Payroll Check Theft and How to Guard Against it

Payroll check theft is on the rise. In June of 2017, two bookkeepers and nine of their family and friends were charged with stealing nearly $1 million from Zirkle Fruit Company in Washington State, after a payroll scheme that lasted a year. Also last June, a Louisiana man was arrested under suspicion of cashing $15,000 in forged payroll checks from his former workplace. And in Sioux Falls, South Dakota, two people were arrested after trying to cash a forged payroll check in a casino.

According to Forbes, there are two common types of payroll fraud:

1. Timecard Falsification: when an employee reports incorrect hours.
2. “Ghost Employees”: employees that do not exist. For example, a bookkeeper could pay herself a duplicate paycheck through a fake name and have the money deposited in her checking account.

How can a business guard against payroll check theft?

For protection against paycheck fraud, we recommend to all our clients to work with their bank to put controls around their bank accounts and to practice next day bank reconciliations. Another method is to have payroll prepared and authorized by HR, entered by accounting, and then checked by management before the funds are sent to the payroll company. Implementing these measures should easily allow you to catch anyone trying to falsify their timecards or paying a ghost employee.

A recommendation from Entrepreneur Magazine is that the person who reconciles your bank statements should not also enter or modify transactions in the accounting system, and to pay attention to any hiccups in your operation, no matter how small they may seem. No one knows your company as well as you do and if your gut tells you something is amiss, you’re probably right.

We also recommend using a service like Positive Pay, which many banks use to guard against fraud. This type of service helps identify and prevent counterfeit or amount-altered checks drawn on your accounts. You can then make a decision about suspect checks while they can still be returned.

If you would like GTM’s help doing this on an on-going basis, we do offer our trust account service to clients which have Positive Pay & next day reconciliation controls included as security features.

Contact us for more information at (518) 373-4111.