by Bob Howe

Payroll check fraud is discovered at a home construction firm in a sleepy Georgia town. 

A solutions staffing company in North Carolina is victimized by a similar scheme.

A South Carolina concrete company learns of check fraud when a bank becomes suspicious after nearly 100 men attempt to cash counterfeit checks within a concentrated period of time.

Every day, firms become the victim of check fraud-$40,000 here, $60,000 there-small change to large companies, but significant amounts to small businesses that fight daily battles to curb costs to meet the needs of their price sensitive customers.

The crimes themselves are fairly easy to execute. In many cases, several people will attempt to cash forged payroll checks at a local bank or check cashing outlets. The forged checks are typically copies of an original doctored to align with false identification. Preventing the fraud is extremely challenging given the number of transactions banks and check cashing outlets process every day. In one recent situation, fraud was prevented when alert bank employees noted that a large number of checks were presented for cashing from one company in a very concentrated period of time. However, successes stopping payroll check fraud in progress are rare because of the resources and training required to educate bank employees on the latest fraud techniques. 

Standard processes to prevent such fraud include requiring a valid ID when cashing a payroll check and informing authorities of anything suspicious. However, given the nature of this type of crime, it is extremely difficult to identify and prevent it from happening in real time. Too often companies discover the fraud after the checks have been cashed. As a result, many banks would rather not expose themselves to potential payroll check fraud risks, making it difficult or expensive for the individual to cash checks.  This forces "unbanked" workers to cash checks at "fringe" financial services outlets, liquor stores and the like. 


Fighting Check Payroll Fraud Via Direct Deposit


Direct deposit has become an increasingly popular format for issuing payroll checks to firms employing a transient work force. Direct deposit and paycards help eliminate fraud because they remove the need to cash payroll checks. Until recently, employers had few options but to pay all or some by paper checks. Also, employers may not have considered direct deposit programs because more and more of the labor force are transient or immigrant employees without a local bank account.

Several years ago, Directo, Inc., an Atlanta, GA-based company, introduced low risk direct deposit programs geared specifically for unbankable workers. This type of program delivers advantages to the employer, their banking partner and the employee. In addition, Directo understood the potential language barriers associated with Spanish-speaking employees and incorporated bi-lingual implementation and customer service processes. Recognizing that adoption challenges were tied directly to employee understanding of the service, Directo came to the employer's locations to train them on paycard and ATM use.


Multiple Benefits for Multiple Audiences


This type of direct deposit service comes at no cost to the employer, while saving employees from fees typically incurred to cash their payroll checks. In addition, banks mitigate their financial liability associated with fraud. The focus is on the millions of unbanked workers nationwide and offers both business owners and employees many benefits in addition to fraud prevention.



Benefits to the Business Owners


  • Eliminates the company corporate account number from being exposed in environments where they are vulnerable (e.g., check cashing outlets which gain access to the bank account number)
  • Eliminates the risk of overdrafts because the company controls the payments
  • Increases the company's efficiency by eliminating check distribution, lost checks or paper check production and administration. The cost of producing a check, including overhead and labor can run as high as $3.00. Depending on the volume, direct deposit averages between $.05 and $.20, a significant difference. The direct deposit program helps mitigate risks associated with check fraud, lost checks, stolen checks and extra bank fees. It also improves employee productivity while reducing associated costs to the payroll department.


Benefits to Employees


  • Reduces loss of cash from theft since many unbanked workers choose to stockpile  their savings as cash at home, or on their person
  • Helps employees manage their money since their pay is automatically deposited-a particular benefit for workers who depend on their weekly paycheck to eat or to pay the most basic bills
  • Paycards are used internationally at ATM's, reducing costs to send money to loved ones in foreign countries
  • Employees gain access privileges, safety, security, convenience and other benefits enjoyed by banked workers

As a crime of opportunity, payroll check fraud continues to grow in "popularity." While vigilant bank employees can help prevent the crime, direct deposit is the best solution available today. By eliminating paper checks, direct deposit addresses the root of the problem and takes away opportunity. Then the equation becomes simple: eliminate the opportunity, eliminate the crime.



Construction Business Owner, March 2007