How to Detect Ghost Employees and Prevent Payroll Fraud

Ghost employee

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Unfortunately, ghost employees scams have become distressingly prevalent in companies big and small. Payroll is one of the expenses over which your business should have the most control. Perhaps oddly, then, payroll seems to be one of the places from which businesses tend to lose a great deal of money. It’s not that payroll expenses aren’t a necessity, but rather that businesses are often the targets of payroll scams. These scams take advantage of the difficulties in book-keeping and employee management in order to defraud businesses, sometimes to the tune of millions of dollars per year. Being able to identify and deal with these scams is a necessity for mid and large-sized businesses to prevent payroll fraud.  

How to detect ghost employees and prevent payroll fraud

The ghost employee scam is one of the more common payroll scams currently in circulation. It takes advantage not just of the size of a company, but the general lack of communication between its various branches. This is a very easy scam to fall for, though the safeguards against it are likewise easy to implement. Creating a solid defense against this type of scam involves learning how to identify the scam, understanding how it is implemented, and learning the basic methods of stopping the scam before it gets started.

What are ghost employees?

Understanding this phenomenon means taking a few moments to understand the terminology. A ghost worker or ghost employee is an individual who draws a paycheck from a company but does not actually work for them. In some cases, a ghost employee is a real person who is participating in a scam, whether voluntarily or not. In other cases, the ghost employee only exists on paper, helping to enrich the third party who has created the fictitious entity and allowing him or her to draw an extra check.

ghost employees

How these scams work

There are a few variations on the ghost worker scam. While they all involve a paycheck going to someone who does not work for the company, they may exist because of one of several different types of fraud. As you’ll be able to tell from the various sub-types of ghost employee scams, some of these scams rely on a significant level of deception and breaches of trust, while others might occur simply because of accounting issues. No matter the cause, though, individuals who benefit from the scams are still causing harm to a company.

The most basic type of ghost employee scam really does involve the dearly departed. In incredibly large organizations like government bureaucracies or multi-national companies, it’s very possible for an employee to pass away without any change to payroll processing. In some cases, that individual will continue to draw a check from the company even though he or she is no longer among the living. It doesn’t take much for a relative to continue to cash those checks, often without ever informing the company that his or her relative is no longer alive. This is largely a fault of bad payroll processing, but the individual cashing the check is still committing fraud.


Related: Payroll Security 101 – The Basics You Need to Know


More sinister is the variant that involves the willing participation of a hiring manager. Common in businesses that have a large number of employees spread over huge geographic areas, it’s relatively easy for an isolated manager to create a fictitious employee to assign a payroll number and thus get paid. It’s even easier when the manager has the ability to hire contractors and pay directly out of his or her own budget – the checks seem to mysteriously find their way back to the manager’s own bank account, with the company none the wiser.


A variant on the above method involves the use of a real person instead of just a paper identity. The ghost employee may be a contractor who does no work or a friend of the guilty party put on payroll simply to collect a check. These individuals usually show up to collect money and then split the proceeds with the person who put them on the payroll. An even more sinister variant involves using the social security number of an unwilling person, which allows for an extra layer of duplicity without requiring the original perpetrator to fake any kind of identifying information.

prevent payroll fraud

Defending your company

Fighting ghost employees generally comes down to addressing points of failure in the system. According to experts, the points of failure occur when the employee is put on the payroll, when pay information is collected, when the check is cut, and when it is received by the guilty party or his/her accomplice.

Perhaps the easiest way to prevent ghost employee scams from working is to pay careful attention to every person that is hired – and to every person who has any kind of hiring capability. All new recruits should be vetted by someone not just at a local facility, but by someone else in the company’s hierarchy. Even something as quick as an e-mail or phone call to the new hire might be enough to ascertain if the person hired really works for the company.

Once you get past hiring, the next stage is to pay careful attention to payroll information that is collected. If there is a new employee who was hired, someone should do their due diligence before handing out that first check. Taking a few extra moments to corroborate that person’s existence and the work done doesn’t take a terribly large amount of time, yet it can stop one of these scams in their place.

Finally, businesses must pay more careful attention to payroll in general. There’s never a reason to pay an employee who no longer works for the company. As soon as someone is terminated or leaves the company under other circumstances, their payroll numbers should be flagged and any future payments to that name should be viewed with suspicion. Simply knowing to whom money is being paid and why can prevent a fair number of these scams and scare off those who might think about running them.


Trust professionals to help protect your business

Dealing with ghost employees is best done by preventing them from getting on the payroll in the first place. Failure to do so can lead to a long and drawn-out process, but in doing so you’ll help your company save money and eventually get to the root of the book-keeping problems that might be severely derailing your company’s attempts to turn a profit. While preventing ghost employees before they become a problem sounds easy in theory, it helps to have a competent team of Payroll and HR Specialists behind you. If you are dealing with any type of payroll problem, don’t try to solve them alone – turn to the professionals at PayTech for help today.


To learn about more types of Payroll Fraud, click here to read our free Payroll Fraud Prevention Guide


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