Module 3 Discussion
1-Answer the initial question (About 180 words)
Initial Question:
se the most recent IRS Examples of Employment Tax Fraud Investigations page.
https:
www.irs.gov/compliance/criminal-investigation/examples-of-employment-tax-fraud-investigations-fiscal-year-2016
Discuss one of the cases, including what might have allowed the fraud to be perpetrated and what internal controls should have been in place to prevent the fraud from happening. How does this finding influence what we need to do or be aware of as a professional?
2-Reply to 4 student posts
No minimum amount of words. Just quality response. (About 80 words each) Please refer to the ru
ics.
APA reference.
Student posts: See page 2 (one per page so you can answer following)
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Mod 3 - DP
Dayana Alvarez
Lucilious J. Ward was the owner-operator of Global Access, a company that provided public and private transportation services in Denver, Colorado. Ward withheld employment taxes from his employees’ paychecks and decided to steal the money instead of filing and paying the employment taxes with the IRS. Additionally, in 2010 Ward filed a false tax return claiming that $76,479 of federal income tax withholdings was withheld from his check and paid to the IRS. When he was a
ested, he pleaded guilty to all the charges. On March 24, 2016, Ward was “sentenced to 26 months in prison, three years of supervised released and was ordered to pay $5,955,231 in restitution to the IRS” (IRS, 2019).
Although the information gathered from the IRS regarding this case does not provide specific details about the fraud committed by Ward, it should be noted the lack of internal controls that existed in the company. Ward was the owner and the only one responsible for filing and paying employment withholding taxes. There was no one who verified that every cent in employment tax was being reported and pay to the IRS accordingly. Separation of duties must be in place in every company to avoid this type of fraud. There must be someone who created the payroll tax deductions, another person who verifies the information and the accuracy of the tax withholding amounts, another person who authorizes the payment to the IRS or any other payment, and lastly another person responsible for filing the proper documentation with the government. If the company implemented this control, it would have been very difficult for Ward or any other person to steal for so long.
References:
Internal Revenue Service XXXXXXXXXXExamples of Employment Tax Fraud Investigations - Fiscal The year 2016. Retrieved 18 March 2019 from https:
www.irs.gov/compliance/criminal-investigation/examples-of-employment-tax-fraud-investigations-fiscal-year-2016
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Daycare Owner Failed to Pay Taxes
Tamera Aponte posted Mar 18, XXXXXXXXXX:25 PM
The case of a daycare owner who failed to pay her taxes in the sum of $891,000 is interesting, because this actually went on for many years. Lynn Jordan from Missouri failed to pay the taxes she withheld in trust for her employees. She failed to pay Social Security, Medicare, unemployment, and over employment taxes. She also failed to file her own federal business tax return. Her criminal behavior began in 2004 and continued through 2012. During this period of time Lynn operated two daycares which were both closed and re-opened under different names. Each time she changed the business name, she would obtain a new employer identification number. There were many opportunities that Lynn’s lack of payments and lack of filings could have been recognized. Since Lynn was the owner of the daycare, there really weren’t internal controls within the daycare itself that could have prevented this, other than her acting ethically. If she would have had an internal bookkeeper, this person would have recognized personal charges from the business bank accounts and reported it. However, there should be mechanisms in place for governmental agencies to recognize this type of behavior with lack of payments and lack of filings. There were numerous opportunities to pick up on the theft.
It is unclear how many parents Lynn Jordan’s daycares provided childcare for. However, parents can claim their child care paid for the year via a federal child care tax credit. The daycare would issue a tax statement to the parent outlining how much was paid in childcare expenses. Also, the employees of Lynn Jordan’s daycares would have been issued a W-2 in order to file their own federal income tax return each year. Both of these are two opportunities the Internal Revenue Service would have been able to cross reference the legality of the business with the statements they received from various filings of employees and parents. If the Internal Revenue Service would have completed their due diligence in their review of non-filed tax returns, they would likely have picked up on Lynn’s non-payments much sooner and thereby reduced the impact to the government.
As a professional it makes me cognizant of schemes that could potentially occur if I had an employee, such as a bookkeeper, handling my payroll. Internally more than one person should be involved in the ledgers to ensure that money is held in trust for the purpose it was received, that personal expenses are not charged, and that payments are rendered to the appropriate accounts.
Reference
Department of Justice. (22 Fe
uary 2016). Former Daycare Owner Pleads Guilty to Failing to Pay $891,000 in Taxes. Retrieved 18 March 2019 from https:
www.justice.gov/usao-wdmo/p
former-daycare-owner-pleads-guilty-failing-pay XXXXXXXXXXtaxes.
