How should a university deal with outsourced essay writing? My campus is full of flyers, typically attached to lightposts and so, advertising to write essays for money.  There's plenty of such services offered on the internet as well.  Presumably, many students make use of such service.

Clearly, it is unwise for students to make use of such services, and I suppose it violates regulations.  How can a university deal with the issue of ghostwriting?  That means: how to identify probable cases of ghostwriting; how to proof that ghostwriting took place; and how to sanction it?  It seems considerably harder to tackle than plagiarism.
First, let me say that you should read the answers to my related question. One answer is quite clear that you should not even bother checking (the author of that answer did admit being uncomfortable with that answer...as I am).

This is a significant problem at my university. One way we try to address it is that we have students verbally answer a quick, random question about their assignment.

Good news: This does catch some students when they can only answer "uh, ah, ummm."

Bad news: Some students still use ghost writers and just memorize the paper so they can answer any question about it. If the assessment covers all the learning outcomes then it can still result in students learning.

One thing that I generally do is, throughout the semester, I keep track of the "quality level" I see each student is at. This takes several sessions and when classes are quite large there might not be enough interaction to support this strategy. However, if you do have this information, you can use it to compare to the overall quality of their written work. If they never know anything in class but they write "golden" work, then it is a warning sign.

It is important that it is just a warning sign because there are some students who write well but are not so great at in-class interaction. You always need to use your judgment.

As far as how we handle it, we consider using a ghost writer an identical offense to plagiarism with identical punishments.