Cachet Financial MyPayrollHR Direct Deposit Fallout

[shutterguy]

The importance of having a savings account for emergency funds has always been drilled in peeps heads ever since you started working. This mess even further more drives the point home. Yesterday, Friday morning about 1.5 million workers woke up to no paycheck via Direct Deposit. Automatic payments weren't being cleared, checks returned, and a headache of NSF fees. A huge mess of epic proportions which a little googling brings up the CEO of MyPayrollHR being investigated for more than 70 million dollars in fraud.

MyPayrollHR fallout: Cachet no longer processing payroll transactions

MyPayrollHR fallout: Cachet no longer processing payroll transactions



CLIFTON PARK — Cachet Financial Services, the institution that moved direct deposits into employee accounts for MyPayrollHR, is no longer processing payments, a month after it reported taking a $26 million hit due to fraud allegedly committed by the now-shuttered Clifton Park payroll processor.

Until this week, Cachet processed automated clearing house (ACH) payments. "Our sponsor will not handle any further wires, effective immediately," the company told its clients in a letter, a copy of which was obtained by the Times Union.

"With extremely heavy hearts, we regret to inform you that after Friday, Oct. 25, Cachet will no longer be able to process your ACH activity," the letter said.


The new fallout from the sudden demise of MyPayrollHR will potentially leave legitimate payroll companies associated with Cachet scrambling to find another way to pay the employees who relied on the California-based firm to route funds into their bank accounts.

Experts who spoke with Brian Krebs, a former Washington Post reporter who now runs the KrebsOnSecurity blog and broke the news of Cachet's letter, said the company's latest troubles may spell its doom.

Cachet's apparent shutdown is the latest development in the MyPayrollHR saga, which resulted from a massive, years-long $70 million bank fraud scheme allegedly committed by Michael Mann, the payroll company's president.

Cachet, as an ACH processor, had the necessary permits and licenses to disburse payroll funds collected by MyPayrollHR to employee accounts nationwide.

 

[shutterguy]

Podcast on this whole fiasco which started a month ago........

Going deep on the MyPayrollHR fraud with Wendy Slavkin of Cachet Financial Services | Cloud Accounting Podcast

Excerpt:

Wendy Slavkin: Although we do that for other employers- other payroll processors, I should say. What happened in this case is when ... Before MyPayrollHR uploaded the file into our system, remember I talked about the specifications that are required for the payroll processor to upload the file? [00:07:00] They went in and manipulated the account numbers so that instead of the money going into our settlement account, it went into- it was diverted to a different account at MyPayrollHR's bank, which is Pioneer Bank, and that was controlled by MyPayrollHR.

Our system went and gathered all the money from the employers; instead of it being moved into our settlement account, it was diverted into an account controlled by MyPayrollHR at Pioneer Bank. That's where the glitch happened. [00:07:30] When our system went to find the money to pay to these employees, it saw there was no money in our settlement account. it kind of, I guess, follows the money. I don't know exactly how it works, but the program is set up ... It found the money in this account at Pioneer Bank, and it went to grab that money to pay all these employees across the country, and that account came back as frozen.

David Leary: But, in the meantime, Cachet is starting to put money into [00:08:00] employees' bank accounts all over the country.

Wendy Slavkin: Right. It kinda happens a little bit simultaneously. This was two weeks ago, actually, today. Cachet got in the office and found out this bank account came up frozen, and we were $26 million in the hole.

Blake Oliver: Negative $26 million balance in that settlement account.

Wendy Slavkin: Right.

Blake Oliver: Okay.

Wendy Slavkin: Because we, Cachet, guarantee these ACH transactions, our bank requires us to do that. When [00:08:30] that bank account came back as frozen, it went ahead and advanced the money into all these employees' accounts across the country, but it was Cachet's money it was using to fund that payroll. What happened is because it was our money, and we have no obligation to make payroll for these 400-plus employers, 1,000 employers across the country, we went ahead and we initiated what's called a reversal file as part of our fraud protocol to get the money back from the employees, [00:09:00] because it was our money; it wasn't employer money.

The first reversal file that was created was done improperly. It didn't comply with the protocol necessary to do a reversal file. We assumed that the banks, the receiving banks, which would be the employee banks, would automatically reject that reversal file because it was improperly formatted. The banks should have automatically rejected that first reversal file. Because we assumed the banks would do that, we [00:09:30] created a second reversal file. So, what happened is, then, a week ago Monday, that's when all hell broke loose, so to speak. All these employees' accounts were not only being debited for the direct deposit they received from us, but a second time, as well. If there was $500 dollars put in their account for that direct payroll, they were getting debited $1,000.

When we found out what was happening, we contacted our bank and had our bank reach out to all these receiving [00:10:00] banks, more than 100 banks - receiving banks being the employee banks - and personally instruct them to reject both reversal files and put the money back in the employee accounts.

David Leary: This is all electronic, and it's happening very fast, so by the time you realize these things ... You're manually contacting, I'm assuming, by telephone and email, 100 banks.

Wendy Slavkin: Our bank reached out to all these banks by telephone, fax, e-mail, however they could, and instructed them to reject both [00:10:30] reversal files. Now, something that's little known in the banking industry is when a bank receives a reversal file, they actually have 60 days to accept or reject it. So, in other words, when an employee's bank receives a reversal file, they may conditionally accept it, but that doesn't mean they're sending the money back to us. They never sent ... No bank has yet sent money back to us, to Cachet.

They conditionally [00:11:00] accepted ... They, in a sense, put a hold on that money. When they got the second reversal file, they put a hold on another amount of money. But it doesn't mean that they sent the money to us. They just put a hold on it. By law, they have 60 days to decide, are they going to accept the reversal or reject it? Even though they conditionally accepted these, it doesn't mean that, ultimately, it would have been accepted. The first one, ultimately, would have definitely been rejected.

Why [00:11:30] we had our bank reach out, a week ago Monday, was to make sure that both reversal files were rejected, and the employees would get their money back. We saw the extreme heartache this was causing on all these employees, so we made the decision - we're just gonna let them keep their money, even though it's our money. So, in effect, we funded the payroll, and paid 8,200-and-some-odd employees across the country; we would try to get the money back from Pioneer Bank and other sources. [00:12:00]

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