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A ghost employee is someone who is put on the payroll but who is not really an employee. This ghost can take on the name of a real or fabricated person. A ghost employee is assigned a name, department, salary, etc., just like any other employee; however, the payment to this employee can usually be traced to a bank account of a fraudulent employee or to a ‘partner in crime’.
Of course in smaller organizations where all staff is recognized and known, the ability to catch a ghost employee is fairly straightforward, providing that management regularly audits the payroll files. However, in very large or disbursed organizations, ghost employees are much harder to catch.
How to prevent ‘hiring’ a ghost employee? Obviously these employees show up when you employ less than honest staff. Ensure that your hiring process thoroughly vets payroll staff prior to employment. Mix it up a bit in the office. Ensure that employees in your payroll department can do others jobs and then switch every now and then. This is important from not only an internal audit standpoint but for a work continuity point in the event of a sudden loss of employee.
Regularly audit the payroll register. Meet with HR and ask them to confirm the staff on the register periodically and without warning. Or, run a report of new payroll set ups and compare this to the employee files or records showing contract and bank account information, etc. If files are missing or incomplete, this should be a red flag.
Of course we cannot give out all the tips accountants and payroll professionals use to catch ghost employees since a ghost might be reading this!!! The staff at Blue Canvas would be happy to discuss processes you can implement in your own department to ensure the risk of fraud at your business is kept at a minimum.
Avoid ghost employees – they really exist and not just at Halloween!