The headline for Cristina Rojas’ story posted on The Times of Trenton’s website yesterday is “How many red flags were missed over Trenton’s payroll problems?” I am glad that the press is looking at the documentation coming available about the multi-million dollar theft of city funds intended for payroll tax deposits with the IRS and the State of New Jersey, and finding that the Administration of Mayor Jackson’s chronology about its “discovery” of the problem raises more questions than it answers.
I shared the documents that I received from the City in response to an Open Public Records Act (OPRA) request filed last month with Ms. Rojas, and which I also posted online. She, in turn, provided me the copy of the brief filed to support the City’s civil lawsuit against Innovative Payroll Service and its principal, about which I wrote yesterday. Looking at the same items leads Ms. Rojas to make the same observations as I have for weeks now:
The city says it first learned it was the victim of a fraud scheme in late December, but more than a dozen notices from the state and federal governments from as early as April reveal potential red flags about its former payroll company now under investigation…
[T]hroughout the year, there was no shortage of signs that something was amiss when the city repeatedly received notices about unpaid balances, penalties and interest.
“The minute you see a question, you should ask the provider what happened,” said Michael Pires, an industry expert and CEO of JetPay Payroll Services. “But if you see that as a pattern, that could raise a red flag — are my funds deposited in a timely manner and are they protected?”
Armed with this information, The Times – once more – sought a response from the City, with the same predicatable result as similar attempts to pry information loose the from increasingly tight-lipped Jackson Administration: “City spokesman Michael Walker declined to comment for this story, citing the ongoing investigation and litigation.”
Of course. Despite Mayor Jackson’s promise several weeks ago that “we’re going to keep our own council and our community informed,” he has done nothing of the sort. Mr. Jackson, Mr. Walker and the rest of the Administration are hiding behind the veil of “ongoing investigation and litigation” to justify their refusal to talk about critical matters that have nothing to do with the ongoing investigation and litigation. This refusal is increasingly impossible to justify and increasingly maddening.
Nothing has changed in the last couple of weeks since I wrote, about IPS, John Scholtz, and his daughters:
The complete – and totally unnecessary – lack of transparency, candor and honesty shown by the City over this last month shows that the folks running this City are in deep denial about how badly they are fucking up. What will be next to go wrong? [Emphasis mine - KM]
We are now hearing about the next thing going wrong. Yesterday I heard a credible report from inside City Hall that the city’s office equipment vendor was about to repossess several copying machines leased to the City, for non-payment since December. The City hasn’t paid because of any shortage of available cash (at least, this time!), but because Trenton has simply ignored several months of billing.The vendor has had enough, and finally threatened to remove the machines to get some response from the City. Last I heard, City Hall was scrambling to get the bills paid, and the affected copiers were still in place.
Sound familiar? Multiple notices? Several months? Red flags? “No shortage of signs that something was amiss?”
The matter of a few copy machines is admittedly a small one, very small compared with the $5,000,000 at issue with the IPS scandal.
But to hear – well over a month after the payroll news broke, and nearly three months after the initial “discovery” of the embezzlement – of something like this copier nonsense proves that NOTHING IS HAPPENING IN CITY HALL TO FIX WHAT’S CLEARLY BROKEN. There is no sense that crooks were able to steal millions of dollars under the very eyes of the City because of flawed policies and of possibly incompetent employees, appointed and elected officials. There is ZERO sense of urgency to address the frequent and repeated failures that are stacking up. No collective fire has been lit under the Administration’s collective butts to get their collective asses in gear to get their collective shit together.
As a result, having bill collectors and re-possessors figuratively standing at the City Hall doorway with their hands outstretched waiting for payment while city officials scramble to write a check is now Business as Usual.
Having the city’s computers operate without virus protection, or data backup, and paying millions of dollars more to a startup company working out of a guy’s garage than more reputable and established companies would charge for the privilege of providing those second-rate services, is now Business as Usual.
Being designated as “a high-risk grantee of federal funds” by the United States Department of Justice is now Business as Usual.
Having Millions of Dollars stolen over a period of months without paying attention to dozens of “red flags” is now Business as Usual.
Let’s be absolutely clear on this. NONE of this stuff has ANYTHING to do with “ongoing litigation” or “open investigations.”
ALL of this should be the subject of urgent and drastic action that needs to be immediately taken by the Mayor, his Administration, City Council, as well as the State of New Jersey.
But I don’t see anything happening. And I don’t believe anything meaningful will happen as a result of this disaster. Why?
Because this is now Business as Usual.
And we put up with it.
So here is the brief supporting the lawsuit that the City of Trenton filed on February 19 against the former vendor Innovative Payroll Services (IPS), its principal John Scholtz and Scholtz’s two daughters, who also worked at IPS. The case was filed in Mercer County’s Superior Court, not US District Court as I had first thought. Since the greater share of the funds stolen from the City by IPS were intended as withholding tax deposits for the Internal Revenue Service, and since Scholtz had moved to and established more business ventures in the State of Florida, I would have figured that a federal civil suit would have made more sense, if the intent of the suit was to effect a quick recovery of whatever financial assets may be left after IPS embezzled those millions of dollars from Trenton’s (and New Jersey’s) taxpayers. After all, condos and cars purchased by Scholtz in a lavish spending spree over the last few years seem to be located in Florida. It’s a safe assumption that those purchases were made at least in part by funds intended to the tax divisions of the United States and New Jersey governments. I’d have figured, to get the money, go where it is. File in Federal Court, I would have thought.
Oh, well. I am sure that the City of Trenton, the Eric Jackson Administration, and all their lawyers, know what they are doing. Right? Right??
