The government of the Indian capital, Delhi, has been paying salaries to 22,853 civic workers who do not exist.
Salaries for the missing Municipal Corporation of Delhi workers add up to nearly $43m a year, City Mayor Kanwar Sain said in a statement.
The "gap" was discovered after the authorities introduced a biometric system of recording attendance.
Correspondents say it shows some civic officials created a list of "ghost workers" to siphon off state funds.
The Municipal Corporation of Delhi (MCD) employs more than 100,000 cleaners, gardeners, teachers and other workers.
'Gap'
City officials became aware there were thousands of "ghost workers" after introducing the biometric system in August last year.
Mr Sain said the civic agency has 104,241 "genuine" employees - while the records show the numbers at 127,094.
A press release issued by Mayor Sain's office said: "There is a gap of 22,853 employees in the Municipal Corporation of Delhi between the data given by drawing and disbursing officers, the head of the department and the number of employees enrolled for biometric attendance."
An "in-depth vigilance inquiry will be conducted into the matter to ascertain the facts," he said.
"Strict disciplinary action will be taken against officials who cooked the books," the mayor said.
It was long suspected that the city was being defrauded by "ghost workers", but the authorities had always denied the charge.