How to Prevent Direct Deposit Fraud Before It Costs Your Business

Payroll fraud is one of the most common—and costly—types of employee-related fraud, and in today’s digital environment, direct deposit fraud is on the rise. Many small businesses assume they’re not a target, but fraudsters increasingly rely on impersonation, email compromise, and simple oversight to reroute employee paychecks into unauthorized accounts.

If you're not taking active steps to protect your payroll process, you could be at risk.

This article covers how direct deposit fraud typically happens, how to spot it early, and what you can do to safeguard your team’s paychecks.

What Direct Deposit Fraud Looks Like

There are several common tactics fraudsters use to redirect payroll deposits:

• Email Spoofing: A scammer sends an email that appears to come from an employee, asking HR or payroll to update their banking info.

• Compromised Employee Email: Once inside an employee’s inbox, a fraudster may access their payroll portal and change deposit settings themselves.

• Admin Account Hacks: In more aggressive cases, scammers target HR or payroll managers directly, gaining access to multiple employee records.

In all cases, the result is the same—payroll funds are deposited into an account that doesn't belong to your employee, and your business is left footing the bill.

Best Practices to Prevent Direct Deposit Fraud

The good news is that there are steps you can take to minimize your exposure to direct deposit fraud. While tools and systems help, the foundation is a strong internal process.

1. Don’t Rely on Email Alone for Changes

Treat any request to update banking information via email as a red flag. Always confirm requests using a second method, such as a phone call, text message, or in-person verification. Fraudsters often mimic employee email addresses or compromise inboxes to make their messages appear legitimate.

2. Encourage Employee Vigilance

Make sure your employees know to report any unexpected notifications about payroll or bank account changes. Clear communication and employee awareness are often the first line of defense against fraud.

3. Review Change Logs Regularly

Use the reporting and audit tools available in your payroll system to monitor recent updates to employee records. Reviewing changes made between payroll runs can help you catch issues early and prevent fraudulent transactions from going through.

4. Limit Access and Use Strong Authentication

Ensure only authorized team members have access to payroll settings, and implement multi-factor authentication where available. Reducing the number of users who can make sensitive changes lowers the risk of a breach.

5. Document Your Process

Establish a written procedure for how payroll changes are requested, verified, and approved. Having a consistent, documented workflow not only protects your business but also makes training and oversight easier.

Educate Your Team

Fraud prevention isn’t just about tools—it’s also about people. Make sure your HR and payroll staff are trained to:

• Be skeptical of email-only requests

• Understand isolved’s fraud protection tools

• Report any suspicious changes or account access attempts

A Smarter Way to Protect Your Payroll

At Candoor Payroll & HCM, we provide more than just software—we offer real human support, smart fraud prevention tools, and flexible solutions that work for small and midsize businesses.

All of our clients have access to:

• iSolved’s built-in fraud alerts and change audit reports

• Easy-to-use ESS portals with notification settings

• Local support that helps you review changes and take action fast

Let’s Talk

Want to see how we can help protect your business? Schedule a quick consult with us today.