Each year, more and more businesses fall prey to direct deposit diversion scams. Someone posing as your employee tricks your company into paying them instead of paying your employee. Learn about the mistakes other New York businesses made and implement these best practices, so your company doesn't get ripped off by these fraudsters.
By Larry Kagan, Founder & CEO, Baron Payroll
An email pops into your inbox. One of your employees wants to change their direct deposit information.
The email looks like it's from one of your employees. It has their name. Your employee is requesting to change their direct deposit information to a new bank account. It's not unusual – employees switch banks or change bank account numbers all the time.
You make the change. On payday, the employee calls and says they haven't gotten their direct deposit yet. They're worried about making rent. And you're afraid, too, because you sent them a payment at the normal time.
That's when you realize: You've fallen victim to a scam. An increasing number of fraudsters target direct deposit transactions, changing your employee's direct deposit information to a payroll card.
The fraudsters, on their end, can automatically withdraw funds from payroll cards and deposit them into offshore bank accounts, making them incredibly difficult to trace and retrieve.
You lost money. You paid someone who wasn't actually an employee, then had to pay the actual employee. So now you're out thousands of dollars.
We're here to help make sure this doesn't happen to you. And if it has, we're here to make sure that was the last time.
How much money gets stolen from direct deposit diversion fraud?
Several types of fraud involve stealing money intended to pay employees. Hackers can compromise your computer systems. People can physically steal financial information, sometimes by posing as people who have access to your building.
Today, we'll focus on payroll diversion scams where someone pretends to be your employee and wants to change their direct deposit information to a new bank account or payroll card.
It's not difficult for a scam artist to find out where your employees work. These days, people often post their place of employment on social media, and companies put their employees on their company websites. So all it takes is for a scammer is to change their email name (without using your employee's "real" email address) and attempt to get your company to take the bait.
These payroll diversion scams cost businesses millions every year, according to the Federal Bureau of Investigation. The agency refers to this family of scams as "Business Email Compromise/Email Account Compromise."
Because they fool so many businesses, these scams have increased significantly in the past few years, the FBI noted in 2019. As a result, we hear about them way too often from potential clients and New York business owners.
If you've been a victim of these fraudulent transactions, you can file a complaint with the FBI's Internet Crime Compliance Center at ic3.gov.
A 2018 survey by the Association of Financial Professionals found that 82% of organizations reported attempted or actual payment fraud incidents – that's more than 8 out of every 10 have been impacted.
The larger your company is, the bigger a target it is for direct deposit fraud.
But smaller companies feel the loss more drastically, and so does an individual employee. Losing thousands of dollars could put your checkbook out of balance. It's not simply a rounding error and can significantly impact the bottom line for a small business owner.
What is a payroll card?
Payroll cards or pay cards are reloadable debit cards that function just like a bank account. Just like a bank account, pay cards have a routing number and an account number. They're often used by "not bankable" people who don't have enough documentation to open an account at a bank.
Working with your payroll company, business owners can directly deposit funds onto their employees' payroll cards the same way they do for regular bank accounts using the Automated Clearing House, or ACH. Direct deposit is the most common way employees get paid these days. Few companies use paper checks anymore.
Employees can use their payroll card like a debit card and pay for things from any merchant who accepts credit cards. Or they can go to an ATM and withdraw cash. These days, pay cards are often the best option for unbankable employees because traditional check cashing places charge huge fees, significantly reducing an employee's take-home pay.
Baron Payroll puts all our clients' employees onto one brand of payroll cards that we know and trust. That helps prevent fraud. If a payroll card comes through that isn't the one we use, we know it's coming from someone trying to commit a crime and steal our money.
We believe business owners should only allow one brand of payroll cards for their employees to minimize the potential for fraudulent payments. This best practice will make it much harder for scammers to steal your direct deposit money.
What should you do when your employee requests a direct deposit change?
In addition to using our secure payroll card, a few other best practices will help your business prevent direct deposit diversion fraud.
When someone emails you with a change in their bank information, ensure that the email address is their correct email address. Also, keep an eye out for any grammar and spelling mistakes or strange phrases. Another red flag is a sense of urgency. And some scammers use Green Dot Bank for their payroll cards, so take note if that's where the "employee" wants to change their direct deposit to.
After assessing the email's merits, always make a phone call to the employee in question. This step is critical. By talking with your employee, you can verify whether the email request is genuine and came from your employee or if it came from a fraudster.
Never allow your payroll system to make automatic changes to direct deposit information. Instead, always require additional verification, and talk with your employees via phone or in-person to verify any direct deposit changes.
We don't want you to be at risk for thousands of dollars every time you run payroll and pay your team with direct deposit. Business owners already have enough financial pressure and other things to worry about.
The Baron payroll card provides you with peace of mind and enables you to set up a safe, secure, and efficient process to pay your employees every time you run payroll.
Don't fall prey to direct deposit diversion scams. Let us save you from getting ripped off by fraudsters.
