How Should We Handle an HR Officer Creating Phantom Employees in Payroll?

Domestic Inquiry

Recently, my company discovered that an HR officer attempted to defraud the company by creating phantom employees in the payroll. I would like to ask a few questions about the subsequent actions:

(i) After the investigation, does a show cause notice need to be sent to the respective employee? After sending it out, will the employee be suspended from work? What is the suspension period?

(ii) If the management is dissatisfied with the reply, can a domestic inquiry be held?

Thank you.

1. A show-cause notice is required to be sent. This is the first step of the procedure.

2. It is not mandatory to suspend the employee; he can continue to work.

3. Yes, a domestic inquiry can be held if management is not satisfied. It would be better if you kindly elaborate on your case in the email address provided below. [Email Removed For Privacy Reasons]

Please clarify whether you have rules framed for dealing with the commission of misconduct in your organization or if there is any mention of misconduct in the candidate's appointment letter. Kindly review this matter first.

Thank you.

Regards,
rajanassociates

It's a case of misappropriation of funds. It's a major misconduct, and the delinquent worker should be suspended because he might tamper with official documents.

A presenting officer and a presiding officer should be appointed for a domestic enquiry as it may avoid further legal obligations.

Thanks and Regards,
Vikas
HR

Dear sww_yoyo, Welcome to CiteHR.com! It is startling to know that HR officers can be so creative. How was the salary being funneled out - through a fictitious bank account or in cash?

There are two things involved here: One is the investigation/enquiry into the incident, recommendations to avoid such incidents in the future, etc. The second is the action against the guilty. Irrespective of the findings of the investigations or preliminary enquiry, you have to go through the due process, which comprises:

- Issue of a memo comprising allegations and a statement of the charge sheet, wherein the employee is required to reply/respond to the charges within a fixed period; this being a case of financial irregularities (fraud) which amounts to (or is classified as) a major misconduct. (Show cause notices are applicable in case of minor misconduct where a domestic inquiry may not be required.)

- Irrespective of whether the employee pleads guilty or otherwise; to substantiate the charges, a Departmental Inquiry is conducted, which is a quasi-judicial process; at the conclusion of which the inquiry officer submits his "findings/conclusions" to the disciplinary authority, who shall then impose an appropriate punishment.

Whether or not the employee should be suspended is based on whether while in the office, he can influence the situation, witnesses, or evidence. If not, then it is not required to suspend him.

I have no idea which country you are from; however, the principles of natural justice are the same everywhere.

Warm regards.

This case can be considered as a loss of confidence in the employee. Please note that employees, particularly in the Finance and HR departments, must be the most honest and trustworthy individuals as they have access to extensive data and financial transactions of the company.

In my opinion, it was not only the fault of the HR guy, but the Finance guy has equally failed in his duty to cross-verify the data furnished by the HR guy. Random checks are common in many companies, and generally, the HR guy has to provide a statement every month detailing the variations in the pay packet over the last month. Here, he provides details of new employees for wage increases, loss of pay, and employee exits for wage reductions over the last month.

Issuing a show-cause notice is imperative, but you need not necessarily suspend him because once you suspend him, the conduct of inquiry proceedings will be hindered. However, you can take him off from the current assignment and complete the inquiry proceedings upon receipt of his explanation to the show-cause notice.

Please try to figure out whether he has acted on his own accord or has been instigated by other senior colleagues to do such an act. In my opinion, a payroll without proper authorizations lacks transparency.

Regards,
M.V. Kannan

Please understand, everyone is presumed to be innocent unless proved guilty. That is why you must follow the due process of law as rightly suggested by our Board Moderator. Until it is proven, we only refer to it as "alleged" misappropriation, embezzlement, etc. Go through the process of inquiry and allow the Enquiry Officer to give his findings. Until then, one cannot pre-conclude the decision.

There have been cases where wrongful accusations have led to unfortunate incidents, and thereafter, you will be on the defensive.

With Regards,
Advocates & Notaries & Legal Consultants [HR]
E-mail: [Email Removed For Privacy Reasons]
Mobile: [Phone Number Removed For Privacy Reasons].

In this forum, you will get advice and consultation. However, you have to take the final step. It totally depends on you (if you have the authority) or the management to conduct an inquiry or, once they have the proofs and find the officer guilty, relieve him of his services. In such cases, the employee is laid off if found guilty with all the facts, figures, and evidence in place. At times, the employer might file civil suits against the employee too and ask for recovery! You can file a criminal case under sections 420 and 406 of the IPC, pertaining to fraud, forgery, and breach of trust.

