Back in September, MyPayrollHR, a New-York-based company that handled payroll for roughly 1,000 companies across the country, was caught in a bank fraud scheme that left $35 million in unpaid wages for the company’s clients as direct deposit payments for employees suddenly disappeared. According to NBCNews, hundreds of individuals and small businesses were left high and dry. This also resulted in criminal charges against the MYPayrollHR CEO for the $70 million bank fraud scheme.
More payroll fraud headlines came earlier this month out of western Pennsylvania. A woman there was charged with using her managerial position at Long John Silver’s to put her boyfriend on the payroll, siphoning more than $50,000 to him while he was in prison, before she got caught.
And just last week, MSN.com reported that this past July Payroll Professionals, Incorporated (“PPI”), a third-party payroll processor in Media, Pennsylvania, was caught depositing more money to pay tax debt than it had actually sent to the IRS, causing 35 of of their clients to underpay a collective total to the IRS of over $3 million dollars between 2012 and 2016. PPI’s clients were small and medium-sized businesses, and they are considered victims in the pending case.
These high-profile cases have helped shine the light on what The New York Times calls a shocking lack of oversight in the payroll industry. If a large corporation like Long John Silver’s could be duped by a single manager and hundreds of companies scammed out of hundreds of thousands of dollars by a payroll management company, it begs the question to every business owner: Who’s watching your payroll?
What Is An Automated Clearing House Network?Direct deposits are done through the Automated Clearing House Network (ACH), which is an electronic financial-transaction system that millions of people use. ACH helps move trillions of dollars each year in the form of paychecks, Social Security, mortgage payments, credit card payments and more. Millions of employees enjoy this convenient service, and their employers enjoy saving time and money on postage and cutting actual checks. According to the New York Times, many people don’t know exactly what these ACHs will do in cases where money is redirected. While payment reversals are rare, they can happen when things like legitimate errors occur.
In the case of the MyPayrollHR scheme, the ACH used at the time, Cachet, is being charged in a lawsuit for prioritizing covering the costs of the paycheck take-back by the vendor at the expense of employees. In New York State, legislative action has begun to increase the accountability required of ACHs for preventing bank fraud cases like these. Employers should keep in mind that ACHs are not watchdogs for either employers or employees.
How Do You Prevent Payroll Fraud?In cases like the Long John Silver’s manager putting her boyfriend on the payroll, lack of managerial oversight can be a dangerous thing. Do you know what safeguards are in place for your payroll? When is the last time you checked how your company payroll is handled?
According to the National Federation of Independent Businesses (NFIB) there are important steps you can take to prevent payroll fraud. They include:
- Allow only limited access to your payroll information.
- Conduct background checks on anyone handling your payroll.
- Apply a “segregation of duties” policy for your payroll processes that creates a system of checks and balances. (HR outsourcing can help with this.)
- Set up an ACH filter with your bank to make sure only authorized companies have access to your accounts.
- Have your bank accounts reconciled each pay period by someone who did not process the payroll.
- Don’t have the person running your payroll be the same one who signs the payroll checks.
- Review payroll reports regularly, keeping an eye out for fake employee names.
- Use your bank’s positive pay service, which matches the account number, check number, dollar amount and, in some cases, the payee name of each check presented for payment against a list issued to the bank by the company.
We Can Help You Protect Your Payroll
Having control over your payroll processes and functions is critical. We can help with this, and with your other HR management needs. An audit of your payroll systems can provide insight into how securely and effectively your organization is handling these tasks. For more information on how RAI’s modern, effective and experienced HR Consulting Team can help your business, contact us today.