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How to Protect Against Ghost Employee Fraud

Posted by John Nicklas on Nov 6, 2014 3:48:00 PM

Ghost Employee FraudIf someone were to ask you “How many employees are at your Company?” would you know the answer? If you’re a small-business owner, you may, but if your business has grown rapidly over the last few years, you may not. Whether you know the number or not, the real question is: do you utilize this to your advantage? Something as minuscule as knowing the total number of employees can be a valuable tool in identifying fraud at your Company.

The elusive Search for Ghost Employees is a tactic us auditors have adopted and use quite frequently. A ghost employee is someone on the payroll who doesn't actually work at the company. Through the falsification of personnel or payroll records a fraudster causes paychecks to be generated to a ghost. The fraudster or an accomplice then converts these paychecks.

Searching for Ghost Employees involves the reviewing of a payroll report with someone within the Company, and searching for any unrecognized names. This provides a valuable tool in detecting if any checks are fraudulently being written through the use of the payroll system.

The reviewing of payroll reports on a periodic basis is an important step in mitigating and detecting fraud, and it is not something that should only be done once a year, by the auditor. Having a control number of the total number of employees in mind allows for a good starting point for this review. From there, it can be as simple as scanning through the names. One should note, for proper segregation, this review should be performed by someone other than those that can add new employees or terminate old ones.

As a business owner or as someone truly invested in the success of a Company, an increase in hiring should be a good thing. It usually means you’re doing something right and growing. However, with the increase in size, comes the increase in risk that you’re funding the next star of Casper the [Not so Friendly] Ghost. In order to help prevent that, do your Company a favor and give those payroll reports a nice thorough overview.

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The blog was co-authored by Hillary Kastelic:

Hillary Kastelic is a Senior Accountant at Meaden & Moore. She coordinates and oversees daily fieldwork, prepares financial statements and executes various other aspects of the assurance engagement. Hillary has achieved success and recognition at Meaden & Moore through her dedication, philanthropy, and positive attitude. She conducts training programs to aid in staff development and participates in campus recruiting and employee interviewing.

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Topics: Accounting & Auditing

John Nicklas

John Nicklas

John Nicklas is a Vice President of the Assurance Service Group. He has 20+ years of experience serving accounting and business advisory needs.