Preventing Payroll Fraud
Steps you can take to protect yourself and your clients from payroll fraud
Payroll fraud is on the rise and shows no signs of slowing down. Kotapay has seen an uptick in fraudsters taking over customer email accounts by using spearfishing attempts where they gain control of your client’s email and use that account to request fraudulent payrolls. Your client won’t know this is happening until after money has been taken out of their account, so it’s important to stay diligent.
All it takes is one fraudulent transaction to expose you and your customer to losses. Ask yourself, do you know if the information your customer sent is accurate? Do you have systems in place to validate the information? Following these recommendations could save you and your customers thousands of dollars.
- Use Caution: If you are receiving email requests from your clients regarding their payroll, take a moment to stop and think if the request is unusual. Are the requested dollar amounts or pay dates out of the ordinary?
- Validate Files: We encourage you to have a process in place to validate transaction data before sending it to Kotapay. This important step should only take a few minutes but may pay off big dividends for you and your customers.
- Out-of-Band Authentication: You can reduce the risk of processing fraudulent transactions by using out of-band authentication. If you receive information via email, you should have a validation process in place that uses another method to contact the customer that is different than how you received it. For example, a phone call, fax, or text.
- Data Security: It’s important to have a data security policy in place to protect your confidential information. The policy should be followed by all employees. If you would like help writing a security policy, please visit the Better Business Bureau’s website.
Implementing these tips could help your company from becoming a statistic. Review your current processes to verify you are doing everything possible to protect from losses that could have been stopped. If you have any questions or would like to discuss improving your security procedures, please contact the Kotapay Risk Department at (800) 378-3328.
ACH Network Experiences Record Growth in 2020
Two billion new payments processed in one year
Largely due to the global pandemic, 2020 was a year of record growth for the ACH Network. The United States as a whole saw an accelerated shift toward electronic payments which resulted in an 8.2% increase in the number of payments made on the ACH Network. Not only were the number of payments up, the value of those payments increased 10.8%, rising to $61.9 trillion. The two billion payments made on the ACH Network in 2020 mark the sixth consecutive year in which the number of payments increased by more than one billion.
Many of the core ACH payment categories also experienced major growth in 2020:
- Person-to-person payments and transfers increased 42%
- Direct deposit of salaries, wages, benefits, and assistance payments increased 12%
- Internet-initiated consumer payments for bills, account transfers, and other payments increased 15%
- Business-to-business payments increased by almost 11%
- Same-Day ACH payment volume rose 39%
This snapshot on ACH Network growth provides a detailed look at the evolving economy and reinforces the value the ACH Network has on the daily economic life of American residents and businesses.
Managing Risk during this Uncertain Time
We are all navigating through uncharted waters with COVID-19 (Coronavirus) and its impact on businesses. I want to assure you that we have taken measures to continue business as usual with some team members working remotely.
We realize that every industry will be impacted by COVID-19 and we are asking you to be extra cautious during this time of uncertainty. Make sure you are taking the necessary steps to know your customer and mitigate risk for your organization. Be mindful and consider whether you should take on new clients or if some of your existing clients should remain on direct deposit at this time. You know your customers, their industry, and their unique situations.
Are you concerned about client NSF’s? Ask yourself if this client is still a good candidate for direct deposit and will they have sufficient cash flow during this uncertain time? If not, a few things to consider:
- Place clients on longer funding windows. A 5 day processing window ensures funds are collected before sending to employees.
- Wire or Wire Drawdown. We will initiate the wire transfer on your behalf for next day settlement.
- Same Day ACH. The limits are increasing from $25,000 to $100,000 per transaction on Friday, March 20th.
- Issue paper checks for the time being
Temporarily, we are offering a new prefunding solution for payroll that allows for cleared funds to be sent within a 4 day time period, similar to a 5 day window. What does that look like?
Premium 4 Day Window
|Processor sends file to Kotapay by 10:00pm CT||Kotapay pulls funds from the client’s account||Hold Day||Kotapay would be notified of any returns before releasing cleared payroll funds via Same Day ACH.
Funds would be available by 5:00pm local time.
What are the Benefits of the Premium 4 Day Window prefunding solution?
- We are made aware of any returns before sending out the same day credits. We will then compare the payroll file with cleared funds and make any adjustments needed.
