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If you find a $20 bill on a deserted street, “finders keepers” is the general rule.

But how about a bank error in your favor? Or extra, unearned money in your paycheck? Or an unexpected, unexplained check in the mail?

Turns out there are some pretty firm rules about these windfalls. And the outcome usually isn’t in your favor. There are, in fact, several types of found money you shouldn’t count on keeping.
Unexplained windfalls
A Minneapolis woman may well become the poster child for what not to do with an unexpected gain.

According to a complaint filed by the state of Minnesota, the 37-year-old social worker received a $2.6 million payment from the state Department of Human Services that had been intended for a local hospital. Instead of immediately reporting the mistake, the woman and a friend opened investment accounts, bought jewelry, purchased four vehicles including two Land Rovers and spent $3,817 at Best Buy.

Six weeks after getting the money, she called the Human Services Department to ask why the check had been sent to her, according to the complaint. When informed the payment was an error and the money had to be returned, the woman reportedly told the department to talk to her attorney and refused to respond to follow-up calls.

As the prosecutor said to a St. Paul Pioneer Press reporter, there’s a big difference between keeping money when you can’t reasonably be expected to determine the true owner — like that $20 bill on the street — and keeping money when you can.

The state had the pair’s accounts frozen and is prosecuting for theft as well as civil charges, though the woman returned the unspent money and the property she bought.

A better approach to an unexplained windfall is to keep the money in a separate account while you track down the source. Who gets to keep the interest earned will be one of those things you work out with the rightful owner’s attorneys.

Paycheck errors

Few payroll snafus are as large or as persistent as the one that affected the Los Angeles Unified School District this year. Some 32,000 teachers and other employees received erroneous paychecks for months while the district struggled to upgrade to a new computer system. Some were left with so little money that they couldn’t pay their mortgages or even buy groceries.

Others were overpaid, but it’s doubtful they’ll be able to keep the windfalls.

Federal and state laws are pretty clear that overpayments belong to the employer, said Michael O’Toole of the American Payroll Association. And employers have some pretty powerful weapons to get the money back.

If the employer catches the error within five days and your paycheck has been direct-deposited, O’Toole said, your company can simply snatch the money back electronically without your knowledge or consent. An employer also can deduct the overpayment from subsequent paychecks, even if it reduces your pay to an hourly amount that’s below the minimum wage.

With large amounts, though, many employers prefer to work out a voluntary agreement that allows the worker to pay back the money over time. The “voluntary” part is a bit of a misnomer, though, since the company typically can sue an employee who refuses to pay the money back and get a wage garnishment or turn the matter over to a collection agency.

What’s more, you’ll often have to pay back the gross amount you were paid, even though taxes were taken out the paycheck you received. You can take an adjustment for those taxes when you file your tax return for the year.

State laws may offer somewhat more protection for workers who have been overpaid, O’Toole said, but you still shouldn’t assume that you can keep the money — even if you weren’t aware of the overpayment.
A better course? Keep track of your paychecks, ask about any discrepancies and put any potential overpayments aside.

“I told my postmaster about it and asked him to intervene. He just replied that ‘they’ would catch it and correct it. (Two) pay periods later, it hadn’t been corrected, so I went back to him — same response,” GoPostal wrote. “At that point I opened a separate savings account, and every pay period took my pay stub and figured out the difference in the gross between what I was being paid and what I should have been paid, and put the difference into the account.”

After three years, the error was finally discovered and GoPostal was sent a bill “for $1,858 & change. I had over $2,300 in the ‘pay back’ account,” GoPostal wrote. “I (filed a grievance) based on a bunch of contractual technicalities, (and because I felt I’d been jerked around for 3 years and decided to drag it out), and we settled on $1,523. I wrote them a check for the full amount in September 2002.”

Remember, though, that postal workers are union-represented civil service workers. An at-will employee in a company will have a lot less practical leverage to do much besides quietly pay the money back.

Bank or bill-payment errors

If the stories posted on the Your Money message board are any indicator, it’s certainly possible to have a bank account error in your favor that is never caught.

Posters recounted checks for auto insurance premiums, rent and school tuition that were credited in their favor by appropriate companies but which never cleared their accounts.

Of course, most bank and payment errors are quickly fixed by companies’ internal balancing procedures. But sometimes mistakes persist.

Poster “dakotarose42″ recalled discovering an extra $300 in her checking account at a time when money was tight.

“The bank insisted that a deposit had been made a few days before and I insisted that it hadn’t,” dakotarose42 wrote. “I spent several days haggling with the bank. . . . Finally, I got one of the managers to agree to investigate, but he said it would take a few days to get the record of the deposit slip from corporate.”
Once she examined the slip, she realized that the money belonged to someone with an account number that was two digits different from her own.

“I never, ever even considered using any of that money, as absolutely broke and desperate as I was at the time. It wasn’t mine, pure and simple,” she wrote. “What floored me was the totally dismissive attitude of the bank. They couldn’t have cared less and it took a lot of prodding from me to get them to even investigate it when it was their error in the first place.”

Even if you’re not willing to go to that much effort to get a mistake fixed, you still shouldn’t immediately spend money that winds up in your account in error — or assume you’re out of the woods if a few months go by and the money’s not claimed. Although the details vary by state law, banks and other vendors typically have years to pursue you for the erroneous cash.

If it’s a payment that hasn’t cleared your account, contacting the biller might prevent you from facing late fees or damage to your credit. If it’s a bank error, reporting the problem in writing can start a paper trail that can help demonstrate you tried to do the right thing.

No one can say exactly when such money is “safe” to spend. The more that’s involved, the bigger the incentive the bank or biller has to come after you even if the mistake is discovered years down the line. If it’s a small amount and it’s been a year or more since you reported it, though, you may not be taking a big risk by spending it.

Or maybe you could just give it to charity. “Finders givers” is probably better for your karma, anyway.

http://articles.moneycentral.msn.com