Does your organization have ghost workers? Let’s define the term ghost employment so that the organization’s payroll department is better able to determine if the organization supports ghost workers. First of all, a ghost worker is an employee on paper only. He or she may be a deceased employee who is still in the payroll system or actual individuals who are no longer employed by the organization, but are still in the payroll system and receiving a paycheck. Most employers are probably thinking at this point, “How could this happen?”. Well it does and is so prevalent that organizations are losing billions of dollars in payroll dollars annually at the hands of crooked bookkeepers, accountants and business owners.
According to L. Burke Files, President of Financial Examinations & Evaluations in Tempe, AZ people who create ghost employee accounts typically make-up more than one fake persona. “All fraud begins small and grows over time, like a weed in an unattended garden”, he says. “A thief looks to steal as much as he or she can without being noticed.” (SHRM Daily News, 9/6/18)
To avoid ghost employment employers are encouraged to implement internal controls that do not allow only one employee to review each processed payroll. One employee operating with no oversight may perpetuate payroll fraud. Employers should have a checks and balances system in place to make sure that no theft is taking place. Splitting up payroll-related tasks among a few different people may help to deter payroll theft.
Employers who have employees in several states may be more vulnerable to ghost employment compared to those who only have employees within one state as it is ads one more layer of cover-up. Each state has different percentage levels of payroll taxes due by the employer and some have none. So, setting up a ghost worker in a state where there are no payroll taxes due by the employer is an easy way to hide the ghost employment.
Here are some ways that the Association of Certified Fraud Examiners (ACFE) recommends that employers protect themselves:
- Look for issues with an employee’s information, e.g. Social Security number is not listed, or multiple employees have the same Social Security number, the employee does not have any taxes or benefit deductions, or there are multiple address changes throughout the year.
- Two employees have the same bank account number. Multiple bank accounts could potentially indicate that a ghost employee’s paycheck is being split between two crooked individuals.
- Multiple pay checks are issued to an employee within one pay period, or an image of the payroll check shows that it was endorsed by a different name.
- An employee receives multiple pay increases within one-year or a bonus at a different time from the rest of the employer’s employees.
- An employee hasn’t taken any paid time off for an entire year, or the person or persons processing payroll never takes any paid time off.
The ACFE also suggests that employers take the following precautions to make sure that they are proactive in preventing ghost employment:
- Implement hiring protocols that including checking a candidate’s Social Security Number and driver’s license or state identification number.
- Periodically run all employees’ Social Security numbers through the Social Security Administrations website. E-Verify and or a background check may aid in helping with this task.
- Don’t have a single point of control when it comes to the payroll processing within your organization.
- Use a payment system that requires employees to identify themselves.
- Scrutinize how consistent employees’ hours are. If there is no variation in hours this may signal a ghost employee.
- Be suspicious if someone requests paper checks instead of automatic direct deposit and their personnel file contains limited payroll information.
Conducting regular payroll audits even if your organization has on outside payroll vendor, having multiple checks and balances in place for each payroll processing event and comparing an employee’s payroll file information to payroll processing records are all ways that may help to avoid a ghost employment situation from occurring. However, if an employer does find that there is a potential ghost employment situation all employees involved should remain silent until a full investigation has been completed and the situation has been addressed. By implementing some of the recommendations as listed above organizations are being proactive in their prevention of those who are being crooked and stealing their money.
For additional information on this topic, please contact us at www.newfocushr.com.
Source: SHRM Daily News, 09/06/18
Written by: Kristen Deutsch, M.B.A., CCP