- Compared to the 5 day window, this solution allows you an additional day to receive the payroll file from your client, send to us by 10pm CT, and get employees paid on payday
If you’re interested in the Premium 4 Day Window, please give us a call at 800-378-3328 and we’ll help get you started.
We are committed to providing uninterrupted processing and the same level of service you deserve and expect from us. Please let us know if we can help in any way. Thank you for the trust you’ve put in the team at Kotapay, we appreciate the opportunity to earn your business every day.
Kotapay Statement Regarding Coronavirus
Kotapay takes the well-being of our customers and employees seriously. With the growing concern over COVID-19 (Coronavirus), rest assured we’re taking the necessary steps to ensure the health of our employees and processing your transactions without interruption.
Kotapay is committed to providing you with the services you’ve come to expect and rely upon. We realize the critical and important role that Kotapay plays in processing transactions for you and your clients. We want to ensure you that we are taking the necessary steps to prepare in the event that Kotapay will need to operate with essential staff only. Kotapay’s contingency plan will go into effect which will provide for uninterrupted processing for you and clients by giving employees access to work remotely.
As of March 12th, the state of North Dakota has minimal cases of COVID-19 and Kotapay is encouraging employees to stay home when ill, wash their hands frequently, and have provided hand sanitizer at workstations. Additional measures in place include restricting unnecessary travel, practicing social distancing and enhancing our cleaning procedures. We are monitoring the situation closely and keeping in contact with State and Federal officials for guidance.
Below are a few links to the Centers for Disease Control to provide you with the most current information available.
Please reach out if you have any questions or concerns.
Process Payroll with Confidence
Kotapay, a leading ACH provider, has been specializing in direct deposit of payroll and electronic payment solutions for over 25 years. Kotapay is owned by First International Bank & Trust, an independent community bank since 1910, with over $3 billion in assets. First International Bank & Trust has 28 locations in Minnesota, Arizona, and North Dakota.
As a branch of a federally regulated financial institution, Kotapay is in a unique position to deliver payment solutions to companies while also providing the safety, soundness, and security only a bank can provide.
Kotapay has one of the most sophisticated, safest, and efficient payment systems in the industry. Transactions submitted to Kotapay are scanned through our internal fraud system, which identifies potentially fraudulent or unusual transactions. These transactions are then manually reviewed before being released into the ACH Network. Kotapay's internal underwriting, procedures, and adherence to Nacha Operating Rules ensure all approved payments get to their intended destination.
You need to do everything you can to protect your company from fraud. Ensure you work with a trusted payment processor.
Money Transmitter Licensing: What You Need to Know
An increasing number of states are taking a closer look at money transmission regulation and enforcing state statutes. The language within the recent enforcement actions implies that if a payroll processor holding any client funds, for any period of time and for any reason, they may be subject to money transmitter licensing requirements.
From our processing experience, the most common type of transaction that would trigger this requirement would be tax impound transactions, where a payroll processor is holding clients' tax monies in the processor's account until the taxes are due and then making payments on behalf of their client. This is just one example; the law covers all funds, not just taxes.
The process to become a licensed money transmitter is not only costly and burdensome, but it varies from state to state with each state having their own cost structure and application process. If you're doing business in more than one state, you may be required to get licensed in each state. In some states, the application fee alone could cost thousands of dollars.
As a division of First International Bank & Trust, a federally regulated financial institution, Kotapay is exempt from money transmission licensing regulations and is uniquely positioned to facilitate these transactions. Through the correct bank account structure with Kotapay, the payroll processor is removed from having access to client funds, thus relieving the money transmitter requirement for you, the processor.
If you would like more information, please contact a member of the Kotapay team.
This is not intended to be legal advice, but rather an update on current issues in our industry. Please consult your own legal counsel on how this may impact your company.
Kotapay has moved!
Kotapay recently made the move to a new location to accommodate our expanding fintech and bank family. Our new office is located just a few blocks south of our former location in Fargo, North Dakota.
At more than 13,500 square feet, the new space is now home to nearly 60 Kotapay and First International Bank & Trust staff members. Designed specifically for our needs, the office boasts new training and conference rooms with technology to keep us connected and to enhance collaboration. A video wall at the entrance has been installed to keep our visitors and staff up to date on our current plans, projects, and products.
Since becoming part of the bank last year, Kotapay has surpassed expectations in the value added to the bank and our customers. We now have the space needed as we work to build cutting edge payment solutions for our customers.