The English branch of Omega Oil Industries contracted Paul Kuwlinki, a 47-year-old oil field technician, through Best Profiles Ltd., a job agency that specialized in providing employees to work in the oil and gas industries. Kuwlinki was hired as a preservation manager to oversee the entire maintenance program at Omega's plants worldwide.
Kuwlinki was ideal for the position, having spent half of his professional life providing support to oil companies around the world. He was used to working in harsh conditions, and had collected an array of skills that enabled him to be appreciated as a practitioner. Once hired, Kuwlinki requested four additional staff members, whom he said he personally knew, and contracted them through Best Profiles. The names and resumes of the four new staff members were provided by job agency High Level Employment (HLE), another job agency that also specialized in providing labor to the oil industry.
Because the four new staff members were already registered in HLE's employee database and were explicitly requested by Kuwlinki, Omega and Best Profile did not feel the need to complete the usual background verifications.
Such a chain of job agencies is common in the labor market: Oil companies, like companies in other industries, manage large projects in disparate isolated places around the globe, and they are stressed by deadlines. Accordingly, companies find themselves continuously short on specialized people who are qualified to manage and operate such projects. Oil companies rely heavily on job agencies to provide contractors already skilled in the business and available to work in some of the most remote destinations.
When the market is prosperous, it becomes crowded with people interested in exploiting opportunity and, in the complicated labor market, there are strange dynamics. The result is that, with a plethora of job agencies providing labor, the final employer sometimes doesn't know what the hourly fee paid to the contractor is after it is redistributed along the job agency chain.
Under Kuwlinki's direction, the completed preservation team was charged with the ambitious task of assuring the continuous performance of maintenance activities at Omega's oil plants around the world. On paper, Kuwlinki's team worked long hours each week and most weekends, sometimes flying throughout Europe and Asia with little rest. Each hour worked by a member of the preservation team was certified and signed off on by Kuwlinki, on behalf of Omega.
But something was amiss. During their year-and-a-half of service, the four individuals hired by Kuwlinki claimed to have worked an excessive number of hours, which triggered an internal review by HLE's internal auditors. In the course of their review, the auditors found that the four employees' employment files did not include appropriate identification documents. When the agency requested copies of their passports, the four employees immediately submitted their resignations, and soon after Kuwlinki did the same.
The resignations drew suspicion from Omega's internal auditors, prompting a full-scale investigation of the employees. After finding evidence that Kuwlinki falsified records and documents for three of the individuals, it became apparent that those individuals were ghost employees — they did not exist. Kuwlinki had created fake resumes for three ghost employees, falsified contracts, signed time sheets, and forged resignation letters. Further analysis showed that the fourth individual did indeed exist, was related to Kuwlinki, and collaborated on the scheme. Kuwlinki and his accomplice had to work hard to carry out the duties of four employees.
Analysis also showed that Omega's employee interviews were sometimes conducted solely by line managers involved in the hiring process, without the support of the Human Resources Department. The same line managers were then responsible for certifying the time sheets of their employees, including contractors, while their identification documents weren't systematically collected or retained. Moreover, the contracts and procedures in use didn't clearly establish each step of the selection and assumption process.
The fraud was possible — and profitable — because the oil company paid the wages of each ghost employee through the chain of job agencies and directly into the accounts of the contractors, which were registered in the name of a private company and managed by Kuwlinki. By the time Omega realized what had happened, Kuwlinki and his associate had already disappeared with more than US $1.2 million paid to them during their year-and-a-half scheme. The oil company later discovered that even Kuwlinki was not who he claimed to be. He had used a fake identity and was untraceable, leaving little to no chance of recovering the stolen money.
- Companies should perform time assessments to ensure they know how long a job will take to complete.
- Strict procedures should be in place during the hiring process, especially with regard to segregation of duties. Human resources should always be involved in the process and responsible for checking identification documents with the physical person.
- The company should limit the opportunity for line managers to recommend hiring people they know. In some cases it is unavoidable, so managers should always try to guarantee a higher level of segregation, especially in the authorization of time sheets.
- When using a job agency, the company should be sure that the relationship with contractors will be directly between the company itself and the agency. By doing this, the company will save money and be more assured about the contracted personnel.
- Internal audit should perform a periodic analysis of office records by selecting a sample of employees and verifying their effective presence in the office or on site, making sure appropriate identification is included in their records.
- Excessive hours claimed can serve as a red flag, especially when it is common among off-site employees. Establishing key performance indicators for each department can serve as a reference for red flag comparisons.
- A wide and fragmented work environment can make the ghost employee phenomenon possible. A strong internal control environment is the only way to prevent and discourage this type of fraud scheme.