January 09, 2012
Revealing Ghost Employees
The Star-Advertiser reports that a federal grand jury has indicted a Kaneohe, Hawaii, woman for allegedly attempting to embezzle more than US $200,000 from the security guard contracting firm for which she worked. The woman was in charge of entering time sheet and payroll data into the company's computer system and allegedly placed two associates on the payroll even though they were not employed by the company, kept two terminated employees on the payroll, and directed checks from the "salaries" into her bank account as well as that of a relative and friend.
This alleged fraud demonstrates that ghost employees are still a fraud risk even when payroll is performed through electronic payment and automatic bank deposits. Adding ghost employees to a company's payroll as well as not removing terminated employees from the payroll are simple ways for employees to embezzle from their companies.
Ghost employee fraud schemes often exploit major control weakness, such as poor segregation of duties. For example, an employee responsible for entering time sheet and payroll data may be able to create fictitious employees and alter bank deposit information. In situations where there is insufficient staff to provide for appropriate segregation of duties to serve as a preventive control, detective controls should be established. The payroll manager, for example, could review all new employee transactions, and someone else could monitor all changes to bank account information. Performing two simple tests can help an auditor expose ghost employee fraud schemes: running a report that identifies all cases where employees have the same bank account, as well as a report that shows payments made to employees after their termination date.
It is important for employers to check their other operations to verify that another payroll clerk is not taking advantage of the same control weaknesses, as it is likely that similar fraudulent schemes are occurring across the organization.