A Form Of Payroll Fraud That Is Frightening

Doling out paychecks to someone who doesn’t work for his or her company (or who doesn’t even exist) is the stuff of a business owner’s nightmares. The problem of “ghost” employees is as scary as it sounds.

A form of payroll fraud, ghost employment occurs when an employee (typically someone in management) creates a fake employee in the payroll records. Or they may prolong the pay of a real employee who is no longer with the company. The corrupt employee diverts the paycheck to themselves or splits the money with a co-conspirator whose personal data they used to create the fake employee.

Buddy punching is another incredibly common way to cheat the payroll system. In this method, one employee clocks in for another to cover for being late or not working at all. 

Payroll fraud means a company pays real money to someone who never did a minute of work. It can go unnoticed for months or even years, resulting in thousands, if not millions of dollars, in theft. 

This is not a new phenomenon.

“It’s been around as long as people have been working for other people,” says Mary Cheddie, divisional director, East for the Society for Human Resources Management, Alexandria, Virginia. “I’ve seen it in far too many organizations.”

Last year, Danna Hewick, vice president of human resources for USSI in Bethesda, Maryland, learned more than she ever wanted about ghost employees. 

When a manager started to suspect something was amiss at one of the company’s larger contracts, he started digging. He talked with employees, showed up unannounced at the building, and looked at the books. Turns out, a project manager had used a ghost employee to milk the company for several months.

“We had trusted what a long-term employee was doing and, in that instance, he was able to take advantage of the system,” says Hewick. “It happened in just one building, but it was enough for us to really look at this.” 

The offender was promptly fired. 

“When you start putting pressure to find out what is actually going on, it starts to unravel pretty quickly,” says Hewick.

USSI immediately implemented major changes to prevent the problem from ever happening again.

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