1. IntroductionSince the early 1980s, many developing countries have attempted to count their civil servants for 3 reasons: as part of reforms to control the size of the public sector, as first steps to reform public sector pay, or as a means to control the public sector wage bill. Ghana’s census of public sector employees in the early 2000s was for all these reasons. As a result, public sector wage bill as a share of total government spending fell from 33 percent in 2000 to 26 percent in 2003. But it has risen again to nearly 29 percent in 2006, causing the Finance Minister, Hon. Kwadwo-Baah Wiredu, to worry about the trend in public sector wage bill.
According to the Controller and Accountant General, about 60 percent of the total payroll budget in 2007 was spent in the first 6 months of the year (Ghana: Myjoyonline.com August 21, 2007). This is no hard arithmetic. If the trend continues, the actual wage bill for 2007 will exceed the planned amount by 16 percent. And the fingers are pointing again at the re-emergence of “ghost workers” on public sector payroll.
Unless there is an equal rise in revenue, the Finance Minister knows that the budget deficit will rise. And depending on how he tackles the problem, poverty reducing and development expenditures may be cut, interest rates may rise, and the threat of inflation will emerge. The Minister therefore has ample public good reasons to worry. And worry he must, because the use of fictitious names, duplicate and erroneous entries are system-wide payroll fraud schemes which public sector reform initiatives have failed to curb. I present in this essay some key observation from my earlier work on this subject because to me they are still relevant for public policy.
2. Schemes of Payroll Fraud: What is the evidence?Alarmed by the Auditor General Reports of the late 1990s, I took the initiative to look into the problem of public sector ghost workers in 2001 and 2002. Sadly, I was accused by some in the Ministries of Education and Health and the Controller and Accountant General’s Department (CAGD) for singling them out for special mention. The truth of the matter is that payroll fraud is most rampant in both ministries either because of their sheer size or because of their decentralized nature. The evidence is clear in various Auditor General Reports.
Indeed, so much to that in 2001, some donor agencies called on the Ministry of Education (MOE) to remove ghost names from its payroll if aid to the ministry was to continue. Shortly after the announcement, the Daily Graphic of July 17, 2001 reported that the MOE, with unprecedented efficiency, has uncovered 10,000 ghost names. If ghost workers can be detected so quickly, why do they exist at government hospitals and even in the judicial service?
The CAGD bears some responsibility because its staff across the country posts employee personal information to the computer system, and prepares payroll disbursement summaries.
How much of Ghana’s wage bill is due to payroll fraud? How widespread is the problem?
Based on the 1998 Auditor General’s Report and the Serious Fraud Office Reports, I estimated that for every GH¢10 paid in wages, salaries, and allowances in 1998, about 60 pesewas (or 6 percent) were unauthorized payments.
The practice is not confined to one ministry or to remote district offices alone. Payroll fraud is widespread and takes many forms. Unearned salaries are paid to fictitious employees, resigned, dismissed, or retired employees. Active staff receives unearned salaries through “overtime” pay, fraudulent payment vouchers, and disingenuous name splitting. Joseph Owusu Asempa can become Joseph Owusu, and Joseph Asempa for 3 payments. Loading “back pay” on staff salaries and fictitious promotions is another means of payroll fraud.
3. What Makes Payroll Fraud Possible?Payroll fraud is not the work of some lone ranger so sunk in poverty. It is most often the work of a closely-knit syndicate. Those who engage in this scheme do so because they calculate approximately that:
(a) The likelihood that the scheme will be detected is extremely low because of the weak transparency in payroll records and because of poor internal audit system.
(b) Even if detected, the chance that they will be prosecuted in court is low.
(c) If prosecuted, the chance of conviction is equally low.
(d) And if any court will convict them of wrongdoing, the punishment will be a mere slap on the wrist.
In their rational arithmetic, the expected benefits exceed the expected cost. The scheme therefore has an expected net positive payoff.
Even those who casually engage in this practice calculate that “success” depends on the cooperation of others. Non-cooperation leads to ruin. The best strategy then is to tie in the interests of others, in a cooperative game, in ways that increase the cost of external monitoring, and make the likelihood of detection, conviction and punishment low.
The Ghanaian Chronicle thus wrote:
“One reason the issue of ghost names appear not to be going away is the fact that chief executives or their accountants or auditors or those whose job it is to monitor and regulate expenditure are not usually held liable for such acts of fraud.” (The Ghanaian Chronicle on the Web, Editorial, Vol. 9, No. 129 July 19, 2001).