Regards,
Rahul Chhabra

My dear friend, siphoning off money in this manner is a SERIOUS matter. The employee should be suspended immediately, pending inquiry. During the period of suspension, the employee can be asked to report to the office daily at a stipulated time. Suspension will not hinder the inquiry proceeding. A charge sheet can be issued later.

Regards,
Vasant Nair

Such acts cannot be successful in isolation by one single individual. There has to be a strong syndicate within your organization. Surely, this person can be just a front face and there would be some senior officials also involved. Today, if you declare it and initiate action by any means, the other syndicate members will try to cover up all records and render your investigations absolutely unsuccessful. Please be discreet in your investigations. Find out the syndicate group members. Study all dynamics of the group. You should know that when you press the nose of one person, the mouth opens. It is a good initiative. Don't rest until you are able to nail the miscreants. ALL THE BEST.

Issue a show-cause notice for his misconduct after not receiving a satisfactory reply from his side. A domestic inquiry can be conducted by forming an inquiry committee, and the employee must be suspended during the inquiry period and directed to appear before the committee.

Thanks & Regards,

Sumit Kumar Saxena

Since you have mentioned the word HR officer, it seems that the concerned person is working in a managerial category. Just call him, brief him on the seriousness of the incident, its impact on his future career, and ask him to tender his resignation. Don't complicate matters by conducting inquiries and considering the pros and cons.

Thank you.

Disciplinary Action and Internal Control

Disciplinary action, as per rules framed in the light of the provisions contained in the relevant laws and company policies, is inevitable. Valuable feedback in the comments posted by Vikas, Rajkumar, Kannan, Rahul, and others is available, which will facilitate you to form modalities of disciplinary action as per law.

A very important point that requires the attention of those responsible to run the show is the implementation of a strong internal control policy. This policy will help the management to minimize corruption and prevent fraudulent practices. You should never ignore this aspect.

Regards,
M.W. Jahangir

Dear Yoyo, I am unable to find the reasons for you asking about such a matter.

Management Action Steps

First, if you are a part of management, then you should escalate the issue as soon as possible and look out for other people who are involved. If you can establish the truth via evidence, take action and set up an inquiry to catch hold of others involved!

Second, if you are there just as an employee, wait and watch. I'm sure the management will take the necessary action.

Moreover, the nature of the decision depends upon the kind of industry you are working in. If you are working in a privately owned service industry, termination of the employee and a police case is easy; however, it's not the same in the case of the manufacturing industry.

Furthermore, please ensure that whatever decision you take is the best one and that the opposition has no grounds to file a police case against your organization.

Cases of phantom accounts have been observed in many government departments too; though I wouldn't name those departments, yet such cases arise due to loopholes in the management policies.

Regards, Rahul Chhabra

Yes, your company should issue a show cause notice to that person. Secondly, he'll get 72 hours to provide his justification. If that justification is not viable, then there is a chance of firing him.

Regards,
POOJA

I think you should collect all the evidence against him and ask (negotiate) the employee to resign from the service forthwith. After all, the show cause and other legal expenses will be too time-consuming and costly, and still, there is dim hope of getting the right kind of verdict in your favor. An exit of the delinquent will be a much-needed relief to the company and all concerned. You should isolate this employee immediately from the work he is doing by transferring him to some insignificant position at an isolated place. Maybe this will help make up his mind to quit.

Domestic Inquiry

Recently, my company found that an HR officer tried to cheat the company's money by creating phantom employees in the payroll. So, I would like to ask a few questions about the subsequent actions:

(i) After the investigation, does a show cause need to be sent out to the respective employee? After sending it out, will the employee be suspended from work? What is the suspension period?

(ii) If the management is dissatisfied with the reply, can a domestic inquiry be held?

Thank you.

1) You need to give a show cause notice to the employee, providing all details pertaining to his/her misconduct and giving a reasonable time for a reply.

2) In case management is not satisfied with the reply, management can initiate domestic inquiry proceedings.

3) An employee can be suspended immediately even before conducting a domestic inquiry.

4) You also need to refer to your own rules and regulations regarding the suspension clause.

I hope this clarifies your query. If you need any other clarification, you are welcome to write.

Regards,
Dr. Daleep

Suspension is not done on the basis of whims and fancies of the management; there has to be sufficient cause to warrant it. Please share the circumstances under which you intend to suspend the employee.

Warm regards.