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This Dog Barked. How Come No One Listened?

As of this afternoon, we in Trenton know no more than we did about the City’s stolen payroll than we did at the end of last week, when the Trenton Times published two stunning articles by reporter Cristina Rojas online Friday. The first, released Friday afternoon, detailed how the City experienced problems with its tax payments to the State of New Jersey throughout most of 2015, and had received multiple frequent written notices from the State about delinquencies totaling hundreds of thousands of dollars.

And then, while readers were still absorbing that news, The Times dropped another story bombshell at 6PM which explained that there is a balance of $3.4 Million Dollars owed by Trenton to the federal Internal Revenue Service. All of those funds, plus those owed to the State, were stolen by the owners of Innovative Payroll Services (IPS), the pay service whose responsibility it was to make those tax payments on behalf of Trenton. The City has filed a civil lawsuit in Federal District Court to seek restitution from IPS. We are told that IPS is insured or bonded for only $1 Million Dollars, far less than the City owes, and for which it is responsible to make good to the State and the IRS.

This case will take a while to fully unravel and resolve. Apart from the court case itself, the fallout within the City of Trenton and the Eric Jackson Administration will no doubt be severe. I don’t have a lot to add from my previous piece on the subject, posted on Saturday. I do, however, want to muse a bit  on one aspect of this matter that – I hope – could be further advanced in our understanding much sooner rather than later. And to do that, I will consult the case files of the smartest forensic detective around. Of course, I refer to Mr. Sherlock Holmes.

In the short story “The Adventure of Silver Blaze,” Holmes and Dr. John Watson investigate the theft of a valuable race horse, named Silver Blaze, from his stable, and the murder of the horse’s trainer. Without describing the whole plot, I will just recount that the case is solved when Holmes correctly interprets a key clue. As he tells Scotland Yard’s Inspector Gregory,

Gregory: “Is there any other point to which you would wish to draw my attention?”
Holmes: “To the curious incident of the dog in the night-time.”
Gregory: “The dog did nothing in the night-time.”
Holmes: “That was the curious incident.”

The dog in question lived in the stable, as a watchdog. He would have barked if he saw a stranger, or any action out of the ordinary. But he didn’t bark. He knew the person the person who committed the crime. It was an inside job.

The lesson here? If the dog doesn’t bark, look to the folks at hand for your suspects. But if the dog barks? For the love of God, LISTEN TO IT!!

John LaVelle heard the dog, and listened. LaVelle is the CEO of Logistics Resources International. According to a Trentonian article last Friday by David Foster, Mr. LaVelle had been  a customer of Innovative Payroll Services from 2008, when he started receiving state tax delinquency notices from Pennsylvania, the home state of his company, as well as Indiana, Minnesota and North Carolina, some of the other states in which Logistic Resources does work. According to LaVelle, IPS made several excuses for the late tax payments, mostly blaming the states themselves. David Foster tells us “the notices scared LaVelle enough to stop doing business with IPS in 2014.”

In LaVelle’s own words, “We had to run away from [IPS] as fast as we could. Even after two years we’re still in the throws (sic) of trying to figure out what was paid and was not.” [Emphasis mine - KM]

When John LaVelle started getting those delinquency notices from the states, he knew something was wrong. He heard the dog barking, and knew “We had to run away from [IPS] as fast as we could.”

Trenton heard the dog barking, too. He (in the form of the New Jersey Treasury Department) barked four times in the first half of 2015, with serious delinquency notes each time for hundreds of thousands of dollars.

The dog barked on April 12.

And three times more in early June. On June 5, June 9, and June 12.

That’s a lot of barking.

But no one – No One – in the City of Trenton seemed to listen. Because, on June 18 – the ink was barely dry from those three new notices from the State that month -  the City of Trenton extended IPS’s contract. And during the following six months, IPS stole another $3,400,000 from Trenton, that should have been paid to the Internal Revenue Service.

In fiction, it took a Sherlock Holmes to figure out why a watchdog didn’t bark. It shouldn’t take a genius detective to figure out what’s going on when he does start yapping. It’s a sign that something’s not right. If the dog barks, you listen. You respond. You take action.

John LaVelle responded. He took action. He’s still counting his losses, but he got out from IPS as soon as he suspected something wasn’t right.

Trenton didn’t. The Eric Jackson Administration heard the warnings and failed to recognize them for what they were. In fact, not only did the City fail to respond to these screaming warnings. Not only did it fail to run away as fast as it could. It doubled-down and extended the contract of what by June 18 should certainly have been strongly considered as a serial embezzler. And now we are screwed.

Why did the City ignore these multiple warnings?

How come no one paid attention to the dog?

Action. Inaction. And the Consequences of Each

At Thursday evening’s session of Trenton’s City Council, I addressed some remarks to the Members on the matter of the City’s payroll problems, which appeared on that evening’s Agenda in the form of a Resolution to grant an emergency contract to a new payroll service. This action was proposed in the wake of several media reports over the previous two weeks that millions of dollars in payments made to the City’s previous payroll vendor Innovative Payroll Services (IPS), intended as payroll tax deposits to the State of New Jersey had gone missing. Reports to which the City had made no response.

I began my remarks with a quote from “The Big Short,” the book by Michael Lewis about the entirely predictable (in hindsight to all but a few foresighted individuals) 2008 Wall Street financial collapse. I thought this particular quote very relevant to the matter before Council. Today, in light of new developments reported by some great efforts by our local media, I think it’s even more relevant than I thought it was on Thursday night.

Michael Lewis defined “the problem with money” in his book:

What people did with it had consequences, but they were so remote from the original action that the mind never connected the one with the other.

I immediately followed that quote by saying “This evening, you members of City Council face the consequences of what someone did with money from the taxpayers of the City of Trenton and the State of New Jersey. To prevent this kind of thing from happening again requires that your minds must connect whatever original actions that have led – once again – to news reports of State and Federal criminal investigations in the City of Trenton.”

