Most business owners trust their people. That trust is one of the best parts of running a business in Kansas: working with people you know, building teams that stick around, creating something together.
But trust works best when it’s paired with clear systems.
Recent federal audits have uncovered a significant increase in payroll fraud schemes, some sophisticated, some surprisingly simple. While the term “ghost employees” sounds like something from a crime drama, the reality is more mundane: small gaps in oversight that create opportunities for problems.
The good news? Most of these issues are preventable with straightforward controls that protect everyone involved.
What “Ghost” Schemes Look Like
Ghost Employees
These are fake workers on your payroll or terminated employees who were never properly removed from the system. Someone creates these “employees” or keeps them active, then redirects their paychecks to their own account.
Common signs:
- Employees you’ve never met or can’t place
- Multiple employees with the same bank account or home address
- Workers with no supervisor assigned or no time-off records
- Steady paychecks that never vary (no sick days, overtime, or adjustments)
- Employees missing tax withholdings or benefit elections
Ghost Employers
These are businesses that issue W-2s to workers but never actually remit the payroll taxes to the government. Employees think their taxes are being paid, but they’re not.
The IRS recently identified over 160,000 potential ghost employer cases nationwide, so this isn’t rare.
Warning signs:
- Payroll taxes not matching up with deposits
- Missing or late quarterly filings (Form 941)
- Discrepancies between what’s on W-2s and what was actually paid to the IRS
Why This Happens (And It’s Usually Not Criminal Intent)
Most payroll fraud doesn’t start with someone plotting a scheme. It starts with:
- Growing too fast:Your payroll processes worked fine with 8 employees. At 25 employees, those same informal systems have gaps.
- Too much access:One person handles hiring, payroll processing, terminations, and bank reconciliations. It’s efficient until it isn’t.
- Legacy systems:You’re running on a mix of QuickBooks, spreadsheets, and memory. Things fall through the cracks.
- Turnover in key roles:The person who “just knew” how everything worked left. The new person inherited a system without clear documentation.
- Trust without verification:“Jane’s been with us for 15 years” is wonderful, and Jane deserves that trust. But even the best employees benefit from systems that protect them from suspicion.
The phrase we hear most often after discovering issues: “We’ve always done it this way.”
Who’s Most Vulnerable
This matters especially for:
- Growing businesses (15-50 employees):
You’ve outgrown informal systems but haven’t yet implemented formal controls. This is the danger zone. - Family businesses:
When everyone trusts everyone, formal verification feels unnecessary, until something goes wrong. - Businesses with seasonal staff:
High turnover makes it harder to track who’s currently active. Terminated employees staying in the system is common. - Multi-location operations:
When payroll is processed at one location for workers at several sites, visibility decreases. - Businesses with long-tenured bookkeepers:
Deep institutional knowledge is valuable. But if one person controls too much without oversight, risk increases. - Companies going through transitions:
Ownership changes, bookkeeper retirements, or system migrations create temporary chaos where issues hide.
Red Flags That Deserve Immediate Attention
Stop and investigate if you notice:
- An employee with no manager or department assignment
- Multiple “employees” with the same phone number or address
- Bank account changes without proper approval documentation
- Employees with unusually low or zero tax withholdings
- Paychecks going to employees you’ve never met
- Resistance from payroll staff when you ask to review processes
- Missing or incomplete employee files
- Payroll tax deposits that don’t match your liability reports
- Employees on payroll who don’t appear in other systems (time tracking, benefits, email)
Most have innocent explanations. But all deserve verification.
The Federal Enforcement Context
This isn’t theoretical. The IRS has increased scrutiny on payroll compliance significantly.
Recent enforcement actions have focused on:
- Businesses failing to remit payroll taxes (ghost employers)
- Payroll tax fraud schemes
- Misclassification of employees as contractors
- Inconsistencies between W-2s and quarterly filings
Even if your business is completely compliant, weak systems create unnecessary risk during an audit. Clean records and clear controls make everything easier.
Practical Steps to Take Before Year-End
This is the ideal time to strengthen your payroll systems. You’re preparing W-2s anyway, so verification fits naturally into your workflow.
Week 1: Verify your employee list
- Print your active employee roster
- Confirm with managers that each person works there
- Document termination dates for anyone who left during the year
- Remove anyone who shouldn’t be active
Week 2: Review access and approvals
- List who can add employees, process payroll, and access banking
- Identify where one person controls too many steps
- Implement dual approval requirements where possible
- Document your current process in writing
Week 3: Run analytics
- Check for duplicate addresses, bank accounts, or SSNs
- Identify employees missing required documentation
- Flag anyone with unusual pay patterns or missing withholdings
- Review and resolve any exceptions
Week 4: Reconcile everything
- Match your 2025 Form 941s to your actual deposits
- Verify W-2 totals match your payroll register
- Confirm tax liabilities are properly recorded
- Document any discrepancies for resolution
This isn’t about finding fraud. It’s about confirming everything is clean before you close the books.
How CGP Group Helps
We help Kansas business owners build payroll and financial systems that work reliably, protecting both the business and the people running it.
Clear systems, regular verification, and appropriate controls protect everyone: the business, the employees, and the people handling payroll. If you’re not certain your payroll controls are appropriate for your current size and structure, now’s the time to find out.
Contact us to discuss your payroll systems. We’ll help you identify gaps, implement practical controls, and build the clarity that creates confidence.
