A Ghost in the Machine - by Sharon Ritchie

Updated: Oct 4, 2020

Ever wondered why employment settlements often don’t give a payout sum, but instead say that the employee is resigning at a date in the future? And then the employee is “not required to work”?

A retired lawyer from MBIE who later signed a petition supporting Martin Matthews as Auditor-General wrote a letter to the Dominion Post about it last year. He said it was what public service lawyers wrote into settlements and he thought it was unethical. But he did not say much about why he thought that.

Paying employees who aren’t working is usually a form of payroll fraud called “ghost working”. A ghost worker may be a real person or a fake. Their pay from the organisation is intercepted by the fraudster that put them on the payroll and diverted to the fraudster’s account. Real ghost workers are a danger to the fraudster because they might demand some of the money or reveal what the fraudster is doing.

That’s not what’s going on here, because the employee does get paid their payout, even if it’s a bit slow. It’s not a classic ghost worker fraud where the managers get the payments direct.

So what’s it for?

It’s not a tax issue. If the settlement they got was just paid over straight away, the same tax would be paid on it. Settlement payments are not tax free unless they have compensation for hurt feelings, and then only the hurt feelings element is tax free.

It’s not the employer not having enough money to pay the settlement up front, because we are talking public service and government employees here. There is no financial reason why the government needs to pay in instalments. At least we hope not!

It's about the records left with the employer.

The most obvious reason to have someone resign in mediation is the hope that no-one will ever find out what it was about. Government managers and lawyers are also very keen on claiming that everything in mediation is secret and settlements are secret. Even MBIE claims that on its website. But only the negotiations are secret by law, not the settlement.

Secrecy about mediated settlements is a choice. It’s not law, whatever impression the lawyers and MBIE tell you.

If the main purpose of mediation and settlements was really to cover up problems, that would raise questions about ever having them in the public service where the lawyers are using our taxpayers money and getting paid out of taxpayers money as well. The main purpose of secrecy in negotiations is to let people make offers to settle without making it look as though they think they are going to lose. The idea is just to settle an individual dispute and let the parties move on.

Mediation used to be about settling disputes and having the parties move on within their jobs. People could go back to work and they did. Now it’s about getting rid of the employee and making them resign, in secret. Why is that?

There will be no record in the organisation of a payout settling a dispute where the employee “resigns”.

That means there will be no record of a dispute.

Considering how many of these disputes are actually managers retaliating against employees who report frauds, you have to ask whether these lawyers and MBIE might be operating a system for cover ups. That would certainly explain the secrecy.

Meanwhile, the ghost worker settlement system is still a breach of accounting rules, even if the tax is paid.

Another accounting consequence is that the organisation apparently never has to make any payouts. If the organisation made payouts, they would appear in their records. The payouts themselves could still be disguised quite easily, but the organisation would also have to make a “provision” for future payouts. That would not be easy to disguise. It would also affect their budgeting because they would have to set aside money for it.

Paying wages rather than payouts is vital to maintaining the fiction that the organisation never has any bullying or fraud reporting problems at all. There is no record of it.

In fact you may read this in the reports about “investigations” of bullying scandals. The QC called in will say “there is no evidence”.

The anecdotal reports are after a settlement, managers immediately destroy all records. If anyone asks, they explain the gaps as “confidentiality”.

In the few cases where obviously false records have made it into court, the judges are happy to say they don’t matter. Because this has been going on for a long, long time and by now pretty much everyone in the system has got involved. By now, it has to be claimed it is legal to destroy records relating to bullying and fraud. Otherwise there would be questions about how the whole legal system works.

You might think it would come up on an audit, but the big auditing companies who are hired by the government just don’t ask. One day that might bite them on the bum, when this story becomes a media scandal and the government blames the auditors, but not yet.

Give it time.

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