At this point, I was interrupted by Council President and Alpha Phi Alpha Brother Zachary Chester, who asked if my comments were connected to any item on that evening’s agenda. Perhaps he had momentarily forgotten that rumor had it that upwards of $8 Million Dollars was missing? In any case, I reminded him of the Resolution on his docket, and continued to talk.

That little moment is a pretty concise look into the current mindset of those who run City Hall these days. Given all the words that have been written in the media over the last few weeks, and all of Council’s Executive sessions, the last thing that I expected to hear when I started talking about criminal investigations and what others have done with taxpayer money was essentially “Excuse me, this is relevant to me how, exactly?”

I suppose Brother Chester had other things on his mind at that point.

Before I go further, I will reference one other quote that is even more relevant today than it was when I first published it two weeks ago. In my first piece on the developing payroll mess, on February 11, I quoted the US Attorney in Baltimore, Rod J. Rosenstein, from a 2013 Baltimore Sun article about the business failure and legal failure of a Maryland payroll service similar to IPS. Mr. Rosenstein had some pretty good advice for clients of these services:

You need to verify that the payments are made as if they were made by a bookkeeper in [your] own office. The first time the payments are not made on time, it’s a pretty good idea to get a new payroll company. [Emphasis mine - KM]

I wrote right after that quote, “This article talked about a Maryland vendor, and procedures involving US tax payments. But the principle is still valid for us: How vigilant was the City of Trenton in verifying that its payroll service was making the required payments on its behalf since 2009?”

We know the answer to that question today. And the answer is “Not At All Vigilant.”

Now, we talk about Action, Inaction and Their Consequences. Follow along. This ain’t pretty.

In the first of two articles posted online yesterday in the Trenton Times by reporter Cristina Rojas (who, along with David Foster in the Trentonian, has done been doing some great reporting on this story for two weeks now), the headline announces “Trenton often delinquent in tax payments, records show.” Ms. Rojas reports “Over the past year, the city has owed the state as much as $1.6 million in back taxes, accrued interest and penalties.”

Ms. Rojas obtained several delinquency notices that were sent by the State of New Jersey to the City of Trenton throughout 2015, indicating to the City that hundreds of thousands of dollars in state tax withholding payments were late, and had not been made to the State. According to The Times, the dates for several of these notices, and the delinquent amounts on them were

  • April 24: $162,581 owed in contributions, interest and penalties
  • June 5: $174,947 owed in payroll taxes, interest and penalties
  • June 9: $968 owed in interest, but a handwritten note says IPS paid the amount a few days later
  • June 12: $334,273 owed in liabilities plus any accrued interest
  • Sept. 18: $27,825 owed for filing the WR-30 quarterly wage report late

A Nov. 12 account balance from the DOL showed the city owed $282,440 with balances dating as far back as March 2011.

This is pretty bad. But in the context of what we have known since February 5, from Ms. Rojas’ first Times piece on the subject, this is devastating. In that article, The Times reported,

The city’s contract with the West Berlin-based company to provide payroll and human resource information systems services was extended for a third and final year in June 2014. Last year, six-month extensions were approved on June 18 and again on Dec. 17 to allow time for the city to prepare new specifications and go out to bid for a new vendor. [Emphasis mine - KM]

So, after receiving no fewer than four notices from the State between April 24 and June 12, indicating several hundreds of thousands of dollars of payroll tax problems, the City extended the IPS contract on June 18, and again on December 17!! And did you pick up on this little kicker: the December extension was intended “to allow time for the city to prepare new specifications and go out to bid for a new vendor.” IPS should have been fired at least as early as April, with another firm brought in as an emergency replacement, action that didn’t take place until this week. Oy!

And also remember “A Nov. 12 account balance from the [NJ Department of Labor] showed the city owed $282,440 with balances dating as far back as March 2011.”

Un-freaking-believable. Rather than take US Attorney Brownstein’s common sense advice to get a new payroll company “the first time the payments are not made on time,” the City of Trenton did nothing throughout multiple occasions during the year of 2015 when it was informed by the State of major problems. As a result, Ms. Rojas reports today that we’ve owed the state as much as $1.6 Million in back taxes to New Jersey.

Inaction. Consequences.

And, of course, being Trenton there is more bad news. In the second article in the Times to appear yesterday under Cristina Rojas byline, the headline screams “Trenton owes $3.4m in payroll taxes to feds, suit says.”

The City of Trenton filed a federal lawsuit against IPS yesterday, accusing it of diverting $3,400,000 in intended federal tax payments for its own purposes. It’s a claim that the company has admitted, through its lawyer, is true. Ms. Rojas writes, “The city first learned in late December that IPS had failed to make $3.4 million in federal payroll tax deposits for the last six months of the year — $1.9 million in the third quarter and $1.5 million in the fourth quarter.”

There are more details to be read in this article. Let me please repeat some points and connect the dots here.

The City of Trenton received multiple written warnings from the state of New Jersey in the first six months of June 2015 that a LOT of payroll tax money was missing. Rather than draw any logical conclusions from these multiple red flags, the City of Trenton actually extended the contract of this company on June 18.

Action.

This action allowed the company – by its own written admission of guilt, we learn today – to embezzle $3.4 Million More Tax Dollars intended for the IRS in the second half of 2015.

Consequence.

This consequence was learned by the City in late December 2015. But the Mercer County Prosecutors Office was not contacted until February 2016.

Why was there a delay of over one month? What happened behind the scenes between late December and early February, when law enforcement was finally contacted?

Inaction

In his first (and so far only) comments on this matter to date, Trenton Mayor Jackson provided a brief narrative of how the City discovered this problem, a narrative we now know is either flat out wrong or seriously misleading. On Thursday he said,

“Staff internally reconciling, looking at recordkeeping documents said something looked awry and began to look further and said to their director, ‘Something doesn’t look right here. We’re finding some inconsistencies’ and they kept elevating.”

