The Bane Of Ghost Workers

Ghost worker is a type of payroll fraud perpetuated as an inside job.

It can occur in any type of public or private organisation or business. It is a worldwide problem that has been found to occur in several countries hence it is not a crime that is localised to a particular geographical area. As a result it is relatively easy to learn best practice and acquire systems and tools to help identify, catch and deter occurrence.

How do ghost employees materialise.

They arise when somebody in the payroll department creates or maintains or both a non existent employee in the payroll system, and then intercepts and cashes the paychecks intended for this person.

Whilst not exhaustive the common ways in which they occur are:

i) When an employee leaves a company their records are kept active for several payroll periods with their paychecks being intercepted.

ii) An employee that goes on extended leave (e.g. a sabbatical) having their paychecks intercepted.

iii) Creation of a completely new fictitious employee in the system, using the details of a living or deceased person, with all related paychecks being intercepted by the fraudster.

Why does this occur.

Due to weak controls and non existent audits a fraudulent employee can exploit the situation by operating a ghost worker fraud and not get detected when managers do not crosscheck the payroll register of their employees. For example, a disgruntled employee or group of employees could band together to take what they've not earned from the company. Also more often than not this type of fraud requires someone to have the sort of access privileges' to circumvent whatever systems, manual or automated, that are in place hence when this fraud is perpetuated there is often a high-ranking employee that is involved.

How can one detect them.

Generally, ghost employees occurrence increases as a business grows larger in size and complexity or has remote locations, intertwined with the associated increases in employees. Things to look out for include:

⦿ Duplicate direct deposits or bank transfer payments.

⦿ Pay checks issued with identical names, addresses or job positions e.g. if two employees are sharing the same bank account and address then this could warrant an investigation.

⦿ Employees that have little to no deductions over long periods of time i.e. a fraudster won't generally bother to create a full list of deduction entries or enrollments, especially since doing this reduces the amount of money that they can steal from the employer.

⦿ Employees that have not been seen, heard of or don't have any traceable trail such as company group chat messages, emails, meeting invites attended including being managerless with no reporting structure.

*Bare in mind that all the above listed points could simply be coincidences or errors nevertheless they can act as red flags to be investigated.

How can one prevent them.

1. Keep your payroll up to date: ensure you regularly get rid of redundant data of ex-employees or make them inactive and useless to use if there are data retention laws you need to adhere to.

2. Maintain accuracy of records: check that all the details of new employees are complete and accurate before they start working. Also any wage increases should be well‑documented and approved in accordance with the organisations policies.

3. Audits: perform regular audits on your records by checking for the possibility of ghost employees existing in the system.

4. Remove manual processes: automate your payroll process to reduce the risk of it being doctored since automation tends to come with in-built checks that can help detect suspicious activities.

5. Use 3rd parties for audits: hire an external party to do audits as there is zero relationship between your employees and theirs hence reducing the probability of multiple employees collaborating over a fraudulent payroll scheme - important to note that this still has some risk since some fraudulent employees could attempt to bribe the 3rd party audit firm to falsify records.

6. Obtain government identity and biometrics details: ensure all employees provide their government supplied identification for verification of themselves and their bank account at a minimum. Include, where possible, biometrics to strengthen further this area of compliance.

7. Background check accounting employees: perform background checks for all of your accounting employees to help lower the risk of fraudsters obtaining access to your payroll.

8. Robust checks & balances: put in place checks & balances and establish strict and clear guidelines on how your financial system (including payroll) should be managed by your accounting employees and payroll administrators.

9. Separation of duties: separate duties between your accounting employees and payroll administrators, for example, have one employee register new employees while the other verifies and signs them (or the other verifies and another signs them) thus preventing a fraudulent scheme from being easily set up by a single accounting employee.

10. Automate wage payments: paying wages through direct deposit or automated bank transfers leaves an audit trail behind that can be followed up on any payments where there is a need to investigate.

You can see that the different layers to use in defeating these payroll fraudsters shows you how destructive they can be. Ghost workers have been a massive scourge in some parts of the Nigerian public sector over the years; a simple online search will show you lots of occurrences in this sector hence the introduction by the Federal Government of Nigeria, in October 2006, of the Integrated Payroll and Personnel Information System (IPPIS) - a personnel payroll management and auditing system whose aim is to improve the effectiveness and efficiency in the storage of personnel records, pay accurately and flushes out ghost workers due to the verification and biometrics capabilities in it. Lots of successes, in exposing ghost workers, have been achieved since its implementation however this is an ongoing exercise as not all public institutions have implemented IPPIS and some that have still find ghost workers afterwards. In the private sector this scourge has been less pronounced, but it does occur. Perhaps the general nature of private businesses means more checks are done to nip this in the bud. Nevertheless one can never be complacent and should implement as many of the preventative points mentioned above.

Payroll is one of a companies most expensive liabilities until they are paid.

Payroll fraud through ghost workers is a horrible crime that siphons money away from recruitment, expansion, research, investment, introduction of new products or service lines, improved employee remuneration, and more; in fact at its worst it can lead to substantial financial loss or bankruptcy.

Ghost workers is not a crime against nobodies money it's the government organisation or private companies money so the impact is one that should be fought intentionally and purposely with repeated spontaneous audits, reviews and consistent use of technology to reduce significantly its effect and halt the flow of ghost workers paychecks into peoples pockets.