Do you run a construction company and you want to keep ghosts off your payroll? If YES, here are 20 sure tips on how to prevent construction ghost workers.
What is a Ghost Worker?
Ghost workers simply put are employees that regularly receive their salaries from a company but who don’t work for the said company.
Ghost employee schemes are perpetrated by payroll employees who either create fake identities that is complete with fake SSN, address, phone number, etc., or who continue to issue payments to employees who have left the company, and divert the pay to themselves. Whatever form a ghost employee takes, it is just a grand scheme to steal money from a company.
A ghost employee can also be a real person, such as a family member, who doesn’t work at the company but who collects pay and either shares it with the fraudster or keeps the whole payment to him or herself.
The ghost worker phenomenon is real in the construction industry where you typically have a lot of people on the payroll at all times. Because of the many contractors, full-time and ad-hoc staff to pay at all times in the construction industry, it is typically difficult to track their payments. It has been observed that ghost workers are more prevalent in large organizations than smaller ones where they can be easily detected.
The ghost worker phenomenon is one of the commonest payroll fraud that can be found in the construction sector. This method of fraud can manifest in a lot of ways which may include;
- Disgruntled Payroll Manager – If a construction business has a payroll manager who is unhappy and thinks that he or she deserves additional compensation, it would be fairly easy for them to modify the payroll records to create a new but fictitious employee, and collect that employee’s check for themselves. This is particularly true if the payroll manager has an unrestricted and unmonitored access to the payroll system.
- Multi-Employee Fraud – This is another way ghost worker fraud can manifest in a construction business. With a more complex payroll process, or if the employee doesn’t have direct access to the payroll system, multiple employees might conspire to defraud the system, then split the money they embezzle. Typically, one employee will have some sort of role in verifying and authorizing payroll so that they can sign off on falsified time sheets.
- Family/Friend Compensation – An employee might create a record in the payroll system for a family member or friend so that they receive a paycheck from the company. In this case, the actual employee may or may not receive a share of that paycheck.
Ghost employee schemes can range from simple data entry (especially if the fake employee is given a salary), to complex manipulation of false time sheets and payment redirection. If you don’t keep a close eye on payroll in your construction business, this type of fraud can often go unnoticed for quite some time and it is enough to bleed a company of millions of dollars.
Red Flags That Can Hint of Ghost Workers in your Construction Business
a. Employee information anomalies. There are a couple of anomalies you can notice in your construction company and it will tell you that you have a ghost worker problem. If an employee’s Social Security number (SSN) is not listed, or multiple employees have the same SSN, then it is pointing to one thing, and that is fraud. Again, if there are multiple address changes within a year, then you should be suspicious.
b. Payroll-register anomalies for direct deposits. This happens when the same bank account number is used for multiple employees, potentially indicating a ghost employee’s paycheck is being deposited into the same account another employee uses. This is another red flag to note. Multiple bank accounts for one employee’s paycheck could potentially indicate that a ghost employee’s paycheck is being split between co-conspirators.
c. Payroll-check anomalies. If during payment in you construction business and multiple checks are issued to an employee within one pay period, or an image of the payroll check shows it was endorsed by someone with a name different from the payee’s, then you may have a problem on your hands.
d. Bonus or pay-increase anomalies. If you notice at any time that an employee receives a bonus different from the company’s typical bonus distribution, or an employee receives multiple pay increases within one year, then it is a cause to be investigated.
e. Employee time-off trends. An employee hasn’t taken any paid time off or sick leave for an entire year, or the person processing payroll never takes vacation. Forced vacations or rotation of duties are an effective control, Wilder said.
20 Sure Tips on How to Prevent Ghost Workers in your Construction Company
Because of the large number of variables that influence how ghost employee fraud is committed, there are no surefire ways to prevent it or to catch employees in the act. However, there are steps you can take to reduce your risk:
- Conduct Ghost Employee Audits
In most cases, ghost employees are discovered by thorough audits of your payroll records. You should have someone in your construction business that will regularly compare payroll records to time card reports and employee personnel files to look for discrepancies such as fake employees, duplicate social security numbers, duplicate addresses or duplicate bank accounts.
- Separate Payroll Duties
Another thing you must do in your construction business to prevent the incidence of ghost workers is to ensure that different parts of your payroll process are handled by different people. If someone is responsible for authorizing checks, make sure someone else is responsible for distributing those checks. If someone has the power to create/delete employees in the payroll system, make sure someone else verifies the changes.
- Evaluate HR Policies
Make sure your HR and payroll staffs are completely up to date on your HR policies, particularly when it comes to adding and removing employees from your staff roster. This will help prevent former employees’ information from being used for ghost employee fraud.
- Make your Payroll Harder To Falsify
If you have employees that are compensated based on their time, ensure that you have processes in place to make falsification of time records difficult. Ideally, use automated time tracking when employees clock in and out. For added protection, use a time tracking system with some form of ID verification built in.