In light of The Times reporting of the multiple tax delinquency notices from the State during 2015, Mayor Jackson’s narrative of an internal discovery that “kept elevating” is simply not credible. It’s not true.

Mayor Jackson also said Thursday that “We took immediate action to make sure that we knew what we knew and what we thought what was going wrong, so at that point, we went to law enforcement and we put it in their hands.” That is simply nor true, unless one considers finding out in late December and going to the prosecutor in February “immediate action.” I don’t.

And Mr. Jackson’s statement that “We believe it’s just the one agency” – given to the press a day before his Administration filed suit for stolen IRS payments, after a year of notices from New Jersey – is nothing but horseshit.

It’s bad enough to stonewall the press and the public for two weeks by saying nothing, but when you finally do speak on the record, one should at the very least tell the truth.

In my remarks to Council on Thursday, I specifically noted the discrepancy between the Mayor’s account of how this issue developed, and the first press accounts weeks ago indicating – as we now know to be true – that it was the State who first brought this to the City’s attention. I had expressed hope to Brother Chester that that particular discrepancy would reconciled in the Council’s discussion on the payroll matter that evening. As it happened. there was not one word of discussion about the matter. Clearly, Brother President, the Mayor and the Administration had every desire that evening to put a lid on this entire matter, as long as they could.

Today, the lid has blown off.

Consequences?

In December 2013, before Trenton’s election season started up, I wrote a piece about corruption at the Trenton Water Works. In that piece, I expressed concern about Mr. Eric Jackson’s previous tenure as Director of Public Works, during which time much of that corruption took place. This corruption that was dealt with by criminal prosecutions and other disciplinary actions after Mr. Jackson had moved on in 2010, the most prominent of which was of course that of Stanley “Muscles” Davis (brother of disgraced ex-mayor Tony Mack) and other co-defendants.

I was concerned that under Mr. Jackson, a lot of matters that were later shown to be criminal were apparently handled entirely in-house, without resort to involving law enforcement or the county prosecutor. I wrote on December 24, 2013,

We know that there was criminal activity at the Water Works; that’s why Muscles Davis is serving time. Equipment was walking away, and individuals were falsifying time cards. Did any of this lead Mr. Jackson to involve law enforcement? If not, why not? Why did the only criminal prosecutions stemming from corruption at the Water Works occur after Palmer and Jackson left City Hall, if the situation was similar back then?

I think we also need Mr. Jackson to explain what other measures he put in place to reduce problems at the Water Works. We read he cut down on overtime abuse. Were additional security cameras installed to control equipment walking away? Were inventory controls and equipment sign-out procedures revamped? Did TWW management exert more effective oversight of their staff?

While we are at it, why was maintenance of the suburban assets of TWW allowed to slip in the run-up to the 2010 referendum, and why were so many staff openings for service technicians left open during that period, leaving the Water Works short-handed as the Mack Administration started up?

For me, if Eric Jackson cannot show that he at some point in his tenure brought in law enforcement to investigate the situation at TWW, that will sink his [mayoral] candidacy. He cannot be seriously considered as a potential Mayor if he allowed a culture of corruption to survive unchecked at the utility without trying to call in the cops.

I refer to that today not to point to any foresightedness on my part (OK, maybe a little) but mainly to point out that we have a grave situation with some similarity here.

The City of Trenton had been informed – many times – in 2015 that state tax payments were late, and or missing. The City extended the contract in June 2015 of the company responsible for making those payments. Over the next six months, millions of dollars were stolen by that same company. Which the City found out about in December 2015.

Yet, from December 2015 to early February 2016, it seems – based on what we know today – Mr. Jackson and his Administration failed to involve law enforcement. Hell, I would have called the cops as early as that first note from the state last April!

Why not? Mr. Jackson really owes us an explanation now. Of this whole stinking matter.

There’s no fig leaf on “not commenting on an open investigation” now to worry about. The lawsuit, and the IPS lawyer’s admission of guilt, is all out in the open now. That there will inevitably be criminal indictments of IPS’ owners and managers is really a foregone conclusion.

A lot of the problem here won’t ever even see the inside of a courtroom, anyway. Today, it’s clear that there were multiple, ongoing serious failures inside the City of Trenton. Failures of policies, procedures, judgment, and transparency. None of that (that we know of, anyway) is criminal.

But all of those failures – all of those actions and inactions – are very, very, very serious.

And they will – they must – have consequences.

EDITED 4:07PM

Because What the Mayor Said Yesterday Doesn’t Count as Information

The NJ Times says that Mayor Jackson “broke his silence” about the payroll matter yesterday. I think he told us nothing that hasn’t already been speculated in the press, and hardly confirmed any of that.

To say, at least two weeks into this mess that “We believe it’s just the one agency” to which Trenton has missing tax payments is like saying two weeks later that “We believe that either the Denver Broncos or the Carolina Panthers won the Super Bowl.” That kind of dissembling does nothing to help your credibility on this, Mr. Mayor.

Last evening at Council was truly a civics lesson. Most of the session that I saw was devoted to the conformation process, eventually unsuccessful, of the Mayor’s 3 new nominees to the City’s Municipal Court. During the extended discussion, Council President Zachary Chester told the packed Council Chamber that his votes on the nominations would not be swayed by all the influence being pressed on him over the last several weeks by the fraternity brothers of outgoing Judge Harold George.

Mr. Chester went out of his way – seriously – to assure the crowd that this political dustup would not lead to long-term Greek rancor. “Alpha Phi Alpha and Kappa Alpha Psi will still be brother fraternities.”

Honest to God, that was important for him to say in open City Council session. I can’t fucking believe it.

