You won’t have to wait until the end of the year or your quarterly audits but instead are shown issues every time your payroll is run. This occurs prior to the checks being sent, allowing you to stop payment on anything that appears suspicious.
If you would like information on the payroll software available, speak to our team today.
About the Author
Kayla is the Marketing Manager at Paypro Corporation overseeing all inbound and outbound marketing and sales efforts. She has 7+ years of experience working within the B2B and SaaS based solutions space and thrives on creating messaging and campaigns that introduce products and services to those who need them most.
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