We’d all like to believe that our employees are trustworthy—and in most cases they are. Unfortunately, even a single dishonest employee can do significant damage, especially if they have the ability to manipulate your payroll.

We’re talking about a disturbing payroll issue that arises more often than you’d think: ghost employee fraud.


What is Ghost Employee Fraud?

Put simply, ghost employee fraud is when someone who doesn’t work for a company is still on the company’s payroll.

Often this is a fictitious employee who is created in the payroll records, but it could also be a real ex-employee or just someone whose identity is being used to perpetuate the fraud.

Ghost employee fraud cases can take several different forms:

    • Disgruntled Payroll Manager – If you have a payroll manager who is unhappy and thinks they deserve additional compensation, it would be fairly easy for them to modify the payroll records to create a ‘new’ employee, then collect that ‘employee’s’ check for themselves. This is particularly true if the payroll manager has unrestricted—and unmonitored—access to the payroll system.
    • Multi-Employee Fraud – With a more complex payroll process, or if the employee doesn’t have direct access to the payroll system, multiple employees might conspire to defraud the system, then split the money they embezzled. Typically, one employee will have some sort of role in verifying and authorizing payroll so that they can sign off on falsified time sheets.
    • Family/Friend Compensation – An employee might create a record in the payroll system for a family member or friend so that they receive a paycheck from the company. In this case, the actual employee may or may not receive a share of that paycheck.

Ghost employee schemes can range from simple data entry (especially if the fake employee is given a salary) to complex manipulation of false time sheets and payment redirection. If you don’t keep a close eye on payroll, this type of fraud can often go unnoticed for quite some time.

How Can You Prevent Ghost Employees?

Because of the large number of variables that influence how ghost employee fraud is committed, there are no surefire ways to prevent it or to catch employees in the act. However, there are steps you can take to reduce your risk:

    • Conduct Ghost Employee Audits – In most cases, ghost employees are discovered by thorough audits of your payroll records. You should have someone regularly compare payroll records to time card reports and employee personnel files to look for discrepancies such as fake employees, duplicate social security numbers, duplicate addresses or duplicate bank accounts.
    • Separate Payroll Duties – Ensure that different parts of the payroll process are handled by different people. If someone is responsible for authorizing checks, make sure someone else is responsible for distributing them. If someone has the power to create/delete employees in the payroll system, make sure someone else verifies the changes.
    • Evaluate HR Policies – Make sure your HR and payroll staffs are completely up to date on your HR policies, particularly when it comes to adding and removing employees from your staff’s roster. This will help prevent former employees’ information from being used for ghost employee fraud.
    • Make Payroll Harder To Falsify – If you have employees that are compensated based on their time, ensure that you have processes in place to make falsification of time records difficult. Ideally, use automated time tracking when employees clock in and out. For added protection, use a time tracking system with some form of ID verification built in.

ExakTime Can Help

To fight ghost employee fraud, you need to be diligent about ensuring there are no exploitable holes in your payroll process, from the time an employee is created in the system to the moment a check is cut. ExakTime can help make that diligence easier.

By having employees track time with our time card app, you’ll get accurate time tracking data tagged with GPS coordinates and, if necessary, a photo of the employee. This data is then available in a wide variety of time tracking reports to help you keep tabs on who’s working where and when.

Comparing this data with your payroll records will help weed out any inconsistencies, allowing you to identify any fake employees more efficiently.

Learn More

Would you like to know how to keep your records airtight and auditor-free? Download our free eBook for a great compliance guide and examples.