However, when it came to review the resolution asking Council to approve a contract with a new payroll service, to replace Innovation Payroll Services, suspect in missing Millions of Dollars of tax payments to the state and/or Federal governments, Mr. Chester and his colleagues said,

Not. One. Word.

The contract was approved by a vote of 4 to 3. Members Marge Caldwell Wilson, Phyllis Holly-Ward and George Muschal voted against the contract.

I spoke at length on the whole matter, primarily to critizize the Administration for its inexcusable lack of candor, transparency and openness in the matter for the two weeks since it’s been public knowledege. But mine were the only words spoken about the subject last night. Pretty damned shameful.

It is a remarkable demonstration of how utterly screwed up this town is that the President of Trenton’s City Council feels that he has to reassure people – at great length, by the way – that Greek brotherhood will not be affected by the conduct of the City’s business, but that the matter of potentially MILLIONS OF EMBEZZLED TAXPAYER DOLLARS deserves literally not one word of comment or explanation.

Last night was a truly appalling civic display. And therefore,

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Day 13 – And The Beat Goes On

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Cram Course

We are close to two full weeks after the first press reports that up to $8 Million Dollars of Trenton municipal funds paid to Innovative Payroll Services for the purpose of tax payments has gone missing. Two weeks and no one in officialdom is saying a word. The Mercer County Prosecutor’s Office is conducting a criminal investigation and is clamming up, understandably. The NJ Treasury Department stated that due to confidentiality laws between taxpayers (such as the City) and the State, they can’t say anything. A spokesman for the state wrote to the Trentonian nearly two weeks ago, “I would refer you to the city’s communications office.” And the City isn’t saying anything.

For the life of me, I don’t know why. It’s not as if it’s any longer a secret that there are funds missing. At this point, why pretend nothing’s happened? After all, whoever took the money knows what happened! It’s no secret to them! Of course, there are things you don’t say during an investigation. You don’t make statements accusing anyone in particular. You don’t disclose any forensic information that could be used as evidence in any future criminal trials. That’s common sense.

But a white collar crime of the scale that is being publicly discussed in the media cries out for disclosure. A responsible Administration, at the outset of this problem, should have (and there is still time, guys!) publicly answered the following questions:

  1. How much is missing? To whom were the payments due? The State? The USA? Both?
  2. Over how long a period have payments not been made? When was this problem first suspected? What’s the timeframe of how the discovery was made?
  3. Was the payroll service bonded for any of this loss? If not, how will the money be replaced? Taxpayers are responsible for missing and/or late payments. In the absence of a payroll surety bond, how will the missing money be repaid?
  4. What assurances are there for City employees, on whose individual behalf these payments were made, about their personal responsibility for missing tax payments? How will their 2015 tax returns be affected?
  5. To what extent, if any, has the recent transition to a new Information Technology vendor affected this problem? The old vendor, ADPC, had specifically identified significant problems in the payroll processing systems in a June 2015 review they had prepared for the City (h/t to Jim Carlucci for that tip). The timing is certainly suspicious: June 2015 – ADPC spotlights payroll system problems. November 2015 – ADPC is replaced by a new IT vendor. February 2016 – Missing tax monies come to light, a problem that could stretch back several months.
  6. What steps are being taken to ensure this won’t happen again? What changes will be implemented? Who takes responsibility? Who is accountable?

However, we are not hearing anything about any of this. The City’s News and Announcement page is full of press releases and announcements  concerning either ceremonial fluff, or matters that the City doesn’t really have any control over in any case. But any useful information about embezzlement of $8 Million Dollars? Crickets.

No one has even had the decency to get up in front of a microphone and say something like, “Due to the ongoing nature of this investigation, we cannot make any statement at this time.” Neither the Mayor, nor the Business Administrator, nor Police Director, nor City Attorney, nor Council President, nor anyone else has said anything to the employees or citizens of Trenton. The only thing we’ve gotten is a “decline to comment” statement from the city’s press officer Michael Walker.

And that is just wrong.

So, just what have the people in City Hall been doing these past two weeks? With the Prosecutors Office and other law enforcement on the case, what can they all have been doing?

Covering their collective asses, no doubt. Lawyering up, maybe? Or perhaps boning up on the particulars of White Collar Crime, and preparing for the inevitable fallout,  once the dam breaks and the real story comes out.

As it no doubt will. Sooner. Or later. The truth will out.

Even though no one in Trenton may bear any criminal responsibility for what’s happened – although, given the total news blackout imposed on this matter, that cannot be ruled out – there may be civil liability here, and accountability may yet be imposed on individuals currently in the employ of the City of Trenton. So there’s a lot to learn! Thankfully for those on East State Street, there is a lot of information out there about this non-violent financial crimes.

Here’s a link to a handy primer on the subject. found at random after a quick Google search of the terms “covering up white collar crimes.” It’s the very first result that came up, with the handy title, “5 Rules for Protecting Yourself in a White-Collar Criminal Investigation.”

A quick summary:

1. When you hear the corporate Miranda warning, it’s time to get your own lawyer.

Most executives assume their communications with corporate counsel about a legal problem are privileged, and that they are free to talk about problems at the company. They would be only half right… But the reality is that you likely need to obtain your own lawyer who will look out solely for your interests. Company counsel will never say upfront that you need your own lawyer because his or her goal is to elicit information.

2. Everything you say over email can and will be used against you.

Another rule in day-to-day behavior that will help you steer clear of white-collar prosecutions is to be careful about what you say over email. Know this fact: Virtually every email you send is preserved somewhere and will remain available to the government for years to come… Delicate subjects should be handled face-to-face or via telephone; avoid locker room talk over email; and assume every email you send will be read later in the worst possible light.  [Hmmm, is that why no one in City Hall returns my emails? Mayor Jackson has never replied to anything I've written him. Just wondering.]

