We all want to believe we have hired trustworthy staff in the office and in the field. But now more than ever, farms are finding “Ghost Employees” on their payroll. A “Ghost Employee”, to put it simply is a person that does not work for the farm that is on the payroll and receiving pay. Most often Ghost Employees are created within the company with fraudulent intentions. Both large and small farms are vulnerable. Here is an example of a ghost employee fraud that took place in Washington: Bookkeeper admits stealing nearly $1M from Zirkle Fruit with 'phantom' employees. Due to the complexity of Ghost Employee Fraud, there is no surefire way to identify or prevent it, but here are a few ideas we have found to be most effective in reducing Ghost Employee Fraud for farms, packing warehouses, and food processing facilities.
Conduct Payroll Audits
Fraud is most often identified during an internal audit of payroll records. By frequently conducting payroll audits you will limit the amount of damage that can be done. As often as possible there should be people checking the times paid to each farm employee against the time card that was submitted. Having a rotation of staff do these audits can help identify any suspicious activity coming from one group or person in a payroll department. Payroll can account for 50 percent of the expenses for a farm, so it makes sense to audit your payroll regularly. A good time frame for scheduling a payroll audit is at the end of each quarter of business. Below are 5 critical components of any audit for ghost employees.
- Verify pay rates: Confirm that the pay rate listed in the payroll system is correct for each employee. For companies with 50+ employees or multiple ranches or farm sites, we recommend selecting a random sample of 25-50 paychecks to confirm pay rates.
- Compare pay rates to time and attendance records: Review overtime hours, sick days, and vacation time, confirm all time was paid at the correct wage and hours worked.
- Confirm pay for active employees: Try hand-delivering checks to field employees, so you can see the actual worker, and recognize if someone is collecting multiple checks. Remove all nonworking personnel from your payroll, time tracking systems, and safety training systems.
- Cross-check payroll reports: Review the general ledger records, and check that all gross payroll expenses, withheld taxes, and net check amount all match up.
- Validate bank reconciliation: Compare your bank account with internal ledgers. Confirm the balances align and all checks cleared for the amount they were issued.
During farmworker onboarding offer the option of direct deposit. This method, although not foolproof, can cut down on payroll fraud by eliminating paper paychecks and the possibility of alteration, forgery, and theft. However direct deposit comes with the added responsibility to ensure the safety of your employee’s personnel and payroll/confidential records. Be sure to track paperwork that has personal information & ensure it is stored safely. If you use online systems make sure they use encrypted storage and provide access controls to secure employee information. Quality electronic onboarding and hiring software will do this automatically, so you don't have to worry about it. If direct deposit is not available to your employees be sure to require all checks to be picked up by the employee. Using a paycheck pickup sign-off sheet may be one way to keep records of this. If you allow others to pick up checks on behalf of an employee, create policies that require signed permission slips, before the payroll date, for that other person, be it a family member or spouse to pick up a check. Make sure to keep this signed permission slip, if you use onboarding software, it should be able to send one-off documents like that directly to the employee.
Evaluate HR & Payroll Policies
Be sure your HR and payroll staff are completely up to date on your HR policies, particularly when it comes to adding and removing employees from your farm’s accounting, time tracking, and safety training apps. This will help prevent former employees’ information from being used for fraudulent purposes.
Crew supervisors and field bosses also play a large role in combating ghost employee fraud. Ask foremen to return any checks that are not picked up to the payroll department. Give supervisors permission to question payroll or checks that do not look correct and remember that your supervisors are your frontline of communication with your farmworkers and hold the most amount of trust and respect.
A Few Last Preventative Tips
Most ghost-employee fraud originates with payroll personnel. With simple but effective measures, you can prevent or detect many of these schemes:
- Payroll preparation and distribution should be done by different people each month so a single employee cannot regularly commit fraud.
- Look for paychecks without deductions for taxes or Social Security.
- Check payroll records for duplicate names, addresses, and Social Security numbers.
- Look for off-budget payroll expenses and over budget labor costs.
We know that one dishonest employee can be harmful to a company, and we must do everything we can to prevent Ghost Employee fraud. Next time you run payroll try a few of these ideas and see if they work with your process.