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. The following are ways to create a ghost employee:

  • An actual employee leaves the company and is then kept in the payroll records for several additional pay periods, with the perpetrator intercepting the additional paychecks.
  • An actual employee goes on leave, and is maintained in the payroll records during his absence, again with paychecks being intercepted.
  • An entirely fake employee is created and maintained 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.

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 for 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.

Related Courses

Fraud Schemes 
Payroll Management