3. Be wary of discretionary accounting.

Don’t assume that just because you are not responsible for accounting, you can’t be charged with accounting fraud. If accounting decisions are important to the success of your business, make sure you get clear guidance from the experts on what information needs to be disclosed to the accountants and auditors.

4. If something doesn’t feel right, it probably isn’t.

Many white-collar criminal defendants can pinpoint a definitive moment in the past where they thought something was amiss in their business dealings, and they wanted to speak up, but for one reason or another, decided to stay quiet. Inaction can lead to trouble just as easily as enthusiastic misconduct. Prosecutors do not limit their ire to the architect of a crime; rather, they look to ensnare everyone who was complicit… If something feels shady or seems too good to be true, it almost certainly is. Trust your instincts and affirmatively remove yourself from the situation.

5. The attempted cover-up is usually worse than the crime.

Think of Martha Stewart or Barry Bonds, who were convicted not for the crimes that initially led investigators to their doorsteps, but for their attempts to cover up their actions.

A failed cover-up attempt often becomes the focus of the prosecution because it is easier to prove than the crime, and because the government can use the cover-up as a proxy for criminal intent.

This may all be hyperbole. There may likely be no criminal liability within Trenton’s city limits. But at this point in time, there really is no reason for the continuing, and frankly contemptible, silence on the part of the City of Trenton.

What started as rumors in print about a serious matter of missing public funds is beginning to smell like a cover-up.

This refusal by any of the city’s public officials to speak to the matter makes me think that rather than seeking to inform the public and reassure them that any problem is being addressed, the Eric Jackson Administration is embarking on a cram course on Responsibility Avoidance.

It’s time to level with the public. Now.

Day 12 - The Stonewalling Continues

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This Workplace is an Information-Free Zone

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Payday Blues

And I won’t tell ‘em at the bank

What I’m gonna do with all my dough

I’ll just smile and tell ‘em thanks

For it’s better that they shouldn’t know.

- “Payday Blues,” Dan Hicks 1973

The City of Trenton is having some Payday Blues of its own. And the Administration apparently thinks it’s better that we shouldn’t know.

A few news reports over the last several days – the first ones broke last Friday evening, so you know someone wanted to bury the news – have been reporting that the City has been consulting with the Mercer County Prosecutors Office (MCPO) about possible shenanigans involving the City’s outside payroll service. The Trentonian’s David Foster has written a pair of stories (the second one appeared yesterday) narrating that as much as $8 Million Dollars paid by Trenton to Innovative Payroll Services (IPS), intended to cover employee payroll taxes to the State of New Jersey, has gone missing. That’s a problem.

How big a problem? Cristina Rojas explained in her Trenton Times story last Friday that “Under the [City's] proposed $216.4 million budget for the 2016 fiscal year, salaries make up 38.1 percent.” That would mean that the City’s payroll is  approximately $82 Million annually. At an average NJ tax rate (none of the articles have yet suggested that any Federal tax payments are missing) of 3.5%, that would suggest that state taxes are unpaid for approximately $228 Million of city payroll.

To put it another way, if the figure of $8 Million is correct, and if it represents only unpaid New Jersey income taxes, then that means that the City hasn’t paid the state in about three years. Uh huh. Yeah. Do the math.

I can only hope that some of these numbers are incorrect! I sure to hope to read that the amount of missing money is lower than $8 Million. Or that the sum also represents payments not made to the Federal government as well. Or that the sum includes payments for employee pensions as well. It’s mind-boggling to think that something like this has been going on for THREE YEARS without anyone noticing. Not anyone in the City, nor anyone in the State.

In David Foster’s Friday story, he wrote “A spokesman for the New Jersey Department of Treasury declined to provide how much money the city owes the state in payroll taxes. Sources said the department reached out to the city to inquire about nonpayment of taxes.” It sounds like the Treasury Department may have first gotten this ball moving. Is it possible that the State didn’t notice any payment of payroll taxes attributable to the City of Trenton for three years? It’s hard to conceive. However, it’s certainly possible to imagine that the City may have not noticed, considering the incredible amount of chaos, carnage and disruption City Hall has experienced over the last half-dozen years.

Outside payroll services are used by companies large and small, as well as governmental entities. ADP is the largest and most well-known; on its website it describes itself as a 60-year-old worldwide company serving more than 610,000 clients. IPS is a good deal younger and a good deal smaller. According to its website, the West Berlin, NJ, company has been around since 2006. According to the Trentonian, IPS “has provided payroll services to the city since May 2009, when former Mayor Douglas Palmer’s administration added a last-minute resolution on the agenda to award the contract that council unanimously approved, according to the city’s meeting minutes. When reached by phone last Friday, Palmer did not recall the company nor the owner.”

Up until today, everything about this case is pretty much pure speculation. No one is saying Nothing! Nothing has been confirmed by anyone on the record. Last week, the MCPO told The Times “At this point in time, we are waiting for the city to provide us with additional information.” A spokesperson for the  Treasury Department declined to comment, deferring to the City. Trenton’s press officer, Michael Walker, also declined to comment.

Trenton’s City Council discussed the matter last Thursday night, in a closed Executive session. It appears the Councilmembers did so in violation of Open Public Meeting rules. Member Phyllis Holly-Ward was quoted last week in Ms. Rojas’ article saying that the closed session was authorized for one matter, but the IPS issue was brought up by Council President Zachary Chester and City Attorney Marc McKithen without notice to the other Members. According to Holly-Ward, “It’s a very serious subject. It appears that it was an intent to hide it from the public and press.”

Well, the press and the public have the story now, and there are a lot of questions. Understanding that the matter may now be a criminal investigation by the Mercer Prosecutor’s (at least!) Office, there’s obviously a lot that cannot be discussed. Yesterday in the Trentonian we read that IPS’s president John Scholtz has lawyered up. He won’t be talking.

