Unmasking Ghost Employees: How Forensic Specialists Help Organizations Detect, Investigate, and Recover from Payroll Fraud

ARTICLE | November 17, 2025

Authored by Aprio

Summary: Ghost employee fraud is a hidden but costly threat to U.S. businesses of all sizes. With evolving tactics and increasing regulatory scrutiny, organizations need more than just basic controls. Forensic specialists can help businesses unmask ghost employees, quantify losses, and strengthen defenses for the future.

What Is Ghost Employee Fraud?

Ghost employee fraud occurs when fictitious or inactive personnel remain on a company’s payroll, collecting wages or benefits and siphoning funds from the organization. At its core, this scheme involves unauthorized payroll disbursements and is often orchestrated by an individual who has access to payroll systems. This can involve fake identities, duplicate payroll entries, or even collusion with insiders.

Ghost employee fraud falls under the broader category of occupational fraud known as asset misappropriation. Ghost employees may inflict severe financial losses, inflated payroll costs, tax liabilities, and reputational damage that can take years to repair. For industries with distributed leadership or high employee turnover (e.g., warehouses, agriculture, healthcare, government, education), the risk is especially acute.

Anatomy of a Ghost Employee Scheme

Common Tactics

Fraudsters typically exploit payroll systems by creating fake identities, reactivating records of former employees, or leaving terminated staff on the payroll. In the former, these personnel files are supported by falsified documentation (e.g., Social Security numbers, tax forms, employment contracts) to avoid detection. In the latter, direct deposit information and other accurate documentation can be altered. In some cases, collusion with insiders enables the scheme to persist, especially when one person controls multiple steps in the payroll cycle.

Some of the most common tactics include:

• Fake identities: Fraudsters use false documents to onboard nonexistent employees, particularly in industries with seasonal or contract labor.
• Duplicate payroll entries: Creating multiple records for the same worker allows for double payments.
• Collusion with insiders or third parties: Managers or HR staff may conspire with external staffing agencies to bypass controls and onboard ghost employees.
• Failure to verify documentation: Lax identity checks enable fraudulent onboarding, particularly in agriculture and manufacturing.

Industries at Risk

While ghost employee schemes are not limited to one sector, high-turnover industries (e.g., warehousing, agriculture, healthcare, government, education, and staffing agencies) are especially vulnerable, where the complexity of payroll systems and fragmented oversight make it easier for fraud to go undetected. No matter what industry, decentralized operations or manual HR processes also contribute to gaps in oversight, helping fraudulent entries remain unnoticed.

Real-World Examples

While ghost employee fraud may sound abstract, real cases show just how damaging these schemes can be. From healthcare facilities to large-scale construction operations, perpetrators are able to exploit weak controls and complex payroll systems to siphon millions in funds.

The following real-world examples illustrate the tactics used and the consequences organizations face when oversight fails.

Case Study 1: Illinois Nursing Facility Ghost Payroll Scheme

A former scheduler at an Illinois nursing and rehabilitation center admitted to orchestrating a ghost employee scheme that siphoned more than $103,000 from the facility. Between 2017 and 2019, the employee fabricated time sheets and payroll records for at least five fictitious Certified Nursing Assistants. Paychecks were either split with accomplices or forged and cashed by the perpetrator. The fraud diverted funds intended for patient care and exposed critical gaps in payroll oversight. The defendant pleaded guilty to wire fraud and faces up to 20 years in prison, along with restitution and forfeiture of the stolen amount.

Case Study 2: $146 Million Construction Payroll Fraud

Three individuals in Florida were sentenced for running a decade-long payroll scheme that defrauded the IRS and workers’ compensation insurers. Operating through shell construction companies, the defendants processed over $146 million in off-the-books payroll for subcontractors, skimming fees while evading payroll taxes and insurance premiums. The scheme also facilitated the employment of undocumented workers, creating unfair competition and significant tax losses. Sentences ranged from 18 months to nearly five years, and restitution exceeded $37 million. Federal agencies highlighted the case as a stark reminder of how payroll fraud erodes industry integrity and harms both workers and law-abiding contractors.

Payroll Fraud: The Cost of Inaction

Failing to address ghost employee fraud can have severe consequences, including significant financial losses, inflated payroll expenses, and tax liabilities. Beyond monetary impact, organizations also risk reputational harm, regulatory penalties, and potential litigation. In grave cases, internal fraud can escalate to criminal charges, compounding the damage.

Ghost employee fraud can lead to:

• Financial losses: Direct theft, inflated payroll, and tax liabilities can quickly add up. For smaller businesses, a single scheme can be devastating. For larger organizations, even “minor” losses erode trust and profitability.
• Operational risks: Reputational damage can deter clients, partners, and talent. In some cases, organizations avoid reporting fraud to law enforcement to protect their brand, but this can allow problems to persist.
• Legal exposure: Civil litigation, regulatory penalties, and criminal charges are real risks. Insurance may only cover direct theft, leaving organizations exposed to additional costs.
• Governance risk: Weak “tone at the top” and poor internal controls create an environment where fraud can flourish. Leadership must set clear expectations and act decisively when issues arise.

How Forensic Services Can Help

Fraud Detection and Investigation

Forensic specialists conduct deep-dive accounting reviews, payroll system internal control reviews, and data analytics to identify anomalies and red flags (e.g., duplicate payment accounts or unverifiable time records). They also validate employee credentials and cross-check attendance logs to confirm legitimacy. They interview employees, support internal investigations, and refer cases to law enforcement when necessary.

Restitution and Recovery Support

Forensic professionals quantify losses for insurance claims or legal proceedings and may serve as expert witnesses during litigation. They also assist in negotiating restitution agreements and helping organizations recover stolen funds.

Prevention and Risk Mitigation

Beyond investigation, a forensic team helps organizations strengthen internal controls and provides guidance on implementing fraud awareness and prevention policies or best practices. Preventive measures include implementing robust internal controls, segregating payroll duties, and establishing approval hierarchies. Regular audits and fraud awareness training help close gaps that enable ghost employee schemes.

Final Thoughts: A Hidden but Costly Threat

Ghost employee schemes can strike any organization, regardless of size or industry. The financial, operational, and reputational risks are real, but with proactive measures and the right forensic partner, organizations can detect, investigate, and recover from payroll fraud.

Please connect with your advisor if you have any questions about this article.

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This article was written by Aprio and originally appeared on 2025-11-17. Reprinted with permission from Aprio LLP.
© 2025 Aprio LLP. All rights reserved. https://www.aprio.com/unmasking-ghost-employees-ins-article/

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