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NY Payroll Company Vanishes with $35M

krebsonsecurity.com

21–30 of 94 posts

Re: NY Payroll Company Vanishes with $35M

#21

Is it possible to protect one's direct-deposit wages from (unjustified) ACH reversals, by transferring funds into a different account ASAP after the deposit occurs? I.e., by maintaining an account that serves only as a temporary inbox for direct deposit?

Yes, it is a little bit of a pain in the neck however. Basically you are going to implement your own ZBA with a positive pay ( while some form of a PP may be available to non-business accounts I have never heard of a ZBA + PP combination ). You will probably need to chat with the branch manager in a midsized/regional/community bank as everyone else would look at you as if you had two heads.

The good security policy is this:

1. Have an incoming account. That's the account number that you would be giving to payroll companies/account into which you would get deposits. You should presume that information about this account is known and all the money in this account is at risk. Which means that as soon as money becomes marked as "available" in this account, you have to move the money away.

2. Have a main funds account that has a positive pay type service turned on if your bank offers it. Positive Pay service is the "Notify customer about pending transactions and wait for customer to acknowledge them. If a customer does not acknowledge them by the cut off window, decline a transaction." This is typically done on a treasury management or cash management website of the bank though as recently as two years ago a certain reasonably well known bank still used a fax as a method of sending positive pay requests to customers and getting it back from customers. If your bank does not offer a positive pay type service, have this account coded for no withdrawals. This means that all debit transactions against this account will be declined unless someone on a platform side of the bank overrides it ( most banks have teller sides and platform sides -- platform side are people that you go to talk to inside the branch to deal with the issues with your account ).

3. Have a payment account that you would use to pay others. If your bank has a positive pay service, add it to this account as well. This is the account that you will fund from (2) when you know the amounts of outgoing payments. Money in this account is also at risk which is why you should only fund it with the minimum needed to cover the outstanding payments. If you have "enough money not to care if you are out of a few thousand for a couple of months" you can keep $3k-5k here at all times and just replenish it from (2) once or twice a month -- while this would leave you exposed for $3k-5k it will still protect a bulk of your cash and make your life easier. All of this is a matter of convenience vs. risk -- you should know what's your average monthly spend is and you want to expose not more than that plus a few percent for variance.

4. Have a nightly/daily/hourly sweep of all available funds from account (1) to account (2). It can either be done using a service the bank provides, or using online account transfer. Definitely sweep away immediately after a large payment ( such as a paycheck ) or electronic/non-electronic checks post to this account.

5. No debit transactions can post to the account (2) [including bank internal transactions] without an override ( for a coded account) or without a positive pay acknowledgement for a positive pay account. That of course means that if this is not a positive pay account, you would need to show up physically at the bank and have one of the tellers after the teller checks your ID process a transfer of funds from (2) to (3).

If you have a significant amount of money, you should have this setup in several banks.

Remember, your goal is to make issues with money less stressful while you are resolving them. At the end of the day, you will be made whole because we have a fairly strong legal system to get redress. You are trying to make sure that you still have the money while you are using the legal system to deal with the issues.

Source: Did consulting for execs at medium sized banks.

Re: NY Payroll Company Vanishes with $35M

#22
post #4

Is it possible to protect one's direct-deposit wages from (unjustified) ACH reversals, by transferring funds into a different account ASAP after the deposit occurs? I.e., by maintaining an account that serves only as a temporary inbox for direct deposit?

I think that this doesn't protect you and you would just end up over drafting your account, resulting in fees.

Overdraft fees caused by fraud will probably be reversed. I have never heard of it not happening -- it would be a terrible PR for a bank that allowed for it. It will simply take time.

Re: NY Payroll Company Vanishes with $35M

#23
post #9

This does seem like a nightmare scenario for the vast majority (4 in 5?) of Americans who live cheque-to-cheque. Your pay is yanked, life doesn't stop and the bills keep coming. A few days, a week later, it's corrected and the pay reappears. Who's on the hook for your overdraft fees?

What is an overdraft fee? How much is it? Is it interest?

