Our Fraud Awareness in the Church series continues as we look at Payroll Fraud and Phantom Employees. We asked churches to respond to these statements:
“Someone not involved in the payroll preparation process distributes paychecks or direct deposit stubs.”
“We review direct deposit account information for duplicate accounts.”
Survey Results – Very few churches do any kind of employee verification once the employee has been hired. According to our survey only 25% of the churches engage in any form of paycheck verification (check stubs in the case of direct deposit). A little higher percentage, particularly among NACBA members, perform periodic reviews of direct deposit data (Social Security numbers, addresses, duplicate accounts, names of relatives, etc.)
KEY: To avoid phantom employees and payroll fraud, a church must KNOW who their employees are.
The term “phantom employee” refers to situations like this:
An employee is terminated but a supervisor continues to submit hours so that the “employee” continues to receive a check for months, sometimes years, after the employee left. The supervisor either colludes with the phantom in order to have the check endorsed and cashed or resorts to forgery.
A payroll clerk creates fictitious employees. These often are friends and relatives and once again, the fraudster will collude or forge.
I suspect the compliance is low regarding these questions because most “church” employees are easy to identify due to the relatively small staff size of most churches (25 to 50) and turnover is relatively low. HOWEVER, this is not the case with satellite operations such as a daycare program. Many, if not most, daycare programs are staffed by low paid, low hour, often temporary employees. Almost by definition, the turnover rate of a daycare program will be volatile compared to the parent organization, the church. With so many people coming and going, it is almost impossible to know each and every employee – an ideal place to breed “phantom employees.”