Payroll fraud: Are you vulnerable to ‘ghost’ employees?

The existence of ghosts, or other paranormal entities, is up for debate. But the existence of — and damage caused by — ghost employees has been well documented.

Nonexistent employees who fraudulently show up on payroll — more often than not to fund a crooked employee’s habits — can take a huge chunk out of a company’s cash.

In fact, affected companies lose an average of $50,000 each time it occurs.

Ghost employee fraud takes many forms. Here are just a few examples:

• A Payroll clerk who sets up a bank account for a nonexistent employee — and deposits the paychecks into an account for his or her own use, or
• An Accounting staffer (or manager) who leaves a terminated employee on payroll so he can take/keep the former employee’s paycheck for personal use.

Of course, the fraudulent employee doesn’t have to come from Payroll or Finance, he or she can come from any area of a company.

Key to safeguarding against Payroll fraud: Getting more employees involved in processing payroll, so there are controls/double checks in place.

Example: Have a minimum of two employees review bank statements and returned checks every month. Also, divide Payroll duties so different people are responsible for approving time sheets, entering hours worked data, distributing paychecks, etc.

How does your company prevent having ghost employees on your payroll? Share it with us in the Comments section.