But there is still a lot that can be said, and a lot that should be done, by the City of Trenton.

Without getting into particulars about IPS, the City should announce what steps it is making to change payroll services.

The City and/or State should reassure City employees and taxpayers – to the extent that they can – that even if required tax payments to the State have not been made for several months or even years, that individual employees will not be held liable for those missing payments.

The City should immediately disclose the scope of the problem; if not to talk about the amount at stake, at least to the extent of acknowledging if this problem is limited to payments missing to the State of New Jersey only, or to the Federal government. Are we talking about income tax withholding only, or also pension payments.

The crucially important thing to be done is to level with the City’s employees and let them know they will not be personally on the hook for any missing taxes.Beyond that, there are many, many other questions that need to be answered.

First and most important, was IPS bonded for any failure of service? The IPS website statesIPS is proud to be SAS70 certified. What does this mean to you? It means IPS has taken the extra step in ensuring our clients piece of mind and security that our practices have been audited and found in compliance with industry standards.” But that only speaks to auditing of financial books and records; the website is silent as to whether IPS is bonded. As one example, another NJ-based payroll service [selected by this writer at random] explicitly states on its website, “PTM provides clients of Advanced Payroll Solutions, LLC (”Advanced Payroll”) with a Fifty Million Dollar ($50,000,000) fidelity bond. Payroll clients are covered by this bond, as PTM electronically moves the tax monies to the authorities on their behalf.”[Emphasis mine - KM]

I don’t see anything about bonding on the IPS website. How exposed were they, and now Trenton, to losses?

Second, what kind of confirmation would be sent by IPS to Trenton of its periodic tax deposits? A 2013 article in the Baltimore Sun, reporting on a similar failure by a Maryland payroll company to make tax payments quotes the local US Attorney on the importance of monitoring one’s payroll service:

“You need to verify that the payments are made as if they were made by a bookkeeper in [your] own office,” said Rod J. Rosenstein, the U.S. attorney for Maryland. “The first time the payments are not made on time, it’s a pretty good idea to get a new payroll company.”

The IRS last year started requiring payroll service providers when hired — and quarterly thereafter — to remind the employer that it is ultimately responsible for tax withholdings, said Pete Isberg, president of the National Payroll Reporting Consortium, whose members include the largest payroll service providers.

Payroll service providers also must tell customers they can check online to make sure their withholdings have been forwarded to the U.S. Treasury Department, he said.   [Emphasis mine - KM]

Employers can do this through the government’s Electronic Federal Tax Payment System at eftps.gov. The site will post when the government receives the taxes, usually a day after receipt, experts said.

This article talked about a Maryland vendor, and procedures involving US tax payments. But the principle is still valid for us: How vigilant was the City of Trenton in verifying that its payroll service was making the required payments on its behalf since 2009?

However this story unfolds, it will likely take a long time to resolve. An example of that comes from my industry. In 2008, the Axium entertainment payroll service failed, filing bankruptcy liquidation while it, too, owed, large amounts of back taxes, estimated at the time in the tens of millions of dollars. From January of 2008, it took until June 2014 for criminal charges to be filed. John Visconti was charged at that time in Federal court with tax evasion, “accused of taking millions of dollars from the company he led and failing to report it to the U.S. Internal Revenue Service as income,” as reported in Bloomberg Business. As of that time, the Axium company bankruptcy was also described as “still pending.”

IPS is much smaller than Axium was. But it is clear that these things take years to resolve. This one will be no different. There will be investigations. A company may fail. People may lose their jobs. Some may go to jail.

The matter of IPS and Trenton is just beginning. It’s not going to end soon. Without compromising confidential information of an investigation just beginning, the City of Trenton and the State of New Jersey need to publicly and immediately acknowledge the problem and disclose what it can.

Most pressing, the City needs to reassure its employees that they will not be held liable for any missing income tax payments on their behalf. Right now.

UPDATE: 2/11/16 3:50 PMThe Mercer County Prosecutors Office announced the launch of a criminal investigation this afternoon. Still no word on any kind of announcement to City employees about any possible personal exposure for unpaid taxes, nor any word on whether IPS was bonded.

PTM provides clients of Advanced Payroll Solutions, LLC (”Advanced Payroll”) with a Fifty Million Dollar ($50,000,000) fidelity bond. Advanced Payroll Clients are covered by this bond, as PTM electronically moves the tax monies to the authorities on their behalf. – See more at: http://www.advpayrollsolutions.com/bonding.html#sthash.3U7dUwGk.dpuf
PTM provides clients of Advanced Payroll Solutions, LLC (”Advanced Payroll”) with a Fifty Million Dollar ($50,000,000) fidelity bond. Advanced Payroll Clients are covered by this bond, as PTM electronically moves the tax monies to the authorities on their behalf. – See more at: http://www.advpayrollsolutions.com/bonding.html#sthash.3U7dUwGk.dpuf
PTM provides clients of Advanced Payroll Solutions, LLC (”Advanced Payroll”) with a Fifty Million Dollar ($50,000,000) fidelity bond. Advanced Payroll Clients are covered by this bond, as PTM electronically moves the tax monies to the authorities on their behalf. – See more at: http://www.advpayrollsolutions.com/bonding.html#sthash.3U7dUwGk.dpuf
PTM provides clients of Advanced Payroll Solutions, LLC (”Advanced Payroll”) with a Fifty Million Dollar ($50,000,000) fidelity bond. Advanced Payroll Clients are covered by this bond, as PTM electronically moves the tax monies to the authorities on their behalf. – See more at: http://www.advpayrollsolutions.com/bonding.html#sthash.3U7dUwGk.dpuf
PTM provides clients of Advanced Payroll Solutions, LLC (”Advanced Payroll”) with a Fifty Million Dollar ($50,000,000) fidelity bond. Advanced Payroll Clients are covered by this bond, as PTM electronically moves the tax monies to the authorities on their behalf. – See more at: http://www.advpayrollsolutions.com/bonding.html#sthash.3U7dUwGk.dpuf
PTM provides clients of Advanced Payroll Solutions, LLC (”Advanced Payroll”) with a Fifty Million Dollar ($50,000,000) fidelity bond. Advanced Payroll Clients are covered by this bond, as PTM electronically moves the tax monies to the authorities on their behalf. – See more at: http://www.advpayrollsolutions.com/bonding.html#sthash.3U7dUwGk.dpuf

