by Brian Mahany
Many small businesses hire payroll processing companies to avoid the volumes of paperwork associated with weekly payrolls. Cutting checks; deducting state, unemployment, social security and federal taxes; keeping track of year-to-date deductions; filing various tax returns and remitting the taxes on a timely basis takes quite a bit of time. It’s almost a full time job and many small employers can’t afford to have a non-productive employee just handling government “red tape.”
Enter payroll processors. They range from the multi-billion dollar businesses like ADP to smaller, Mon & Pop operations. Most of them do a great job. Unfortunately some do not. Take these two stories.
Russel Speranza of Bellmore, New York plead guilty this month to defrauding clients of Total Time Solutions, LLC out of approximately $3 million in payroll taxes; taxes that were collected from Total Time’s clients and should have been paid to the IRS.
At the time of the offense, Speranza was an employee of Total Time, a small payroll company located in New York City. What is interesting about this story is that Speranza began embezzling money way back in 2002. It was years before the scheme was finally uncovered.
Is Total Time just another fly-by-night payroll company? Maybe. But apparently there was some type of affiliation with a CPA firm in the same offices. Two accountants also were indicted.
Simply because a company advertises that it is licensed or bonded does not mean the company is reputable. Many states do not regulate payroll processors beyond charging a small license fee or simply requiring a minimal bond.
Speranza is facing 20 years in a federal prison. It sounds like he deserves it but that does little to help Total Time’s former clients. They remain on the hook for the unpaid taxes plus interest and sometimes penalties. In other words, they have to pay the taxes TWICE!
While serving as Maine’s revenue commissioner some years ago, I had a situation in which a small payroll processor embezzled millions of client monies, Mainely Payroll. Once again, many small businesses were left scrambling to pay taxes they thought had already been paid once. Once company went out of business and another had to curtail insurance for employees.
How does one protect themselves from payroll processor fraud? It’s not that difficult. First, find out about the company’s bonding and verify the bond. Just because the state says a payroll company needs to have a $10,000 bond doesn’t mean they actually have one nor would that amount be nearly enough in the event of a large theft.
Second, make sure that you receive copies of all IRS and state notices. The power of attorney forms that the IRS and most states provide allow you to decide if the payroll processor gets all notices or if you also continue to receive notices. ALWAYS insist that you receive duplicate notices. Although most small businesses are pretty busy – that why companies hire payroll processors to begin with – conduct spot checks every few months too. Too busy? Ask your accountant to do it.
If you are the victim of fraud, contact the fraud recovery lawyers at Mahany & Ertl. Our asset recovery lawyers have helped clients recover millions of dollars of their hard-earned money. Sometimes we can collect from third parties such as banks or auditors that failed to stop the fraud. We can also assist you with an abatement of penalties and obtaining favorable repayment terms with the IRS and state revenue departments.
Mahany & Ertl, LLC – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan, Portland, Maine and San Francisco, California (coming soon). Services nationwide.