Payroll Fraud Case

Payroll Patty Scam

The Payroll Patty Scam is a payroll scam were a company nearly lost three quarters of a million dollars. The payroll clerk, known at Payroll Patty, was creating “ghost” employees in order to hide the fraud she was committing. The payroll clerk was adding these “ghost” employees to a separate cost center which was not noticed since the company typically had seasonal contract labor employees anyways. No red flags were noticed for a long time because it was typical for the company to see employees added and taken away often as seasonal workers. When the payroll clerk would take vacation she would deactivate the “ghost” employees to keep from getting caught. She was eventually caught by a manager due to some unapproved
overtime and became un-corporative which led to her being suspended. Once she was suspended she went to her office to gather her belongings but the manager could hear the paper shredder going nonstop which raised a lot of questions and is what caused the company to audit the work she had performed. They not only found the “ghost” employees but she was doing manual entries to payroll along with changing dates on approved overtime forms that was previously signed by the manager. The company was able to recover nearly all the three quarters of a million dollars since they had fidelity insurance.

One of the biggest red flags of an employee possibly commenting fraud is not ever taking vacation.
Just as the guy in the video says; “when a person never takes vacation it is because they do not want the house of cards to all fall while they are out.” According to the video prevention of fraud can be done with segregation of duties, and not allowing manual entries to be done by one person, there should always be another person to sign off on changes. These tips are some good ways to prevent fraud from happening in the workplace. There are several other ways as well, one being never allow one person to create and approve new vendors in a system, and new vendors should always have an approval from another person. Secondly is payments should be input by one person and go through an approval routing process, one employee alone should not be allowed to make payments to vendors without an approval. Doing monthly reconciliations and having a budget authority sign off on the monthly reconciliations with all backup paperwork showing they have reviewed and do not find any discrepancies. Also, there should always be an internal audit performed randomly to make sure everyone is abiding by the company policies and procedures and to look for possible fraud situations. The company Payroll Patty worked for could have prevented this fraud situation by not allowing just the payroll clerk, Payroll Patty, to enter and approve payments, it should have went to an upper authority for final approval and random audits should have been performed so this fraud could have been found a lot earlier than it
was.