Dear Mercer County Freeholders

As emailed today to the Mercer County Board of Freeholders. It wouldn’t be a bad idea to reach out to them yourselves, if you have an opinion on this matter. Email addresses are below. – KM

Good Afternoon, Freeholders -

In connection with today’s media reports about the 2015 Salary Ordinance which your body passed on First Reading last week, I write to express qualified opposition.

I believe that those who enter public service must receive proper compensation, appropriate to their positions and duties, equitably distributed to all workers in comparable pay grades and job classes, and subject to periodic review and increase. No one entering public service should do so expecting to become financially distressed by that service. It should be possible for fulltime workers, including elected officials, to earn a respectable livelihood in the service of the public interest. In the absence of the ability to earn a living, government service – for elected officials as well as civil service employees – will become the exclusive province of those with extraordinary financial resources. Individuals such as these may not need their public salary, but such individuals are not typical of those they represent. I would not be confident in their ability to understand the problems that all face, and to provide the fair solutions we seek from government.

I understand the rationale and objective of this salary ordinance. I get it. I do not agree with how this has been rolled out.

News stories today report that 4% increases for all of the County’s elected officials and some senior Employees are proposed to be retroactive to the beginning of 2015. To my recollection, the matter of such an increase was never brought up as a prospective action during the entire year of 2015. The November 2015 General Election featured races for County Executive, County Clerk, and three Freeholder seats. I believe this represented a perfect opportunity to state the intention to adjust salaries in the new year. The failure to do so among the various legislative and executive candidates in my opinion is unfortunate, and brings this current effort into question.Voters deserve an opportunity to weigh in on a matter such as this, as a check and balance against the ability of public officials to grant themselves unilateral retroactive raises. The manner in which this is being discussed and approved suggests an effort to accomplish this early enough in the new legislative term so that voters may forget about it by the time the next election rolls around.

In this matter, I would suggest an example set by the Founders should apply here. The 27th Amendment to the US Constitution, proposed in 1789 and not ratified until 1992 (demonstrating how unpopular this must have been for elected officials during the entire lifespan of the Republic!) states in its entirety, “No law varying the compensation for the services of the Senators and Representatives shall take effect, until an election of Representatives shall have intervened.”

This is the way in which raises for elected officials should be implemented: Propose and pass raises as you deem prudent. But ensure that the public has an indirect role in their approval, by not implementing them until after the next County election.

If, upon standing for re-election, voters judge the raise to be fair (along with other issues, certainly), then you may be likely to be re-elected. But if the raises are deemed to be inappropriate (along with the other issues), then the voters’ judgment may tend in the other direction.

In either outcome, the public at least has an indirect, but definitive choice in the matter. A choice which your current effort denies the electorate.

Freeholders, I respectfully request you to please reconsider your position on the matter of raises for yourselves as well as your elected Mercer County colleagues. Separate raises for elected officials from those of fulltime civil service or appointed employees. Designate any raises for yourselves to take effect only after an intervening General Election at which a majority of County offices are up for election.

Thank you.

Kevin Moriarty

Sent to:

Samuel T. Frisby – sfrisby@mercercounty.org

Anthony P. Carabelli – acarabelli@mercercounty.org

Ann M. Cannon – acannon@mercercounty.org

John A. Cimino – jcimino@mercercounty.org

Pasquale “Pat” Colavita – pcolavita@mercercounty.org

Andrew Koontz – akoontz@mercercounty.org

Lucylle R.S. Walter – lwalter@mercercounty.org

http://nj.gov/counties/mercer/officials/freeholders/about/meet.html

Outside Perspective

My attention was drawn the other day to a headline on Salon.com. “An Urban Island of Batsh*t Crazy.” Hey, I thought. Someone’s writing about Trenton! I clicked on the link, and was rather surprised to find out the article was actually about Bridgeport, Connecticut, instead. You know what? This other post-industrial Northeast city of 147,000 is pretty screwed up, in ways that might even lead jaded Trentonians think, “Wow, I’m sure glad I’m not stuck in a place like Bridgeport!” I’m telling you! Check it out for yourself.

Reading the article got me thinking that it is helpful to hear about other towns and cities from time to time. To read about different localities tackle some of the same problems we experience on the Delaware, and hear other viewpoints may help expand our minds and help us become open to new approaches and solutions, or at the very least help us to validate and our own perspectives. It’s in that spirit that I thought to chat with an outside voice. Someone with limited firsthand knowledge of Trenton, perhaps, but someone whose long experience, keen perception and quick wit has endowed him with a wisdom that surely has much to offer us in our small burg.

I spoke to Sam Clemens, an experienced journalist who has reported for a number of newspapers throughout his career, including the Hannibal (MO) Journal, the Virginia City (NV) Territorial Enterprise, the Sacramento Union, the San Francisco Chronicle, and the Buffalo Express. He’s also done some freelance writing under an assumed name. He was gracious enough to share a few moments, and thoughts.

Mr. Clemens, thanks so much for agreeing to chat about Trenton! I want to start by giving you a little context. We are in the second year of the Eric Jackson Administration. When the man ran for Mayor, he made a major promise that his term in office would be distinguished by the highest ethical principles. Sixteen months in, he and his colleagues have, well, fallen kind of short on that promise.What do you think of such high promises being so easily set aside?

