Are There Any Sanctions For Falsifying Pay Stubs?
Just this month, a court sentenced a 55-year-old man in New Jersey to 15 months behind bars after being found guilty of bank fraud. For three years, the man provided fraudulent documents, including employment verification and pay stubs, to enable unqualified borrowers to purchase real estate. He had managed to earn tens of thousands of dollars from this illicit act.
This is by no means an isolated case. Using machine learning, a study last year identified that one in 12 pay stubs issued nationwide is fake to an extent. This alarming statistic contributed to an even worse one: one in five loan applications having inflated incomes of as much as 15%. The current system lenders have in spotting potential fraud isn’t enough to mitigate this risk.
Pay stubs are essential documents for both the consumer and business. Having them falsified for whatever reason sets up a dangerous precedent for the economy as a whole. To answer if one can get in trouble for falsifying pay stubs, it’s a big yes. The more important question is how much in trouble a person found guilty of it will be.
How To Make Fake Pay Stubs
Before delving deep into the legalese of financial fraud, it’s important to understand how people produce fake pay stubs. Contrary to popular belief, it’s easier than one thinks, thanks to state-of-the-art software and the internet. There are two common ways of doing this.
People who aren’t savvy at image editing can search for pay stub generation services online. For a fee, typically less than USD$10, these services can produce a printable pay stub file. They only need some information from the customer, namely their state of residency, the name of their employer, and their salary details.
There’s also the option of finding a template online and editing the information for those who are adept at image editing. Unlike the first option, some templates can be acquired without paying a penny. If you know what a pay stub looks like and what to put in one, templates are ideal.
Some of you might wonder why such a service exists in the first place. The service in itself has merit, as it caters to self-employed and freelancing individuals who don’t get pay stubs because of the nature of their work. Even they’re still required to produce pay stubs for purchasing things like rental homes and various loans.
Whether via pay stub generation or template, misrepresenting one’s figures is a constant. To be a renter in most states, you have to prove that your gross monthly income is between two and three times the apartment’s monthly rate. Not everyone will qualify, but most of them don’t have the option of affording a different home. That’s why inflated figures are commonplace in pay stubs.
What Does the Law Say?
Section 1344 of the U.S. criminal code (18 USC 1344) details the requirements for bank fraud to occur and the penalty. According to this:
Whoever knowingly executes, or attempts to execute, a scheme or artifice—
(1) to defraud a financial institution; or
(2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises;
shall be fined not more than USD$1,000,000 or imprisoned not more than 30 years, or both.
Investigating bank fraud is one of the key responsibilities of the U.S. Secret Service. Yes, it’s the same agency that protects the President of the United States (and other national and international dignitaries). In fact, it was originally established to root out counterfeit money in circulation after the Civil War; protecting presidents didn’t happen until the beginning of the 20th century.
The heavy fines and jail time signify how serious the federal government is in rooting out bank fraud. Industries from real estate to telecommunications can suffer losses by the billions if they allow bank fraud to run rampant.
Something as seemingly minor as a fake pay stub can quickly add up to an industry’s losses. The same institution that used machine learning to determine the rampancy of fake stubs also cited its contribution to the auto lending industry’s USD$7.3-billion loss in the first year of the COVID pandemic. This study pointed to the lack of a mechanism to verify declared incomes, allowing many to get away with inflated or altered figures.
Law aside, there’s also the moral implication of falsifying such documents, especially in this day and age. The USD$900-billion relief by the CARES Act was supposed to help families rendered jobless by the pandemic get through these challenging times. Sadly, fraud took away over USD$36 billion—meaning thousands of families being denied sufficient financial aid, if at all.
Can Faking It Get Far?
As it stands, the existing system is ill-equipped to handle the abundance of fake pay stubs, let alone the practice of creating them. Some people may be getting far with fraud right now, but others about to enter the fray might not be as lucky.
Employment and income verification is a hot market in the private sector, with the industry size poised to grow by around 7.5% between 2017 and 2023. Ease of access to big data means these relevant services can receive crucial information about employment status and income. Some of the most well-known names in the industry are already in use by Fortune 500 companies.
Speed is one of the most significant advantages of such a service. Landlords and other creditors no longer have to wait for days or weeks from the concerned person’s employer (namely their human resource department) for employment and salary data. Everything they need to know is already in a fully integrated and secure database.
Apart from state-of-the-art solutions, business owners themselves are honing their skills in spotting fraudulent financial documentation. For instance, landlords can get by with a pair of keen eyes by being on the lookout for as many fake pay stubs feature glaring errors like:
Using the letter ‘O’ in place of zeroes
Figures rounded off to the nearest digit
Watermarks still present in the pay stub
The math doesn’t check out in the calculator
Missing, duplicate, or oddly consecutive check numbers
Individual and employer information don’t stack up
In some cases, they ask for more documentation to make sure the details check out. Aside from pay stubs, creditors can require any or all of the following:
W2 Tax Form – contains details on taxes withheld from one’s salary in a given tax year
Form 4506 – a taxpayer’s true copy of previous tax returns filed with the IRS
Bank Statement – summary of a person’s transactions in a period (usually three months)
Form 1099-R – a report on a retired person’s pension distribution, IRA, and 401(k)
Credit Report – outlines a person’s creditworthiness via a credit score
Federal legislation is also catching up with the unscrupulous forgery. The Wage Theft Prevention and Wage Recovery Act, introduced in July 2019 and pending reading as of this writing, would amend the existing Fair Labor Standards Act (FLSA) to require employers to produce pay stubs, among others.
Right now, the FLSA only requires employers to maintain accurate records of hours rendered and wages paid. The bill can help mitigate instances of fraud by mitigating the need to self-produce pay stubs since their workplace will provide one for their employees.
Are Generating Pay Stubs Legal?
There’s no denying that people are taking advantage of pay stub generation services for forging pay stubs. It’s no surprise if some might question the legality of such a service.
However, the fault should lie not with pay stub generation but the misrepresentation that people input on these documents. As mentioned earlier, this service exists for those who can’t produce or acquire pay stubs by conventional means (self-employment, freelancing, or working in a state that doesn’t require companies to issue pay stubs). Pay stubs will remain out of reach for a large chunk of the U.S. population unless future legislation updates its laws.
The user is ultimately responsible for the accuracy of the information presented in their pay stub. Going back to 18 USC 1344, committing bank fraud requires a person to be aware that they’re engaging in a scheme to gain assets through pretenses. The system may afford leniency if you’re unaware of irregularities in your information, but it won’t show mercy if you knowingly decide to falsify your details.
As a guarantee, you can use pay stub generation as much as necessary as long as the information you input is accurate. As a word of warning, refrain from using it to commit bank fraud.
Also read: 7 Advantages Of Creating Custom Check Stubs
Fake pay stubs may allow people to purchase anything they want, but they’ll cost them dearly once the long arm of the law catches them. With the industry honing its craft in thwarting pay stub fraud and creditors getting better at spotting it, committing such a crime becomes less and less viable. Stick to the legal way, be honest about your finances, and you’ll be fine.