The New York State Department of Financial Services sent subpoenas last week to more than 40 payroll processors that do business in the state, the Wall Street Journal reported . Attorneys advise payroll services clients to verify their providers’ actions  routinely.
The subpoenas are the latest step in an inquiry that began after the sudden closure of MyPayrollHR, a Saratoga County, New York-based firm that handled payroll for roughly 1,000 companies around the US, according to the report. Michael Mann, the operator MyPayrollHR, was charged last month with committing $70 million in bank fraud.
Mann fraudulently obtained at least $70 million in loans by creating fake businesses and then claiming those companies had receivables, which did not exist, he admitted to FBI investigators . The scheme began in 2010 or 2011.
Meanwhile, attorneys with Covington & Burling LLP advise companies to verify the actions of their payroll service providers. Some reports indicate that associated payroll taxes may also have been involved in the scheme, attorneys S. Michael Chittenden and Marianna G. Dyson wrote. If true, the employers may be on the hook for those missing taxes and may face other penalties, they say. Therefore, verifying providers’ actions should be a routine practice, regardless of the provider’s reputation and the longevity of the relationship.
For their part, some payroll firms have been anticipating increased regulations, Accounting Today reports . Paychex, a payroll firm based on Rochester, New York, noted there have been other cases of significant frauds involved with smaller payroll companies, “and there have been rumblings about proposed regulations for the payroll processors.”