There are two kinds of ghost employees – do you know which kind is more dangerous?
The kind of ghost employee that gets the most
publicity is the least
dangerous. We have all heard of the occasional government official who puts a friend or relative on the payroll, but does not expect that person to show up and work. Obviously that is unethical and probably illegal. But it is not a danger to you, as a public official, because you already know about it. If you are doing it, you know you are doing it.
Granted, you may not be aware a trusted employee may be doing some personal or political work while he is on government time. Technically, that is ghost employment. It can lead to trouble, but such violations are usually petty and seldom lead to serious losses.
The greater danger is the ghost employees you don’t know about.
You may think that could not happen, but think again.
Here are examples that can happen in almost any size organization, and the boss may never know:
The ex-employee trick:
An employee resigns or retires. The position remains vacant for a while. The boss assumes no paycheck is being issued, but how does he know? It is possible for a thief to slip in a fake time sheet or simply leave the employee on the payroll list. A paycheck is issued and cashed by the thief. If electronic funds transfer is used, the thief may be able to turn in a changed bank account number.
The new employee trick:
A position is vacant. A thief turns in a fake time sheet or simply adds a fake name to the payroll. A check is issued and is cashed by the thief. A variation involves adding a ghost employee even if there is no vacant position.
The “I deserve a raise” trick:
The thief simply gets into the system and increases his own pay rate, or the rate of a friend. Variations include padding overtime, comp time, vacation time, or other compensation add-ons.
WHO SHOULD YOU WATCH?
Any clerk or supervisor who handles time sheets or turns in names of new or terminated employees is in a position to create ghost employees.
If that person is the same person who passes out the paychecks in his office or department, then there may be practically no control over the payroll. It is easy to picture a person turning in a fake time sheet then receiving back the ghost paycheck, and cashing it.
WHAT SHOULD YOU DO?
First of all, don’t rely on the bank to protect you
. In practice, banks are not liable if you allow a fraud to take place in your office. You should accept that any reasonably smart crook can cash any check in any name. Good luck complaining to the bank that the endorsement was forged or the payee did not exist. The bank will say it is not their fault you had poor accounting controls and allowed a criminal access to your payroll system. They will win the argument. Banking laws favor the banks.
Instead, you should employ a bedrock rule of internal accounting control:
SAFEGUARDING PUBLIC ASSETS, RULE NUMBER TWO*:
THE PERSON WHO ACCOUNTS FOR AN ASSET SHOULD NOT BE THE SAME PERSON WHO HANDLES THE ASSET.
For example, the person who turns in time sheets and employee data should not be the person who passes out the paychecks. If a fake employee is created by a supervisor or clerk, a different person passing out the checks will catch it before it is too late.
[When I was a county auditor, I required that each department assign two people to deal with my payroll department, one to bring in the time sheets for processing, and a different person to pick up the final printed checks — CLC.]
The principle is the same for electronic paychecks. The person who enters the names and time worked should not be the same person who enters the employee bank account numbers.
In any pay system, pay rate changes and overtime authorizations should not be adjusted by the payroll clerk, or even by the accounting department, but preferably by the personnel department.
* RULE ONE: NEVER ALLOW THE BANK TO MAIL THE BANK STATEMENT TO THE BOOKKEEPER OR ANYONE IN THE ACCOUNTING DEPARTMENT
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