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Is Ghost Employee Fraud Draining Money From Your Business? How To Detect and Prevent It in SAP

September 13, 2023

by

Paul Dixon

#

SAPCompliance

The ghost employee phenomenon costs businesses billions of dollars annually worldwide. But how can something that sounds paranormal be a damaging threat to your organization and your SAP environment? The answer is clear:

Behind ghost employees are real staff members lining their back pockets with fraudulently acquired funds (that should be contributing to the company's bottom line).

And guess what? Because it's not a supernatural problem - it's real and leaves a digital footprint - advanced technology has developed to the point that detecting and preventing ghost employee fraud within your SAP ERP and S/4HANA systems is not only possible but highly effective.

In this VOQUZ Labs guide, we'll reveal exactly how to do it. But first, let's look at the problem in general.

Ghost Employees: The Growing Problem Explained

Let's look at the financial cost of illegally-acting employees stealing from employers more closely. Ghost employee schemes are one of the most common types of payroll fraud. For example, if we take the UK as an example, payroll fraud costs the economy around £12 billion ($15 billion) per year.

With statistics like these, it's easy to imagine how fraudulent ghost employee schemes are making huge dents to company bottom lines globally.

And the ghost employee problem is a growing one.

Why? Because the COVID-19 pandemic resulted in a massive increase in remote work. In 2023, 12.7% of full-time employees work from home. Here is another fact: Fraudsters love working from home. After all, it removes natural boundaries and controls found in offices.

What's happened over the last few years - and right now - is that companies are playing catch-up. Essentially, the goalposts have shifted, and there is a pressing necessity to update systems, processes, and technology to adapt to this new landscape where all internal frauds, including ghost employee schemes, are thriving.

And the reality is this: Companies that ignore the new normal and don't make the necessary investments will be left in the wake of their competitors.

The following sections will reveal how SAP users can prevent and detect ghost employee fraud. We'll hypothetically put the tangible solutions into real-life scenarios to make it easy to understand and visualize.

BROCHURE – the benefits of our products!

remQ - Stop losing your money to fraud!

remQ is a continuous monitoring software for SAP ERP and S/4HANA, with a large library of built-in controls that help check master data and business processes to avoid financial losses through errors and fraud. remQ can be set up in less than a day, works regardless of organization size and industry, requires no consulting project, and reduces the cost of compliance through automation.

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Example 1: X (formerly known as Twitter)

The following example involving X is not a confirmed case of ghost employee fraud. But it reveals the kinds of challenges companies face with the issue.

Here is what happened: On October 28, 2022, the day after Elon Musk's $44 billion deal to buy Twitter went through, Musk wanted to make job cuts. According to an excellent piece of investigative reporting from The New York Times, paying the soon-to-be-laid-off workers their bonuses made economic sense (due to legal reasons).

To cut to the chase, Musk ordered Twitter's chief accounting officer to perform a payroll audit. Why? According to the report, Musk wanted to ensure all of Twitter's employees were real humans, concerned about a potential ghost employee problem.

How To Tackle the Problem in SAP

Let's look at how, hypothetically, internal controls teams and auditors could have managed this situation within SAP.

Firstly, we don't know what the circumstances were at Twitter, nor do we know if they use SAP. But in 2023, the most effective tool to identify potential ghost employees is not to wait until a manual audit is performed periodically.

What do intelligent companies using SAP do? They set up real-time auditing and monitoring processes. You can learn more about this process in our guide.

VOQUZ Labs remQ Business Inspector software operates as a SAP add-on, and in situations like ghost employee fraud, it can do the following:

  • Continuous Monitoring of Payroll and Employee Data
  • Anomaly Detection
  • Alert Generation (Red Flags)
  • Case Management
  • Automated Reporting

In this article, we won't go into the technical details (but you are more than welcome to contact us to learn more).

But the key takeaway is if your company uses SAP ERP or S/4HANA, embracing automated real-time auditing and monitoring solutions will tremendously help your business detect ghost employee fraud early in the act - saving your business money while identifying bad actors within your organization before they do damage.

WHITE PAPER – enhance your knowledge!

Reduce Fraud & Boost Cost Savings by Automating Internal Controls

Our White Paper explains how using robust controls and automation, organizations can better manage fraud risks, comply with regulations, improve operational efficiency, and save substantial costs.

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Example 2: PRASA Ghost Employees Fraud Scandal

Our next real-world example is an actual case of ghost employee fraud of colossal proportions.

The Passenger Rail Agency of South Africa (PRASA) is a South African state-owned company responsible for passenger rail services in the Rainbow nation.

In one of the biggest ghost employee fraud scandals ever, in 2022, preliminary findings in a special government investigation discovered that 1480 employees were likely to be ghost employees and part of numerous payroll fraud schemes.

They also found that weak IT and payroll systems were the "root cause" of the massive scam.

And what you also need to know is this: Large organizations with thousands of employees spread out in numerous locations (and business divisions) are more susceptible to ghost employee fraud.

Here is why:

  • Complex payroll systems
  • Decentralized management structures
  • Challenges in monitoring and verifying employee data

How To Tackle These Problems in SAP

Again, like with the Twitter example, we don't know the specific details of the PRASA case (nor do we know if they used SAP). However, according to the South African government investigation, they did have problems with their IT and payroll systems.

Now, something is important to understand:

All large companies using SAP, like any other complex software system, may be vulnerable to weaknesses if not set up correctly. Issues like incorrect configuration, lack of robust segregation of duties, poor access controls, and missing approval workflows will likely lead to errors and increased payroll fraud (such as ghost employee schemes).

And here is the key takeaway: For large companies that use SAP as their Enterprise Resource Planning (ERP) system, in 2023, the smart action is to utilize real-time auditing and monitoring to significantly mitigate the risk of internal actors ripping off your company with ghost employee fraud.

Closing Thoughts and How remQ Can Help

If your company or organization uses SAP ERP or S/4HANA and is concerned about ghost employee fraud, you have a tremendous opportunity to set up a system that detects the problem in real-time through automated continuous monitoring.

This is where remQ can help you.

VOQUZ Labs remQ Business Inspector software operates as a SAP add-on with a library of 100+ pre-built shipped controls ready to run. You can click here to learn more about how remQ can assist your business with its goals to cut audit errors, reduce fraud, and stay compliant within your SAP ERP or S/4HANA environment.

ABOUT THE AUTHOR

Paul Dixon

Paul is a RegTech content writer & strategist with extensive experience in digital marketing and journalism. His work has appeared in the Guardian newspaper. He also holds a degree in International Relations, where he studied global sanctions compliance and cross-border finance.

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