Outsourcing: payroll services company defrauded customers
A US based outsourcing company has demonstrated that trust is a dangerous thing.
61 year old Michael Thorpe of Groton, Massachusetts has been sentenced to 46 months jail plus three years parole after the Inland Revenue Service uncovered a fraud that netted him USD1.7 million.
Thorpe ran an outsourcing payroll services business called Payroll Express. He had direct debit access to his customers' bank accounts so as to draw down the amount of taxes and other payments due under the customers' payroll.
But in a simple document fraud, he underpaid the Revenue, but sent documents to the customers showing that full deductions were made and accounted for. He sent the Revenue documents evidencing lower than true salaries and therefore lower than true deductions.
Then he transferred the underpaid amounts to another company, GFA Inc., that he controlled.
In total he skimmed off USD1.7 million, and he has been ordered to pay that amount in restitution to his victims. But his victims will still lose out because the Inland Revenue Service has insisted that they pay not only the tax properly due but also penalties and interest, even though they were entirely innocent and believed that the tax had been paid in full and on time.
The scheme only came to light when the IRS concluded that the employers were not declaring correct amounts of pay and contacted them direct. At that point the mismatch in the documentation became apparent.
Download PDF version of this page