If something strange seems to be happening in your payroll and HR department, and your company’s profits are vanishing into thin air, chances are you have ghost employees in payroll draining your bottom line.
From my experience, the presence of ghost employees on a company’s payroll system ranks among the most difficult types of payroll fraud to detect. This challenge becomes worse in larger organisations with decentralised operations or weak internal controls.
Industries that hire large numbers of workers and experience regular staff turnover are particularly vulnerable. Construction, public service, healthcare and education stand out as common examples. Limited oversight, poor segregation between payroll and HR and dependence on manual systems further increase the risk. Over time, these weaknesses threaten both profitability and long-term sustainability.
What is a ghost employee?
Ghost employees are fictitious or former employees who remain on the payroll so that someone, usually an insider, can collect their salary. These individuals never perform any work for the company. Yet, their regular pay ends up in someone else’s bank account. It could be a fake ID number attached to a valid bank account. It could also be a real employee who left the company but was never removed from the payroll system.
Another example occurs when a clone of a real employee is created using a different ID number. In that case, the employee’s salary gets split between two identities. Only one receives a tax certificate, enabling the perpetrator to declare less than they actually earn to the tax authority.
Ghost employee fraud is often carried out by people in payroll or HR who have access to employee records and salary processes. The growth of remote work and digital HR systems has made verification harder. Creating fake profiles or tweaking records from a distance is much easier today. Weak digital security can open the door to fraud.
Once the ghost employee is created, payments flow without further action or review by the payroll team. The perpetrator simply collects the money. Without proper controls, these activities can continue unnoticed for months or even years.
Haunting signs
One warning sign of payroll fraud is when the payroll manager or administrator always arrives early, stays late, and never takes holiday or sick leave. Being away would force them to hand responsibilities to someone else and risk exposure.
Other red flags include duplicate bank account numbers or personal details across multiple employee records. Payments to inactive or non-existent employees are also suspicious.
You might also notice individuals listed without supervisors, job descriptions or measurable work output. Unfamiliar names claiming excessive overtime, rising payroll costs that do not match your actual headcount and employees who never appear in meetings or HR reviews can all indicate ghost employees in payroll.
Finding the phantoms
The best way to catch ghost employees is to implement a cloud-based, automated payroll and HR system. This system must include role-based access and strong cybersecurity protocols.
ID number verification is essential. If someone tries to enter a ghost employee, the system should reject the ID number as invalid. Our CRS solution, for example, uses unique ID numbers for each employee. This ensures that an employee cannot appear twice on the same system.
Audit and risk management policies are also critical. I recommend quarterly audits to confirm that the number of employees on payroll matches the actual headcount. Regular spot audits should also check that earnings, allowances and other remuneration additions are correct and align with employment contracts.
Any changes to an employee’s earnings must be approved by a senior manager, not just the payroll administrator. Where possible, a multiple-party approval process reduces collusion. Running comparison reports between payroll periods also helps. Any variance above a set threshold should immediately raise a red flag.
Who should you call?
For businesses that cannot afford an internal audit department, I recommend outsourcing payroll to professionals.
Outsourced payroll providers offer a strong line of defence against ghost employee fraud. Their systems and controls are usually more robust and include built-in audit processes. These checks make it harder for fraudulent activity to slip through.
Our outsourced payroll services, for example, include multiple levels of accountability. Different people manage separate payroll duties, which reduces the chance of collusion.
Ghosts busted!
Rigorous internal controls and the separation between internal HR and outsourced payroll add another layer of security. This tighter oversight safeguards your business against the hidden cost of ghost employees in payroll.
Ghost employee fraud may be difficult to detect, but it is not impossible to prevent. With the right mix of technology, strong internal controls, regular audits and professional support, organisations can keep payroll clean and secure.
Whether you invest in a secure, automated system or partner with a trusted payroll provider, taking action today is essential. This is the only way to avoid being haunted by losses tomorrow.
Ian McAlister | General Manager | CRS Technologies | mail me |