Internal Revenue Service XXXXXXXXXXExamples of Employment Tax Fraud Investigations - Fiscal Year 2016. Retrieved 18 March 2019 from https:
www.irs.gov/compliance/criminal-investigation/examples-of-employment-tax-fraud-investigations-fiscal-year-2016
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Virginia Business Owner Sentenced on Tax Charges
Emmanuel Pie
e posted Mar 18, 2019 1:02 PM Subscribe
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On Feb. 18, 2016, in Abingdon, Virginia, Thomas Leroy Watson was sentenced to 18 months in prison and ordered to pay restitution of $110,822 to the IRS. Watson previously pleaded guilty to failure to collect and pay taxes. According to court documents, Watson was the former owner of Wat-Co, a Washington County metal fa
icating business. Watson failed to pay payroll taxes for his employees between 2010 and the first quarter of 2012.
All businesses that hire employees are required to pay employment taxes to the IRS. These consist of two separate taxes, which are a 12.4% Social Security tax up to an annual employee wage ceiling, and a 2.9% Medicare tax on all employee wages. Employers are required to withhold half of both the Social Security tax and the Medicare tax from their employees, and pay the other half out of their own pocket to the IRS or another designated financial institution. Some employers, however, opt instead to either not withhold the taxes from their employees, or to withhold those taxes but not send them in. There are varying reasons why an employer may do this, but the bottom line is that whatever the reason, it is theft. Since this fraud typically is not uncovered until the IRS does an audit, the best internal control against it is for the employees to speak up if faced in a situation where his or her employer is not withholding taxes from their paycheck.
References:
Examples of Employment Tax Fraud Investigations Fiscal Year 2016 | Internal Revenue Service XXXXXXXXXXRetrieved
from https:
www.irs.gov/compliance/criminal-investigation/examples-of-employment-tax-fraud-investigations-fiscal-year-2016
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Discussion 3-Operator of Third-Party Payroll Company
Felicia Smith posted Mar 19, 2019 2:39
The case of employment tax fraud that I chose revolves around James William Staz, who was “sentenced to 135 months in prison, two years of supervised release and ordered to pay over $17 million in restitution. Staz pleaded guilty in March 2015, to wire fraud, transactional money laundering and tax evasion” (IRS, XXXXXXXXXXLike in other cases we have read about, Staz was in the primary authority in charge of a payroll company who abused his powers to provide for his lifestyle by embezzling money from his clients that were supposed to be used to pay for his client’s payroll and employment tax payments. Staz accomplished this fraud by making false entries in the system to hide what they money was being used for.
While the case does not provide specific details about the fraud; it seems to appear as though Staz was able to commit the fraud due to severe lack of internal controls. To being with, he was allowed to be the primary authority over the payroll processing company which means he most likely did not need the authorization to transfer funds or to make payments on his own. He also had access to his client’s bank information and was able to transfer funds without his client’s approval. Furthermore, there does not seem like there were any kinds of segregation of duties involved in this case either. To prevent a case like this from happening their needs to be a clear policy on who does what, with proper authorization and approvals form the clients and management. Additionally, there should be a system in place where one person is not responsible for running an entire department.
This case indicates that as professionals we should be wary when there is only one person who seems to run a company or department. Furthermore, we should be cautious when it seems like only one person has approval or authority to sign off on important matters such as approving payments or making monetary transfers. Moreover, we as professionals need to be suspicious when it seems as though one of our colleagues or a client is living beyond their means, especially if we know that they don’t make the kind of money it would take to finance that lifestyle; “SAS no. 99 reminds auditors they need to overcome some natural tendencies—such as ove
eliance on client representations—and biases and approach the audit with a skeptical attitude and questioning mind” (Ramos, 2003, Para 2). This advice, although specific to auditors, can also be used by any company and any employee; while we like to think of everyone as being honest and open, that is obviously not always the case. Therefore, it is our job to always be on the lookout for people not adhering to the rules, regulations, and internal controls established by management.
Internal Revenue Service XXXXXXXXXXExample of Employment Tax Fraud Investigations-Fiscal Year 2016. Operator of Third-Party Payroll Company Sentenced for Embezzling from Client Companies. Retrieved From: https:
www.irs.gov/compliance/criminal-investigation/examples-of-employment-tax-fraud-investigations-fiscal-year-2016
Ramos, Michael XXXXXXXXXXAuditor’s Responsibility for Fraud Detection. Professional Skepticism. Journal of Accountancy. Retrieved From: https:
www.journalofaccountancy.com/issues/2003/jan/auditorsresponsibilityforfrauddetection.html