Latest / The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending / How One State Audit Found 6,000 Ghost Employees on the Payroll
Transcript
- Lucas: So there's this number that's been sitting in California's state payroll system for years, and nobody noticed until an auditor ran a very simple computer match. Six thousand, three hundred and forty-two — that's how many people were collecting a government paycheck while having zero login activity for over a year. Some hadn't touched a state system in three years. Luna: Wait — these were real people, real paychecks, just not doing any work? Or were they duplicate entries or something? Lucas: Real people. The auditor's office matched employee IDs against system access logs. If your ID hasn't logged into any state network in 12 months, you're either on leave — which gets flagged separately — or you're not actually working. Turns out, thousands were just... collecting. Luna: How much money are we talking? Lucas: The initial estimate was around $47 million in overpayments over two years. And that's just salary — doesn't include the health benefits, pension contributions, and other costs that kept accruing for people who weren't showing up. Luna: That's insane. How does that even happen? I mean, someone has to approve the timesheet, right? Lucas: You'd think. But in many state agencies, timekeeping is manual, approvals are rubber-stamped, and the payroll system doesn't talk to the HR system. The auditor found that at least three of the ghost employees were managers who were approving their own time. One guy approved 18 months of timesheets for himself while living in another state. Luna: So the fix is just... connecting two databases? Lucas: More or less. After the audit, California implemented a real-time cross-check: every pay period, the payroll system pings the HR system to verify active employment and recent login activity. In the first six months, it flagged another 1,200 people and saved about $42 million. The auditor called it 'the single most cost-effective recommendation in a decade'. Luna: That's almost a hundred million dollars a year in potential savings from a simple database join. Why didn't they do this ten years ago? Lucas: That's the real question. And the answer gets at something structural about government. Agencies are budgeted to spend money. If you cut payroll waste, your budget gets cut next year. There's no incentive for a department head to look for savings, because savings don't stay with the department — they go back to the general fund. Luna: So the perverse incentive is that finding waste hurts your future budget. Lucas: Exactly. The auditor told the press that when she presented the findings, several agency directors seemed embarrassed, but none were eager to implement the fix. It took a public report and legislative pressure to force the change. And California is not an outlier — similar audits in Texas and New York found comparable rates of ghost employees. Luna: You know, this reminds me of a pattern we've talked about before — governments are really bad at finding their own mistakes because nobody is paid to look. The incentives are all backwards. Lucas: Right. And when you think about it, that's partly why we do this show. We spend a lot of time poking at these structural gaps. And I think it's worth mentioning, because a handful of listeners have asked how we keep doing this without ads or sponsors. Luna: Yeah, it's a fair question. We don't run commercials, we don't have a corporate backer, and we don't sell your data. Lucas: The short answer is that a small group of listeners chip in monthly through buy me a coffee dot com slash fexingo. That's it. No paywall, no premium episodes — just enough support to cover hosting, research, and our time. It's a pretty honest model. Luna: And we're grateful. It lets us pick topics like this one — specific, wonky, maybe not clickbaity — without worrying about whether an advertiser would approve. Lucas: Okay, back to the ghosts. So once the cross-check was in place, the auditor also started looking at the other end of the pipeline — people who were hired but never actually started working. Luna: Oh, that's a whole other category. Lucas: Right. They found over 800 cases where someone was onboarded, received a laptop, got a building pass, and was entered into the payroll system — but never showed up for a single day of work. Some of those were people who'd taken jobs elsewhere and just never told the state. Others were outright identity fraud. Luna: Identity fraud on a government payroll? How does that work? Lucas: Typically, someone submits a fake hire packet with a stolen Social Security number. If the HR system doesn't verify the SSN against a live database — and many still don't — the fake employee gets added. Then a co-conspirator inside the agency approves the timesheets. In one case, the 'ghost' was a deceased person whose identity was used for three years. Luna: So the cross-check fixed the existing ghosts, but what about preventing new ones? Lucas: That's the second phase. California is now rolling out a pre-hire verification system that checks Social Security numbers, previous employment, and even does a soft credit pull to flag anomalies. The early results show about 2% of hire packets are rejected for suspicious data. That's huge when you consider the state hires about 50,000 people a year. Luna: Two percent of 50,000 is a thousand potentially fraudulent hires prevented annually. Over time, that compounds. Lucas: Exactly. And the cost of the verification system was about $3 million to build and $600,000 a year to run. Compare that to the $47 million in identified overpayments — it pays for itself in a month. Luna: So why isn't every state doing this? Lucas: A few reasons. First, it requires integrating systems that were built decades apart on different software. California's payroll system dates to the 1970s — it runs on COBOL. Second, there's political resistance from unions, who worry that automated verification could be used to unfairly discipline workers or deny legitimate hires. And third, it just takes a scandal to get the funding approved. Luna: The scandal was this audit. So in a weird way, the waste itself created the conditions for the fix. Lucas: That's a pattern in government reform — you need the failure to be visible before you can fix it. But the interesting thing here is that the fix was cheap, fast, and high-impact. That's rare. Most government IT projects take years and go over budget. This one was live in 14 months. Luna: I wonder how many other states have similar ghost populations sitting quietly in their payrolls. Probably a lot. Lucas: A 2025 analysis by the Pew Charitable Trusts estimated that, across all 50 states, the total overpayment from ghost employees could be between $1.5 billion and $3 billion annually. That's just from employees not working — not counting the other forms of payroll error like overpaid overtime or incorrect deductions. Luna: Billion with a B. And almost all of it could be caught with a database join. Lucas: Pretty much. The technology has existed for 20 years. What's missing is the political will to look. Because once you look, you have to act. And acting means admitting you've been overpaying for years, which is embarrassing, and then you have to claw back money from people, which is legally messy. Luna: And if you're the agency director, you might prefer not to know. Lucas: Exactly. That's the quiet tragedy of government accountability. The people who could fix the problem are often the ones who benefit from not looking. But once the auditor publishes the number, it becomes politically untenable to ignore. That's why independent audit functions matter so much. Luna: So California's experience is actually a hopeful story. The audit found the problem, the legislature forced the fix, and now the system is saving tens of millions a year. That's a concrete win. Lucas: It is. And it suggests that the next frontier isn't better technology — it's better incentives. Maybe we tie agency budgets to audit outcomes, so that finding waste doesn't punish the finder. Luna: That would be a real structural change. I'd love to see a state try it. Lucas: Me too. And if they do, we'll cover it. For now, the takeaway is simple: if you're a government employee and you haven't logged in for a year, someone is coming for your paycheck. Luna: And the database join is the hero we didn't know we needed.