10.8.20 – Mitch Reitman – Managing Principal at Reitman Consulting Group, Inc
Payroll computation and reporting is complicated and many companies specialize in outsourcing the function. While most payroll firms are honest and do a great job, the industry is largely unregulated and a dishonest processor can cause serious issues for your employees and for your company.
Payroll processors are anticipating closer scrutiny after a high-profile scandal involving MyPayrollHR, a Clifton Park, New York-based company that suddenly collapsed last month after its CEO reportedly absconded with $35 million in payroll and tax withholding deposits for its customers, prompting paycheck deposits to briefly disappear from the bank accounts of employees who work at nearly 1,000 of its client companies.
The CEO, Michael Mann, was arrested last month and charged with bank fraud. Mann admitted to FBI agents to diverting approximately $70 million from MyPayrollHR to his own accounts since around 2010 or 2011, according to the security blog Krebs on Security. In an effort to avoid similar misconduct in the future, the New York State Department of Finance sent subpoenas last week to over 40 payroll-processing companies who do business in the Empire State, according to The Wall Street Journal. The department asked payroll companies to provide more information and documents about how they move and control funds. Some New York lawmakers have also introduced legislation in response to the scandal to further regulate payroll processors and impose criminal penalties for misappropriating funds.
We see all sorts of scams and malfeasance. The most prevalent is simply failing to properly report withholding and taxes paid or failing to make accurate and timely deposits. We encountered a recent case in which a processor made the deposits and filed accurate reports only to amend them months later and apply one company’s payments to another company’s accounts in a type of Ponzi Scheme.
There are safeguards that we can help you put in place to let you know that returns are being timely filed and deposits made. There is case law holding employers liable even if they properly paid the funds to a third part processor.
Mitch Reitman is the Managing Principal at Reitman Consulting Group, Inc. and can be reached at 817-698-9999.