Invisible workforce, visible losses

 

Fake Employees. Real Salaries. Big Losses.

Payroll fraud is more common than you think. Companies unknowingly pay salaries to individuals who don’t exist – either entirely fake hires or former employees who should have been removed from the system. These “ghost employees” cost businesses millions every year due to weak verification processes and insider manipulation.

The Rise of Payroll Fraud

Payroll fraud affects businesses of all sizes, but SMEs (small and medium enterprises) are the most vulnerable due to limited financial oversight. According to the Association of Certified Fraud Examiners (ACFE), payroll fraud occurs in 8% of all occupational fraud cases globally, with a median loss of $45,000 per case

In India, ghost employee fraud has been reported in multiple sectors. An investigation within the Municipal Corporation of Gurugram found that out of 1,950 listed workers, at least 300 were non-existent, leading to significant financial losses.

 

How Payroll Fraud Happens

Fraudsters exploit loopholes in payroll systems through:

• Fictitious Employees – Creating entirely fake employee profiles and paying them salaries.
• Retaining Former Employees – Keeping ex-employees on payroll and redirecting payments.
• Manipulating Work Hours – Inflating attendance records or logging overtime for non-existent employees.
• Unauthorized Salary Adjustments – Issuing unauthorized bonuses or raises.
• Insider Collusion – Payroll managers or HR personnel exploiting their access to commit fraud.

How to Prevent Payroll Fraud

To safeguard against ghost employee fraud, organizations must implement strong verification and monitoring strategies:

• Conduct Regular Audits – Perform both scheduled and surprise audits to identify discrepancies.
• Segregate Payroll Duties – Ensure hiring, payroll processing, and salary distribution are handled by separate teams.
• Use AI-Powered Payroll Systems – Automate verification processes to detect unauthorized changes.
• Verify Employee Identities – Cross-check employee details with government databases and conduct regular ID verification.
• Monitor Payroll Reports – Flag anomalies, such as multiple employees sharing bank accounts or tax IDs.

Conclusion

Payroll fraud is not just a financial issue – it’s a risk to business integrity. By strengthening background verification and implementing secure payroll systems, companies can protect themselves from unnecessary losses and ensure they only pay for real employees.