USA: Payroll outsourcing company fraudster convicted

United States Attorney Michael J. Sullivan and Douglas A. Bricker, Special Agent in Charge of the Boston office of the Internal Revenue Service, report that Michael R. Thorpe, age 61, of 452 Longley Road, Groton, Massachusetts, was sentenced in federal court to 46 months' imprisonment, to be followed by three years of supervised release, and was ordered to repay USD1.7 million in restitution to his victims.

From 1999 until 2004, Thorpe was the owner and operator of Payroll Express, a payroll service provider in Chelmsford, Massachusetts.

During the same time period, Thorpe operated a second company, GFA Inc., that was in the business of installing security systems.

As a provider of payroll services, Thorpe was responsible for calculating and paying his clients' state and federal employment tax liabilities. Thorpe's clients, mostly small- and medium-sized businesses in Massachusetts and Delaware, gave Thorpe access to their bank accounts in order for Thorpe to wire the tax payments into his business account, so that Payroll Express could pay its clients' employment tax liabilities.

Between 1999 and 2003, Thorpe diverted over USD1.7 million of his clients' IRS tax payments to accounts held by his second business, GFA, to pay for GFA's business expenses. Thorpe then filed tax forms -- Forms 941 -- with the IRS falsely indicating that he had paid his clients' employment taxes in full. Thorpe also sent copies of these false 941's to the clients, so that none of them were aware he skimmed funds from them. The scheme was uncovered when the IRS alerted the clients directly about delinquent unpaid employment taxes.

Despite Thorpe's fraud, his clients were forced to pay the IRS for the unpaid taxes, as well as penalties and interest.