- Review payroll reports on a periodic basis
The reviewing of payroll reports on a periodic basis is an important step in mitigating and detecting fraud, and it is not something that should only be done once a year by the auditor. Having a control number of the total number of employees in your construction business in mind allows for a good starting point for this review.
From there, it can be as simple as scanning through the names. One should note, for proper segregation, this review should be performed by someone other than those that can add new employees or terminate old ones.
If your payroll does not change frequently, as in cases where the number of employees is changing on a normal basis, every time you run payroll, check that it’s in line with your expectations. Take a close look at any abnormal findings and know what to expect when running reports.
- Utilize Predefined shift rules
Predefined shift rules limit the time frame during which workers can clock in and out of work. If they try to do so outside of the predefined time window, the system won’t let them. Rules can be set for individuals, departments or the company as a whole.
- Make use of user authentication
User authentication eliminates buddy punching by requiring workers to produce a unique identifier when they clock in and out of shifts. Depending on the sophistication of the system and whether it’s able to integrate with any hardware, such as a scanner, this identifier could be an ID badge, a fingerprint or even a photo of the worker’s face.
With regard to the payroll system itself, ask your vendor if it has any features that can automatically flag entries that may have issues with them. These features are fairly common.
You should also pair your software with sound attendance policies. For example, a best practice is requiring workers that miss their approved window for clocking in or out to request a manual entry from their manager. The manager can review the circumstances surrounding why that employee was early or late and determine if the entry should be allowed or not.
- Look into your system’s user permissions
You should be able to limit every user’s access based solely on their needs, so rank-and-file workers can’t change their pay rates. You may also be able to limit when pay rates can be changed, for example, after performance reviews.
- Get rid of paper checks
Physical paychecks are much easier to forge and steal than their digital counterparts, so consider going the direct deposit or pay card route if you haven’t already. Your software should allow you to change payment methods with ease.
- Create exception reports
The accounting system should be designed with controls that put red flags on results that are outside normal parameters. These might include:
- Additions or deletions to payrolls should generate an automatic report to the relevant supervisor.
- The payment of overtime or incentive pay that is above established parameters should generate an exception report.
- Look out for employees without deductions
A good way to detect ghost employees in your construction company is to look for anyone who has few or no deductions from his or her pay. A perpetrator rarely goes to the trouble of creating a complete set of benefits enrollments, especially since doing so will reduce the amount of money that they can steal from the employer.
- Manual distribution of paychecks
Once in a while, you should make it a point to distribute pay checks manually in your construction company. By making a point to manually distribute checks, your organization has a better opportunity to detect ghost employees.
- Analyse addresses or direct deposit accounts
Another thing you can do in your construction company to prevent the incidence of ghost workers is to analyse addresses or direct deposit accounts. In the process of reviewing accounts and addresses, your organization can identify duplicate account numbers, addresses or Social Security numbers for multiple employees.
- Analysis of deductions from payroll checks
If there are employees on your payroll who are not withholding tax or any other deductions, they might be a ghost employee. By analyzing direct deposits, you can cut down on payroll chicanery by eliminating paper paychecks and the possibility of alteration, forgery and most theft, although it doesn’t prevent misdirection of deposits into unauthorized accounts.
- Examine payroll checks that have dual endorsements
Although most of them are legitimate, two signatures could signal the forgery of a departed employee’s endorsement, which the thief also endorses and deposits into his or her own account.
- Be wary of budget variations in payroll expense
Higher-than-budgeted labor costs can indicate ghost employees, as such, you should be wary of any unplanned variations in your budget.
- Use segregation of functions
In your construction company, you should ensure that a lot of the payroll functions are not given to one person. Ensure the payroll preparation, disbursement and distribution functions are segregated. It should be applied in the following ways;
- No one person should be able to add a new employee to the payroll, set wages, enter time, and pay the person.
- There should be a monthly reconciliation between the payroll ledger and the HR employee list performed by someone outside the payroll department.
- The person authorizing a check run should not be authorized to retrieve the printed checks.
- The payroll accounting function should be independent of the general ledger function.
- IT should not have access to HR or payroll application programs.
18. Periodically run all employees’ SSNs through the Social Security Administration website — especially of those working in sensitive positions—and follow that up with a background check. Other websites for checking employee identification include E-verify or the IRS website. This would help you know who is who.
19. Use a payment system that requires employees to identify themselves
If this involves using an electronic swipe system, scrutinize whether the same two people consistently swipe their cards at about the same time. This could indicate that someone is swiping a second person’s badge without the second person reporting to work.
- Scrutinize how consistent employees’ hours are
If the hours never vary, it could be a red flag signaling a ghost employee because the fraudster wants to make sure no one looks at this person or dictates what is going on.
While the scourge of ghost workers may not be going away soon, but applying a few of the above stated measures would ensure that you rid your construction company of the menace of ghost workers.