Topel Forman News

Today’s Fraud Topic (March 5, 2018)

Oct 3, 2018

Today’s Fraud Topic (March 5, 2018)

Ghost employees may be haunting your payroll

Matt was a trusted long-term employee who, unfortunately, was deeply in debt. Recognizing that his company’s payroll controls were loose enough to be exploited, he put a “ghost” employee, “Scott,” on the payroll, opened a bank account in Scott’s name and arranged for direct deposit of Scott’s paychecks.

Although both Scott and Matt are fictitious, they have plenty of real-life counterparts. “Ghost” employees go unnoticed in many companies because employees are trusted too much and internal controls are nonexistent — or only haphazardly applied.

Small businesses at risk

It may seem like it would be easier to hide ghost employees in large companies. In fact, small businesses, where a single employee may handle all the payroll accounting, are more vulnerable. In some cases, the perpetrator enlists a friend or relative to forge endorsements or deposit checks; in others, no assistance is necessary. The thief simply exploits weaknesses in the payroll system.

But ghost employees are just one way for dishonest employees to manipulate your payroll system. Perhaps the easiest scam to perpetrate is to overpay withholding or payroll taxes. The government sends a refund to your company, and the employee deposits it in an account in his or her name. Other methods of defrauding your payroll system include falsifying hours, increasing commission rates and filing false workers’ compensation claims.

Follow the tracks

The good news is that payroll schemes usually leave traces. Look for:

  • Paychecks with no tax or Social Security deductions,
  • Dual endorsements on paychecks,
  • Duplicate names, addresses or Social Security numbers in payroll records,
  • Higher-than-budgeted payroll expenses, and
  • Unusual spikes in the number of payroll checks presented for payment.

To prevent this type of fraud, it’s essential to segregate payroll duties. If one employee writes checks, reconciles statements and keeps the books, that employee may be tempted to steal — particularly if that person feels overworked or underpaid.

You might also consider outsourcing your payroll process. If that’s not practical, make sure your computer system is secure and that all records are password-protected and access-limited.

Take control

It’s fairly easy to invent ghost employees and conjure up other payroll fraud schemes. But it’s also easy to prevent and detect them. You just need to take control.

 

© 2018

About Topel Forman

What makes our firm special

Contact Us

Reach out to Topel Forman

Services

Learn what we have to offer

If you have questions, please reach out to your Topel Forman contact.

 

About Topel Forman

What makes our firm special

News & Events

The latest news you need

Our People

Specialists in your industry

Related News Posts

Proposed Legislation: The Tax Relief for American Families and Workers Act of 2024

Proposed Legislation: The Tax Relief for American Families and Workers Act of 2024

On January 19, 2024, the Ways and Means Committee of the House of Representatives successfully propelled HR 7024 forward, known as the “Tax Relief for American Families and Workers Act of 2024.” The bill is the outcome of an agreement established earlier that week between the Ways and Means Committee’s Chairman Smith and the Senate Finance Committee’s Chairman Wyden.

read more
The standard business mileage rate will be going up slightly in 2024

The standard business mileage rate will be going up slightly in 2024

The optional standard mileage rate used to calculate the deductible cost of operating an automobile for business will be going up by 1.5 cents per mile in 2024. The IRS recently announced that the cents-per-mile rate for the business use of a car, van, pickup or panel truck will be 67 cents (up from 65.5 cents for 2023).

read more
Tax Planning: Charitable Giving

Tax Planning: Charitable Giving

Charity donation is one of the most flexible tax planning tools because taxpayers can generally control the timing, manner, and amount of their donations to meet their needs. For those charitably inclined, giving to charity provides not only the satisfaction of doing good but also valuable tax savings when leveraged properly.

read more