This is a flat fee assessed if your account goes into "overdraft" to cover a check (or other liability). If your account is set up to do this (pretty standard in the US) rather than a check failing to clear your bank will cover the check and charge, e.g. $30-$50 for covering it. Of course you owe the overdraft amount as well.

Re: NY Payroll Company Vanishes with $35M

#24
Honestly, this is really scary. Personally, I would be unable to take a [2x my bi-weekly salary] hit to my account and that would result in a pretty negative balance. I think I recently saw an article about a bank depositing too much money into an account and the account owner spent it then got arrested. It just seems like the people in charge of how we get/hold our money can screw up with minimal blow back, yet the receiver of the money is almost always the one who draws the short straw. I could be wrong, but it really makes me question the safety of (what little) money I have.

Re: NY Payroll Company Vanishes with $35M

#25

In the US anyone with your bank account number can debit your account irreversibly? In Europe (with SEPA Core) we have 8 weeks to reject any debit even if the entity issuing the debit has a signed mandate to debit the account.

Any other bank can debit your checking account, but they become responsible for refunding in the case fraud/error. Since no access card (atm card, pin, etc) was used, customers have $0 liability for the same 60 days as you do.

This is partly why banks are strict with merchant processing, holding back variable reserves to cover refunds/fraud based on your history and business type.

Re: NY Payroll Company Vanishes with $35M

#26

Honestly, this is really scary. Personally, I would be unable to take a [2x my bi-weekly salary] hit to my account and that would result in a pretty negative balance. I think I recently saw an article about a bank depositing too much money into an account and the account owner spent it then got arrested. It just seems like the people in charge of how we get/hold our money can screw up with minimal blow back, yet the…

If you earn 3k a month, one month you get paid 100k, and you spend 5k on normal things, you aren't going to be arrested.

If you earn 3k a month, one month you get paid 100k, and you spend 95k on stuff you don't normally buy, you are going to be arrested.

If you pick up 20 centrs from the floor and spend it, you won't be arrested.

If you find $50k in a bag and spend it, you will be.

Re: NY Payroll Company Vanishes with $35M

#27
post #11

This was confusing to understand, because multiple bad things happened. Normally: * Step 1: Transfer funds from each Employer's account to Cachet's holding account * Step 2: Transfer funds from Cachet's holding account to each Employee account Both of these steps are handled with an 'instructions file'. --- The crime (or horrible mistake that really looks like a crime): Step 1's file was changed so that the funds wen…

Thank you for explaining it, you did a great job at helping me understand what happened. The whole process seems way too convoluted for something as serious as paychecks. It really relies on everybody acting in good-faith and in the proper fashion. By Cachet working Step 2 before Step 1 and possibly assuming Step 1 was going to happen, they already were too far gone and only made the situation worse for them and a bunch of employees.

Re: NY Payroll Company Vanishes with $35M

#29

Honestly, this is really scary. Personally, I would be unable to take a [2x my bi-weekly salary] hit to my account and that would result in a pretty negative balance. I think I recently saw an article about a bank depositing too much money into an account and the account owner spent it then got arrested. It just seems like the people in charge of how we get/hold our money can screw up with minimal blow back, yet the…

If you earn 3k a month, one month you get paid 100k, and you spend 5k on normal things, you aren't going to be arrested. If you earn 3k a month, one month you get paid 100k, and you spend 95k on stuff you don't normally buy, you are going to be arrested. If you pick up 20 centrs from the floor and spend it, you won't be arrested. If you find $50k in a bag and spend it, you will be.

I'm pretty sure if you find a bag of money on public property, you're under no obligation to actually return it.

Re: NY Payroll Company Vanishes with $35M

#30

Earlier quoted context omitted.

If you earn 3k a month, one month you get paid 100k, and you spend 5k on normal things, you aren't going to be arrested. If you earn 3k a month, one month you get paid 100k, and you spend 95k on stuff you don't normally buy, you are going to be arrested. If you pick up 20 centrs from the floor and spend it, you won't be arrested. If you find $50k in a bag and spend it, you will be.

I'm pretty sure if you find a bag of money on public property, you're under no obligation to actually return it.

This is not correct. If you find a bag of money (or, much more common: a wallet) and you can identify the owner you are obligated to return it. Not doing so is a crime. As it should be.
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