SITUATION: 

To conceal their schemes, fraudsters often try to keep key tasks out of the hands of others. An unexpected job rotation—particularly in accounting positions—can help uncover wrongdoing. That’s just what happened at a company where the chief financial officer had controlled the entire payroll process, with the power to add people to the payroll and to determine amounts they were paid. 

When the CFO went out on medical leave, the company was able to have a new individual take on the role. The FSS financial fraud investigation team was called in by the company to investigate after the new individual noted that two people were on the payroll who had the same last name as the CFO and were receiving compensation that exceeded that of their counterparts.

STRATEGY:

Our first step was to determine if probable cause existed to undertake an investigation. It did. We reviewed the CFO’s personnel file and found that the two people on the payroll were listed on and covered by the CFO’s health insurance. The file also revealed that one of the people was listed as the CFO’s spouse and emergency contact. Meanwhile, no personnel files were found for either of the two “employees.”

We then reviewed the organization’s payroll records and found that the two had been paid for multiple years. Although one had started as an hourly employee, no time sheets were found to provide evidence of the hours worked. Both had received bonuses out of line with their job titles, and one had been granted a 401k match of 50 percent.

FSS determined that the CFO was engaged in a ghost employee scheme, where someone is added to the payroll and collects a wage even though they are not really doing work for the organization. We then followed the money. Using our investigative and forensic technology skills, we were able to map out the route of payments and trace payroll transactions from the point of origin to disbursement of funds through check payments and direct deposits.

RESULTS:

After reviewing the payroll transactions, our team calculated that the CFO had misappropriated more than $1.3 million through the ghost employee scheme. Our report was then taken by the company to the U.S. Attorney’s office for the purpose of pursuing criminal charges. 

The investigation also allowed us to relay best practices to help the organization reduce its risks of a future ghost employee scheme, including segregating duties between the human resources and accounting departments and ensuring that sensitive accounting department positions are routinely rotated.