Principles aren’t of much account, anyway, except at election time. After that you hang them up to let them season.

I hear you! That certainly appears to be what’s happened around Trenton. Take this whole IT contract business. It seemed to me when the news broke that there was something really wrong about the way the City’s managed to work the bidding process around so that their preferred company won Trenton’s business. A Superior Court judge agreed, and ordered City Council last week to halt the award of a contract until a pair of lawsuits are resolved. A lawyer for the City calls the lawsuits “frivolous,” by the way.

Lawyers are like other people–fools on the average; but it is easier for an ass to succeed in that trade than any other.

The City is adamant that this very small firm, FCC Consulting Services, is the best qualified for the business, even though the company works out of a private house, is a single proprietorship, and not much experience. Compared to the other 11 companies which bid for the City’s business, this is really a case of the underdog winning out over larger companies with more resources.

Let your sympathies and your compassion be always with the under dog in the fight–this is magnanimity; but bet on the other one–this is business.

That about sums it up. But all last week, we read several articles in which the City’s Business Administrator and Law Director kept insisting that FCC’s was the “overall best proposal,” when the evidence doesn’t really support that.

Never argue with stupid people, they will drag you down to their level and then beat you with experience.

The Administration seems to have entirely forgotten what happened five years ago. The City first tried then to ditch the current vendor and replace it with a new one of doubtful ability.

It is not worthwhile to try to keep history from repeating itself, for man’s character will always make the preventing of the repetitions impossible.

Man, you’re right about that! This Administration is repeating a lot of the mistakes made during the Tony Mack years. But so is Trenton’s City Council. Six of the seven current members were on Council during the Mack years. The seventh could read a newspaper. They seem to be entirely clueless about how to do their jobs.

Suppose you were an idiot. And suppose you were a member of [Council]. But I repeat myself.

Oooh, that’s harsh.

Fleas can be taught nearly anything that a [Council]man can.

You’re not holding back today. Why do you have such a low opinion of Council?

All Congresses and Parliaments have a kindly feeling for idiots, and a compassion for them, on account of personal experience and heredity.

Well, at least you aren’t singling out Trenton’s City Council for your disapproval. But you are right about them. They do tend to go with the flow. Or, whoever provides the strongest flow at the time, who is usually the Mayor and his folks.

We are discreet sheep; we wait to see how the drove is going, and then go with the drove.

That pretty much describes Council from last week. On one matter, a symbolic resolution asking the New Jersey Legislature to introduce legislation that would legalize, tax and regulate marijuana, only one member moved for a motion to approve. Four other members didn’t utter a single word, pro or con, on the matter. They all sat mute, not an expression on their face like they were waiting for a bus. Two other Councilmembers conveniently left before the matter came up. One later said she was sick and had to leave, but she reportedly spent some time talking to different people before leaving City Hall. Ill, or just “allergic” to talking about Marijuana? It was hard to tell.

…the smallest minds and the selfishest souls and the cowardliest hearts that God makes.

Well, some of those words were in fact used that night. It wasn’t a very courageous moment for Council, at all.

It is curious–curious that physical courage should be so common in the world, and moral courage so rare…  There are not enough morally brave men in stock. We are out of moral-courage material.

As you said at the beginning of our conversation, it seems like the only time we really hear any ideas or principles from these guys is at election time.

If we would learn what the human race really is at bottom, we need only observe it in election times.

Unfortunately. What really bugs me, with Council as well as the Administration, is that they often just seem like so many fools.

Let us be thankful for the fools; but for them the rest of us could not succeed… I reckon we are all fools. Born so, no doubt.

But, I know we’re not alone in that. Every city and every town has its share, right?

If you send a damned fool to St. Louis, and you don’t tell them he’s a damned fool, they’ll never find out.

As a journalist, what advice would you have for our elected and appointed public servants?

We ought never to do wrong when people are looking.

But that’s the problem, isn’t it? This is a time when local journalism – at least the traditional kind of newspapers, radio and television – is on the wane. It’s harder to depend on local reporting to inform citizens. How are we to keep informed – and keep our local government honest?

[E]very citizen of the republic ought to consider himself an unofficial policeman, and keep unsalaried watch and ward over the laws and their execution.

Do you think there is a role for regular citizens, to make their voice heard when they disagree with the direction of their government?

The citizen who thinks he sees that the commonwealth’s political clothes are worn out, and yet holds his peace and does not agitate for a new suit, is disloyal; he is a traitor.

I agree. But there is a lot of resistance in this town to any kind of criticism.

Arguments have no chance against petrified training; they wear it as little as the waves wear a cliff.

But it’s really exasperating when you see the exact same mistakes being made over and over.

Concerning the difference between man and the jackass: some observers hold that there isn’t any. But this wrongs the jackass.

Yeah, but sometimes it makes me angry to see so much going on, and so little learning from past mistakes!

When angry count four; when very angry, swear.

That happens, sometimes, I’ll admit. Mr. Clemens, don’t you get a little worn out occasionally, from all the foolishness you see everywhere you look?

If all the fools in this world should die, lordly God how lonely I should be.

Surely, you jest!

Ah, well, I am a great and sublime fool. But then I am God’s fool, and all His work must be contemplated with respect.

Thanks for the taking the time to chat, Mr. Clemens. One of these days, we need to see you in Trenton.

Ten or twelve years ago I was surprised and shocked to receive from England — from the Internal Revenue Office — a tax-bill of £48 — an income-tax bill, levied on my English copyrights. I was shocked, but it was not all shock. I was flattered as well as shocked; flattered to be formally taken notice of by a foreign government. It seemed to kind of introduce me into the family of nations; seemed — well, it seemed to sort of recognize me as one of the Friendly Powers — not on a large scale, of course — not like Russia and China and those, but on a — well, on a secondary scale — New Jersey.

Thank You!