Casper Richardson was the perfect employee. He was never sick, opted out of company medical insurance, often worked overtime, received glowing reviews from his supervisor, and always cashed his paycheck on payday. Casper’s one fault? He didn’t actually exist. Casper was a ghost employee that a subsequent fraud investigation revealed had cost the company a tidy bundle — more than $200,000 over a five-year period.
“Ghost employees can be fictitious employees created by a fraudster or real individuals who are paid but don’t work for the employer,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley. “Either way, they are illusions — nonexistent employees whose paychecks are collected by a fraud perpetrator masquerading as a loyal employee.”
And because the perpetrator is in a position to be able to engineer the fraud and to carefully cover it up, this type of fraud can go on for years and be difficult to uncover, Anderson said. In the case of Casper, the Unfriendly Ghost Employee, the fraud was discovered only when Casper’s supervisor — the fraud perpetrator — was involved in an auto accident and missed work on payday, thereby unable to collect Casper’s illicit paycheck and maintain the cover-up.
Anderson, a Certified Fraud Examiner, said ghost employee fraud occurs when the fraud perpetrator places fictitious employees on the payroll, collects the paychecks and then either cashes them or hands them over to an accomplice to cash. Real individuals who are ghost employees usually are employees who were terminated, but not removed from payroll, Anderson explained. The fraud perpetrator intercepts subsequent paychecks and, once again, cashes them or gives them to an accomplice to cash.
Anderson said that fraud investigations historically have shown that the fraud perpetrators in these types of cases are supervisory or management employees with access to and authority over the payroll process, or lower-level payroll or human resources employees who discovered and exploited a weakness in the internal payroll control.
Fraud investigations also have uncovered cases in which several people worked together to perpetrate the fraud, Anderson said. As an example, he noted situations in which supervisors conspired with terminated employees who continued to collect paychecks that they cashed and then split with the supervisors.
Anderson recommends that every organization enact a comprehensive fraud deterrence program created by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley. Following are some fraud deterrence measures organizations can implement now to lessen the chances of having ghost employees on the payroll:
- Separate the hiring and human resources functions from the payroll function;
- Require two levels of review and approval for time cards and pay sheets;
- Maintain a list of terminated employees and periodically check the list against payroll data, and
- Require someone other than the employee’s supervisor to distribute paychecks.
“Putting these steps into practice, as well as adopting other fraud deterrence procedures, can help businesses safeguard against losing significant amounts of money by paying non-existent characters like Casper the Unfriendly Ghost Employee,” Anderson said.
If you suspect that you may have a ghost employee on the payroll or that any type of fraudulent activity is occurring in your business, non-profit or government office, Anderson recommends that you immediately request a comprehensive fraud investigation be conducted by a Certified Fraud Examiner from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley.
If you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.
About David Anderson & Associates
David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley. The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services. Company principal David Anderson has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.
