CHECK FRAUD and PAYROLL ERRORS: Lessons in Payroll with Charles Read

GetPayroll President Charles Read shares his years of knowledge of the payroll landscape with the masses. today's Payroll Lesson: The Problems AND Solutions for Check Fraud and Payroll Errors.

www.getpayroll.com
www.thepayrollbook.com

TRANSCRIPT:
"Would you believe in our technologically advanced society, there are companies that still write checks? Nothing inherently wrong with this, but it does come with its own hurdles.
Anybody with a PC and a laser printer can create forged checks. They can copy a signature and imprint it on a fraudulent check. No matter how safe your checks are, the information can be put on other check stock and thieves can try to pass them. Check fraud is one of the largest white-collar crime industries in the country today. However, there are ways for you to stop check fraud.

The first way is to have a POSITIVE PAY system in place. This is where you give your bank the information on the checks you issue. You send a file every day to your bank detailing the checks that were issued that day for your employees. When a check is either presented to be cashed or is deposited and presented to the bank, the bank runs the information against the positive pay file. They can check the date, the amount, and the payee and if it has ever cleared before. If it does not match the file as a good item the bank notifies the issuer of the check (you) of the discrepancy. If you don’t respond to the bank in the requisite time frame they will take whatever action you have designated as a default response, to either clear or return the check. We recommend returning the check.

The second, and the best way, to prevent check fraud is to not have checks. We encourage DIRECT DEPOSIT wherever possible.

Direct deposit goes from your bank through the ACH (automated clearing house) system to your employee's financial institution. It is very secure and has lots of advantages. One big advantage is there is no physical check or check image for a fraud artist to copy.

Your bank must guarantee good funds on outbound direct deposits, so you will not have any float on the direct deposits. They will all be charged to your account no later, and maybe earlier than payday.
You should know that if you make a mistake on an employee's direct deposit and overpay them, you have the right to take the excess amount back out of their account. Your employees often don't know that by granting you the power to deposit into their account they are also granting you the power to take money out of their account.

Now, for those who are unbanked, we recommend DEBIT CARDS. Debit cards work just like direct deposit except the employee's bank account is effectively on the card. A well-designed program does not have to cost the employee or the employer any money as long as they all understand the limits. There has been some bad publicity on payroll debit cards, but that has to do with either poorly designed or poorly understood systems, or because of employers who want to make additional money off the card system and their employees.

Another fraud you should be aware of is when an employee will say they did not get their direct deposit for one reason or another, such as closing the bank account. The company feels the need to get the employee paid and in some states, the state regulators may weigh heavily on the employee's side. The problem is that it takes several days for a direct deposit to a closed account to work its way back to your bank. If you have a Friday payroll it may well be the next Thursday before your bank knows that a direct deposit has been returned and deposited back to your account. Then the bank has to tell you, or you have to check the account every day. If you issue a check on Monday or Tuesday based on what the employee says, you may be in for a surprise if the direct deposit is not returned to you. We suggest to our clients that they don't issue a check for a failed direct deposit until the direct deposit is back in their bank account.

If you would like to learn more about how to avoid payment fraud and errors, check out our website at www.getpayroll.com or check my book: The Payroll Book: A Guide for Small Businesses and Startups. Available at www.thepayrollbook.com, Amazon, or wherever fine books are sold. Thanks for listening."