Busting Ghost Employee Schemes

One of the first major cases of employee fraud to break in 2021 was a “ghost employee” scheme in which a computer technician working for Chicago Public Schools stole approximately $122,000.00 during a two-year period. This case, as reported by the Chicago Sun-Times on January 6, saw the unnamed computer technician living in California and doing almost no work, while a coworker clocked her in and out to create the illusion of the employee actively working.

How do Ghost Employee Schemes Work?

Ghost employee schemes, despite their colorful name, are fairly common as a means of defrauding an employer while raising minimal suspicion. There are two main kinds of ghost employee schemes.

In the first type, an employee may be kept on payroll despite not actively working for the organization. The ghost employee can be a beneficiary of the scheme, like in the case occurring at Chicago Public Schools, while other cases may involve employees with access to payroll leaving a former employee on payroll and keeping the “ghost” paychecks for their personal financial benefit.

The second type of ghost employee scheme involves an individual with payroll access creating a fake employee who receives paychecks that get diverted to real employees.

Fraudsters perpetrating ghost employee schemes may go undetected for long periods of time, as was the case with the Chicago Public Schools’ ghost employee, because employees can work in collusion to fabricate records of a ghost employee’s existence. Large companies with limited internal controls are particularly vulnerable to ghost employee schemes. These kinds of companies may have high turnover and enough employees that ghost employees can easily slip through gaps in oversight.

Catching Ghost Employee Schemes

While ghost employees may haunt inattentive employers for years, there are signs and systems employers can use to exorcise their ghost employees.

  • Implement payroll audits in which employees must appear in person to show identification and sign for their paycheck.
  • Check staff rosters for typical ghost employee identifiers such as duplicates of identifying information, P.O. boxes in place of addresses, or no deductions and withholdings.
  • Annually validate employees’ Social Security Numbers.
  • Perform background checks.
  • Review all W-2 forms.

In some cases, ghost employee schemes can be tricky to unravel internally. In those circumstances, it can be beneficial to enlist the help of forensic accounting firms, such as SDC CPAs, where founder Dee Studler has extensive experience untangling devious, complicated employee fraud cases.

 

Posted in: