Category Fraud/Crime

Ghost employee fraud

25 May 2009 Mazars Moores Rowland

As the global financial turmoil intensifies organisations are striving to eliminate all unnecessary expenses. Yet without knowing it, many are falling prey to ghost employee fraud. This eats into their payrolls and negatively affects the bottom line warns Ulrich Gericke of audit, tax and advisory firm Mazars Moores Rowland.

An employee who doesn’t exist but still draws a salary is known as a ghost employee.

“The nature of this deception and the numbers involved vary depending on the size and nature of the organisation. Government departments and smaller organisations are just as vulnerable to this form of fraud as large corporate,” says Gericke.

According to the Association of Certified Fraud Examiners in 1996 nearly 40% of business fraud occurring in the workplace was suffered by businesses with fewer than 99 employees.

This often occurs because small businesses employ a single person to write and sign all company cheques or authorise electronic payments, says Gericke. “This person may even be in full control of the bank reconciliations and bank statements as well as handing all income and expenses.”

In this scenario, the temptation exists to create at least one ghost employee. But, Gericke says, ghost employees can also exist as a result of simple oversights from human resource departments.

Companies that don’t use professional payroll or remuneration programmes specifically designed to combat fraud are most vulnerable to payroll fraud. “When used correctly, such programmes will highlight anomalies such as employees with the same name, payments to the same account or unusually high earnings.”

Gericke says organisations can minimise risks by:

  • implementing a customised payroll system devised by professionals who are skilled, focused and equipped to handle the complexities of remuneration, taxation and administration;
  • segregating the duties of payroll preparation, authorisation and distribution;
  • using electronic payslips – linked to an in-house email address;
  • using electronic transfers rather than cash or cheque payments; and
  • always checking for anomalies such as invalid ID number, etc


In conclusion, Gericke says, “Organisations should always get their payroll systems reviewed by skilled professionals, because payroll fraud can actually be prevented and dealt with quite easily.”
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