The case of Ho EP Education unit of the Ghana Education Service (Serious Fraud Office 1999 Annual Report) is worth citing. The syndicate involves district directors, accounting officers, the Controller and Accountant General’s Department (CAGD), and rural banks. The syndicate specializes in the recycling of the personal data of retired teachers. It collects the names, staff numbers, staff code, rank, station and bank of retired teachers. After processing the teacher’s retirement entitlements, the syndicate alters the payment voucher number and other relevant details, and recycles the teacher on to a different payment voucher in a different payment station. What makes this possible is that the new particulars are fed into the computer in Accra through the cooperation of someone in the Ghana Education Service and CAGD. To complete the process, a letter of introduction, purported to be coming from a District Director of Education Service, is issued to a rural bank where the “ghost’s salary” will be directed and cashed. Deceased teachers are similarly recycled without the master payroll system detecting that the same staff numbers are being re-assigned.
Similar syndicates occur in government hospitals across the county. At the Kwahu Government Hospital, the syndicate consisted of the accountant, principal accounts officer, the district treasury officer and three others who forged signatures and inserted names on to the payroll.
The schemes are intriguing, and must inform policymakers that short of concerted efforts, payroll fraud may not be easy to get rid of. It is for that reason that the quick finding of 10,000 ghost names on the Ministry of Education’s payroll attracted cynicism. Many believed that the remarkable purge amounted to little more than superficial self-policing to impress the public and donors. Real change, one might suspect, is undermined by the very same people with common interests in the syndicate.
Across ministries, departments and agencies, headcounts can create an illusion. Physical headcounts may lead to short-term savings but may fail to strengthen payroll controls because of the hidden internal syndicates. If a head count is commissioned, most bureaucrats would sensibly comply. They may not want to risk being seen as obstructive. They would, however, seek to manage the process and therefore the outcome.
It is little wonder that despite the various attempts at public sector reforms, that begun in the 1990s, management information systems for personnel data have not improved greatly. Politicians have only paid superficial attention to the problem. Bureaucrats have weak incentives to welcome innovations to improve transparency and the management of payroll records. And the private sector is oblivious of how much tax burden this payroll fraud imposes on them.
4. What Can Be DonePhysical headcounts in Ghana have been superficial, because they are often carried out by the same directors and internal auditors. To be effective, headcount must be carried out by trained teams, possibly by private auditing firms. The institutions to be audited must be selected at random and at irregular intervals by the Minister of Finance and on short notice.
Once an institution is selected, individual employees should be required to present themselves within 48 hours with photo identification, fingerprints and documentation (such as copies of letters of appointment or birth records). These data are then checked against payroll and social security records.
Random payroll auditing exercises should be seen as an important complement to government’s efforts to raise revenue. Because it is just as important to raise revenue as it is to detect promptly leakages of revenue through payroll fraud.
Second, the tendency for accountants, payroll officers, bursars, head teachers, principals and internal auditors to remain at one post for long periods (some until their retirements) adds greatly to their ability to form payroll syndicates and to conceal serious wrongdoing.
In addition to random auditing, the tenure of officers who are in position to manipulate payroll records must be reviewed and their annual leave made mandatory. Within the CAGD, a rotation policy of staff working on the records of specific ministries, departments, and agencies should also be considered.
Third, payroll fraud also calls for credible deterrence. There is no deterrence if those who are found to engage in such practices are only asked by the courts to refund the amounts stolen, often at their convenience. The delays in the courts and the perception of the soft handling of such cases brought forward by the Serious Fraud Office diminish the expected cost of payroll fraud to those who engage in such acts.
Fourth, Liberia which has only recently emerged from 14-year civil war has smartly opted to use biometrics to check payroll fraud. Biometrics is the science that measures individual’s physical or behavioural characteristics as a means of identification. It takes precise measurement of, for example, an individual’s eyes (iris and retina scans), hands or voice, digitizes the measurement, stores the information in a computer memory, and later compares it against the same measurement when taken later.
Because it is extremely difficult, if not impossible, to duplicate individual physical measurement or scan, biometrics is finding applications in many security sensitive areas, including, payroll systems. It can have very wide application in the ministries, departments, in the health care and educational sectors across the country. Linking the unique identification to the Controller and Accountant General’s database, social security records, and a national identification card will be an even better way to prevent the massive financial fraud the government suffers continually.
Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.