The sole owner and operator of a Kansas home healthcare company has pleaded guilty to employment tax fraud. The fraud scheme caused a tax loss to the Internal Revenue Service (IRS) of over $300,000.
The owner was responsible for all financial matters related to the company, including the payroll and collecting and paying the employment taxes to the IRS. Court documents state that between 2013 and 2016, the company did not pay all the employee withholdings which should have been sent to the IRS. The owner instead used some of the funds to pay corporate and personal expenses. Additionally, in 2016, when the IRS began to collect the company’s unpaid taxes, the owner gave fraudulent bank records to the IRS and did not fully disclose his bank accounts.
Sentencing is in June 2022. If convicted, the owner faces a maximum of five years in prison and a period of supervised release, restitution, and monetary penalties.
Issue:
A check and balance system in payroll management can minimize any payroll fraud. It is recommended that payroll steps be broken up between at least two individuals so that no one person is responsible for processing the payroll, disbursement of funds, and distribution of payroll. Failure to pay employment taxes, whether it is intentional or in error, can result in serious financial and criminal consequences.
Discussion Points:
- Review your policies and procedures on payroll process, including collecting employment taxes and submitting the taxes to the IRS. Update your policy as needed.
- Train appropriate staff on your procedures for processing payroll, collecting employment taxes, and submitting the taxes to the IRS. Document that these trainings occurred, and file the signed document in each employee’s education file.
- Periodically audit the payroll process to ensure that employment taxes have been collected appropriately and that these taxes have been reported to the IRS.
