Just about anyone can create a fake pay stub or W-2 online with just 15 minutes, five dollars, and a decent internet connection.
Fraudsters can then use those fraudulent documents to establish proof of income and complete a variety of other financial activities, such as applying for a loan, leasing a new car, or renting a luxury apartment.
As digital fraud becomes more commonplace, organizations like banks, credit card companies, lenders and rental agencies need to take steps to protect themselves. In this post we explore some common ways to spot a fake W-2 form or pay stub, as well as how advanced technology can be used to automate the document review process to improve efficiency, make more accurate decisions and reduce risk.
What is a W-2?
A W-2 is a tax form issued by an employer to document each employee’s wages and salary information, as well as annual taxes paid. An employer is required by law to provide a copy of the form to the employee, as well as to the Internal Revenue Service (IRS), each tax season.
Employees use the information on a W-2 to file their taxes with the IRS. The IRS uses the same form to confirm that the information submitted by the individual on their personal tax return matches the records submitted by the employer. In so doing, it is possible for the IRS to identify and investigate any discrepancies between the documentation submitted by the employee and their employer.
How is a W-2 different from a pay stub?
When it comes to establishing proof of income, the main difference between a W-2 and a pay stub has to do with the period of reporting. A W-2 is issued annually and presents a total view of a person’s income and tax withholdings for a particular employer for the tax year. A pay stub, on the other hand, contains much of the same information but only reports the information for a specific pay period, plus the total figures to date.
Another difference is that a W-2 reports the person’s taxable income, while a pay stub reports their gross wages. For this reason, some employees may notice discrepancies between the annual figures on their final pay stub and W-2.
For example, contributions made to a company-sponsored retirement plan, such as a 401K, reduce a person’s taxable income. As such, the pay stub will show a person’s gross income, which includes the 401K contribution; on the other hand, the W-2 will show the taxable income, which does not include the retirement contribution since it is tax deductible.
Other discrepancies can be attributed to non-taxable income items, such as mileage, or the application of a pre-tax deduction, such as health insurance payments.
How to spot a fake W-2
Organizations have two main options when reviewing W-2s and pay stubs:
- Manual review: An underwriter, accountant, or other authority reviews the document content and metadata by hand and uses their knowledge and expertise to identify potential instances of fraud.
- Digital review: Artificial intelligence or machine learning software automates the document review process and compares submitted files against known authentic files to identify signs of manipulation or tampering that are often invisible to the naked eye.
Manual review of W-2s and pay stubs
For decades, organizations relied on skilled document analysts to conduct manual document reviews. Today, these checks are considered obsolete for lenders, mortgage companies, banks, government agencies and other sizable established organizations since fraud detection software helps allieve the pains of manual reviews, which are time-consuming, error-prone, and subject to human bias.
However, for some small businesses or independent property owners, it may be impractical to purchase or maintain document review software to review occasional rental applications or tenant checks. In those cases, the business manager or landlord can follow these steps to assess the validity of the W-2 or pay stub:
Check the document formatting
A W-2 is a standard tax form created by the U.S. government. As such, the information contained in the document is formatted in a specific and consistent way. While the financial figures and information within the W-2 is unique to the individual, the form itself – meaning its format, template, structure, fonts, logo positioning, spacing and other attributes – should be indistinguishable from one document to the next.
If a document appears to have formatting inconsistencies as compared to known authentic forms, or if basic information appears to be missing or misplaced, then it is possible that the document has been forged.
Review the document for content inconsistencies, spelling errors, typos and other mistakes
W-2s and pay stubs are produced automatically via accounting software and should appear neat and orderly. Keep a look out for any of the below errors which may indicate the form has been forged, edited or manipulated:
- Spelling errors and other typos
- Blurry text or logos
- Inconsistent margins or spacing
- Incorrect currency symbols, date formats, addresses or formatting of numerical figures
- Use of several fonts, differing font sizes or unique font types
- Misalignment of all numerical figures or digits
- Use of upper case (O) in place of a zero (0)
- Excessive presence of whole or rounded numbers
In the case of pay stubs, reviewers can also look out for:
- Missing check numbers, sequential check numbers or other discrepancies in check numbers
- Variation in pay dates
- Inconsistencies in the year-to-date income and other figures
Check document sums
Many forged documents fail to pass simple math checks and calculations. For example, the tax rate paid by the individual should be consistent with their income level. In some cases, when people inflate their salary, they fail to raise their tax payments, social service payments, retirement contributions, and other variable items.
Verify the company and employment history
One of the best ways to authenticate a document is by confirming the identity of an individual or company via independent web search. Assuming the person or business exists, the reviewer can take the additional step of contacting the Human Resources department to confirm the individual is employed by the company and for the period in question. In most cases, the HR representative will not confirm the employee’s salary, but this process is instrumental in establishing the baseline of credibility.
Please note that reviewers are recommended to contact the company using a phone number, email address or other contact information gathered through a web search or other independent research. This is to avoid inadvertently emailing or calling a fictious contact, using contact details provided by applicants.
What to do if you think a W-2 or pay stub has been forged
If you are on the receiving end of what you believe to be a manipulated or forged W-2, there are a few steps you can take:
Request additional information from the individual to ensure figures and facts align. Supporting documentation may include:
- A letter of employment or employment verification letter, sent by a verified representative of the company
- Additional tax forms, such as the 1099 tax form or IRS Form 1040
- 3-6 months of bank statements
If you suspect that you are the victim of a W-2 scam, it is a good idea to contact the relevant local authorities to discuss your concerns. While this may seem like an outsized step to take, it is important for everyone to do their part to reduce the risk of fraud by identifying and reporting suspicious or criminal behavior. Failure to do so has wide-reaching implications, including higher interest rates for consumers and higher write-off rates for banks and lenders.
Automated document reviews
For more established organizations, the manual review process is neither an efficient or an effective way to check documents like W-2s or pay stubs submitted by applicants. This is because many signs of fraud or manipulation are invisible to the human eye and may go unnoticed by the reviewer. In addition, manual document reviews can take up to 10 minutes, whereas an automated document review system can complete the document check in mere seconds.
For organizations such as banks and lenders who are processing large amounts of loan applications or credit requests, it is essential to adopt a technology-enabled document review solution that includes the following capabilities:
- Built-in fraud detection software to review the document’s metadata, file forensics, and template;
- AI models and advanced algorithms to check every aspect of a submitted document and cross reference it with millions of known examples to confirm its accuracy and authenticity; and
- ML capabilities that allow the machine to learn over time, helping it to become more precise and accurate as the model is exposed to more and more examples and continues to build its data library.
Detect document fraud and automate document checks with Inscribe
Even the most convincing forgery is no match for the right technology.
Inscribe uses rules-based fraud detection capabilities and machine learning to automate the document review process for files like W-2s, pay stubs, bank statements, credit card statements, tax documents – allowing your organization to make accurate, data-driven decisions in just a fraction of the time.
To learn more about how Inscribe can help your company automate time-consuming and complex document checks, improve the speed and accuracy of the review cycle and reduce risk, contact us to schedule a personalized demo today.