Payroll fraud accounts for about 9.3% of occupational fraud at a cost of over $300 million per year across all types of organizations. One of the most common forms of payroll fraud is the use of “ghost employees” to divert money to fraudulent identities. Like all organizational frauds, this is a hidden crime that can best be prevented by controls designed to expose all payroll transactions.

The Ghost in the Payroll Machine

A “ghost employee” exists only as an identity in payroll records, although the ghost may be a real person who does not actually work for the company. The ghost employee scam is only successful if the perpetrator has unmonitored access to company systems, so it is typically an inside job. The scheme works if:

• The ghost identity can be added to payroll records.
• The system has to be set up to make payments to the ghost, either for false time and/or wages, or for other types of payments, e.g., expense reimbursements.
• Payments made to the ghost must be concealed, especially from existing controls.
• Actual disbursement – the point of the fraud – occurs.  … Continue reading