When I first heard the ghost employee story, it sent me scrambling back to my business to see if I was protected. My friend, lets call him John, had lost nearly $1,000,000 over the course of ten years through employee embezzlement and he honestly didn’t ever know it was happening. John is a smart businessman, had built a large BSC, and had multiple controls in place to ensure fiscal responsibility throughout the organization. However, there were a few loopholes that some corrupt individuals took advantage of for many years.
Here is what happened. A dishonest manager at a branch location was responsible for hiring his employees, getting their paperwork filled out, turning in and/or approving their hours, and delivering their paycheck. Once he realized that no checks and balances were in place to prevent ghost employee fraud, he created ghost employees using fraudulent IDs, I-9 information, and contact information. To make these employees fly under the radar, the crooked manager found a few jobs that were running under budget and put the ghost employees on these accounts. Therefore, the accounts stayed under budget and no corporate eyebrows were raised.
When it came time to pay the ghost employees, the paychecks were sent to the corrupt manager (to be delivered to the employees), who then cashed those ghost checks at a less-than-reputable check-cashing outfit. Even after the company switched to mainly automated timekeeping systems and direct deposit, some employees weren’t required to use the clock-in systems and some used pay cards as opposed to direct deposit. One larger account was making this crooked manager nearly $2,000 per month for nearly TEN YEARS!!
So what can we learn from this story? How can we prevent something like this from happening at our company? How can we implement reasonable safeguards without creating a dictatorship?
Do background checks and use E-verify to help ensure that the applicant is in fact a real person eligible to work in the US and living in the area of the job.
If possible, have someone at the main office call and personally speak with each new employee. This is a good way to ensure corporate is engaged with every employee and can function as a moral booster.
Require every employee to use direct deposit and submit a voided check.
Force all employees to clock in using a digital timekeeping system, preferably one that is caller-ID tracked or done with a geofence.
Monitor your jobsite hours each and every day. John’s company was doing this, but still had issues. Nevertheless, it is one additional check on the system.
On large jobs, consider a biometric scanner.
Do you have a story you would like to share? Do you have additional safeguards you would recommend? If so, let me know!