Defend Truth

Opinionista

Ghost employees who haunt payrolls are a major occupational fraud hazard

mm

Professor Letlhokwa George Mpedi is the Vice-Chancellor and Principal of the University of Johannesburg.

A global fraud study by the Association of Certified Fraud Examiners in 2022 found that ghost employees were one of the most prevalent types of occupational fraud. Payroll fraud accounted for 8% of reported cases, resulting in substantial financial losses.

In the 19th century, the German philosopher Georg Wilhelm Friedrich Hegel conceptualised the Philosophy of Right – a systematic and comprehensive understanding of the principles underlying the organisation of a just and ethical society.

He outlined that “the consciousness of a people and its faith in its own significance is bound up with the feeling of trust, of the conviction that men are truthful, that they know and do their duty”. As Hegel’s framework suggests, fraud can be seen as a direct violation of ethical and legal frameworks and the very antithesis of what is considered right. This is an enduring reality in the South African context.

In recent history we have seen the emergence of new and pervasive forms of fraud that violate the trust that Hegel alludes to. Ghost employees, individuals who are fraudulently added to an organisation’s payroll but do not actually work there, serve as an intriguing case study.

Read more in Daily Maverick: The future we’re hurtling towards requires a fundamentally different skillset

In 2021, the South African government launched Project Ziveze to verify all Passenger Rail Agency of South Africa (Prasa) employees after material irregularities were uncovered within the agency’s ICT and payroll systems, indicating that there could be an estimated 3,000 ghost employees. In November 2022, a preliminary report revealed that 1,480 employees could not be verified, while 1,000 others had resigned.

The report outlined that weak IT and payroll systems and incorrect data capturing were the root cause of this plague of ghost employees. As the then Transport Minister Fikile Mbalula declared, “it’s a scam”. The intention behind creating ghost employees is to siphon funds from an organisation. And as sinister as its name suggests, this silent scourge creates havoc.

Organisations such as Prasa are often unaware of the presence of ghost employees for an extended period, leading to substantial financial losses and a breach of trust. In fact, although the possibility of ghost employees was put forward in 2021 at Prasa, their salaries were only frozen in December 2022.

This was largely because a confluence of challenges, including alleged resistance from flagged employees, evidence tampering and collusion with human capital management officials had hindered the investigation. As these challenges suggest, there was a distinct breakdown in Prasa’s ethical framework. This is certainly not an isolated incident.

A global fraud study conducted by the Association of Certified Fraud Examiners (ACFE) in 2022 found that ghost employees were one of the most prevalent types of occupational fraud. According to the report, payroll fraud accounted for 8% of reported cases, resulting in substantial financial losses.

Since the pandemic unfolded and the very notion of the world of work began to change, there has certainly been a heightened risk of ghost employees. The shift to remote work arrangements alongside disruptions caused by the pandemic has introduced new challenges and vulnerabilities that can be exploited.

As the author Maria Konnikova said, “fraud really thrives in moments of great social change and transition. We’re in the midst of a technological revolution. That gives con artists huge opportunities. People lose their frame of reference for what can and can’t be real.”

In the case of Prasa, early estimates are that Project Ziveze has saved the agency R200-million since it was launched. It is likely that this only scratches the surface of the financial losses and certainly does not take into account the impact on trust or integrity within the organisation. As Penn Emmanuel Mbuh et al assert, based on the widespread impact of ghost employees ethically, legally and economically, this is a problem worth addressing.

What to do about it

There are various interventions that can be considered. For example, strengthening identity verification processes through biometric authentication, digital fingerprints or facial recognition; automated time and attendance tracking systems could help monitor employee presence and recorded hours; regular audits to review payroll records against human resources (HR) data; fostering a culture of ethics and encouraging employees to report any suspicious activities through confidential channels aided by training and awareness programmes about the risks of ghost employees and the consequences of fraud; and leveraging Fourth Industrial Revolution (4IR) technologies such as blockchain or advanced data analytics tools to identify patterns or trends in this data.

Read more in Daily Maverick: Mobile fraud is most prevalent on finance, shopping and gambling apps

The prevalence of ghost employees reflects a broader issue of corruption and unethical behaviour which can hinder social progress and exacerbate inequality. Already, in South Africa, we have seen the far-reaching impact of corruption through the State Capture Commission – which only scratches the surface.

As the example of ghost employees suggests, we have to commit to a blueprint of shared goals and values alongside technological advances.

Indeed, as Mduduzi Mbiza, Saurabh Sinha and Uche Okonkwo stated last year in an article on the use of 4IR technologies in the fight against corruption, “in short, a preventive strategy for combating corruption entails a strong organisational ethical foundation augmented with preventative technological interventions. Such a strategy should further wear the cloak of trust and certainty in the identification and execution of punishment for corruption activities. The suite of enabling technologies of the 4IR provides capabilities for contributing to the strategic objective of preventing corruption worldwide.”

This is certainly the approach we must take at every tier. DM

Gallery

Comments - Please in order to comment.

  • Johan Buys says:

    Beyond ghost workers I’m reminded of a joke from decades ago:

    Q: How many people work in public service?

    A: about a third

  • Johan Herholdt says:

    Who puts ghost employees on the system or neglects to take them off? Deliberate fraud or cadre incompetence? Surely this can be traced and perpetrators fired? This huge amount of taxpayers money justifies a forensic audit (or maybe just a team of silver-haired ex-HR specialists that were edged out over the last 20 years or so)?

Please peer review 3 community comments before your comment can be posted

MavericKids vol 3

How can a child learn to read if they don't have a book?

81% of South African children aged 10 can't read for meaning. You can help by pre-ordering a copy of MavericKids.

For every copy sold we will donate a copy to Gift of The Givers for children in need of reading support.