Ghost employee definition

What is a Ghost Employee?

A ghost employee is a person who is on an employer's payroll, but who does not actually work for the company. Someone in the payroll department creates and maintains a ghost employee in the payroll system, and then intercepts and cashes the paychecks intended for this person.

How to Create a Ghost Employee

There are several ways to create a ghost employee. One option is to wait for an actual employee to leave the company, and then keep the person in the payroll records for several additional pay periods, with the perpetrator intercepting the additional paychecks. A second option is to wait for an actual employee to go on leave, and to maintain the person in the payroll records during his absence, again with paychecks being intercepted. A final option is to create an entirely fake employee in the system, with all related paychecks being routed to the perpetrator.

The first two options are prone to being discovered, since the payroll system will eventually issue an inflated Form W-2 to the employee whose paychecks are being prolonged, which might be detected. The entirely fake employee approach is safer, since there is no one to receive the related Form W-2.

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Who is Most Susceptible to Ghost Employees?

There are several situations in which ghost employees are most likely to be created. First, they are much more likely to arise in large organizations, because of the large number of employees they have on staff. In this environment, a canny perpetrator has a much better chance of sneaking a ghost employee onto the payroll, since managers might not recognize every person in the company. A second situation is when a company experiences a high degree of employee turnover. In this case, it is easier to sneak a ghost employee onto the payroll for a short period of time after they have actually left, without anyone noticing the prolonged pay period. And finally, it is always easier to create a ghost employee when the payroll staff knows that no one ever cross-checks the payroll records with an internal audit. Under these three circumstances, it is much easier to create a ghost employee, if not a large number of them.

How to Detect a Ghost Employee

A perpetrator can operate a ghost employee scam without detection when there are one or more managers in the company who do not cross-check the payroll register or time sheets of their employees. It is relatively easy to insert an employee into their departments. Conversely, preventing this fraud involves having all supervisors conduct a careful review of the payroll records for their direct reports to ensure that all employees are valid.

A good way to detect ghost employees is to look for anyone who has few or no deductions from his or her pay. A perpetrator rarely goes to the trouble of creating a complete set of benefits enrollments, especially since doing so will reduce the amount of money that they can steal from the employer.

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