Maybe, maybe not. OK, probably not!
There’s a lot in the text of this lawsuit that confirms what news stories have been reporting over the last month, based on the reporting and research local newspaper writers have been able to uncover in spite of a massive and almost total news coverup from City Hall. There’s a lot in here that contradicts the only public statements made on the record to date by public officials. And the timeline suggested in this suit is not supported by documents in possession by the City. It’s a very interesting stew, this brief.
The heart of the City’s case is narrated in this excerpt, found on pages 5 and 6:
We see here summarized that 1) IPS failed to make Federal tax deposits to the IRS; 2) IPS failed to make tax deposits to the State of New Jersey; 3) the amount owed to the IRS totaled $3,367,198.82l and 4), the City knew about this since late December 2015. OK.
Contrast this with the following statements:
Eric Jackson, 2/18: “We believe it’s just the one agency” that was shorted on payments. No, the City knew it was the State AND the Feds.
Eric Jackson, 2/18: “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.” No, again. You say you found out in “late December.” Law enforcement, in the form of the Mercer County Prosecutors Office, was notified in late January or early February. What happened during those intervening weeks? We don’t know, but cannot call the City’s actions “immediate.”
Eric Jackson, 2/18: “[W]e’re going to keep our own council and our community informed of that which we can as this process unfolds.” Um, No, Again! Most of this process had unfolded by February 3, when IPS lawyer Mark Cedrone admitted in a letter addressed to City Attorney Marc McKithen, in part (Page 89 of the law suit):
Upon that admission, and IPS’s stated intention to make Trenton whole, the case blew wide open, and proceeded down a very different investigative and legal path, one likely far less confrontational and certainly less mysterious than most legal matters. The City of Trenton filed its lawsuit in Superior Court two weeks after receiving Cedrone’s letter, and the very day after Mayor Jackson promised to “keep our own council and community informed.”
We read today in the Trentonian that Federal Court orders to preserve the financial assets of both IPS and John Cedrone have been issued and signed by both parties. The case is well on its way to resolution. This is not likely to take nearly as long to conclude as the case I discussed in my first piece on this matter, that of the payroll service Axium International. Axium failed in 2008, and the criminal trial of its principal didn’t get under way until 2014.
However, if you have any hope that Mayor Jackson is honoring his promise to keep “our community informed,” you can probably forget it. To date, there has been not one press release nor any other item released to the public or posted to the City website referencing this case or this lawsuit. Heckuva job, guys.
Zachary Chester, 2/19: “Not knowing what the amount is, whether it’s a million (dollars), $800,000, that’s a million or $800,000 that we don’t have in our budget.” He knew what the amount was, since the lawsuit had been filed the same day he spoke to 6ABC’s Muchanic, and he knew it was a lot more than “a million or $800,000.”
One of the reasons we actually do “know what the amount is” is that, from late December or whenever it was up to until the first week of February, the City did a little investigative work in its own records and calculated the amount of the Federal taxes that had been stolen. The precise amount of State tax missing was – and still is – unknown, although we do know it is a significant portion of the $1,884,815.95 cash that Trenton paid IPS during the second half of 2015. In the City’s brief, a footnote in the February 3 letter from IPS attorney Cedrone talks about a “chart” he got from the City:
Ron Zilinski is Trenton’s Finance Director. If he composed a “chart” that Cedrone found accurate on February 3, as far as Federal taxes were concerned, and if that number (plus $4,000) was the one cited in the City’s lawsuit on February 19, then City Council President Mr. Chester damn well knew what kind of money was at issue when he spoke to 6ABC the same day the suit was filed.
I can’t suppose I know how Mr. Jackson and Mr. Chester justify lying to the press – and, by extension, to us – but this is another severe blow to the already-strained credibility of both officials. The City’s own documents contradict their spoken words in a way that will not be soon forgotten or forgiven.
One last point for today. Per the excerpt cited above, the City is claiming in its civil lawsuit that the City learned about the IPS diversion of funds in “late December 2015.” In my previous post dated March 4 I wrote about the frequent and multiple notices the City received from both the State as well as the IRS, throughout the last nine months of 2015. The dollar amounts were large enough, in the hundreds of thousands of dollars, and the detail on each bill extensive enough, attributing short payments to the first quarter of 2014 and the first quarter of 2015 for instance, to have given more than enough warning to the Administration that there were serious problems with payroll. I have thought ever since the news of these notices came out that it is absolutely incomprehensible that the City claims that they only became aware of the problem in December.
The implication of this fact leaves us with a nasty dilemma. Which is less outrageous for you to consider: that every single person in City Hall who would have had reason and opportunity to know the information contained in those notes from April through December of last year did not recognize them for what they meant? Or that people in City Hall knew exactly what these notices meant for the integrity of the City’s payroll system, and Chose To Do Nothing?
Not a pretty choice, is it? I don’t see any other alternatives here, do you?
The City has, in the sworn statements accompanying its lawsuit, chosen to go with Version #1: We got the notices, and forwarded each one along to IPS to resolve, trusting them to deal with and resolve each matter as it came up, never realizing that there were more serious problems underneath the surface. The only employees who knew about these notices were Mary Henry and Janet Schoenhaar, and they didn’t involve any other of their superiors or colleagues with any concerns. No one suspected theft of tax deposits until the last weeks of the calendar year, when it was too late to stop it. Nothing could have been done.
The Jackson Administration is making a concerted effort to move past this issue. The cone of silence has been imposed upon the matter, and now that it is an active case in the courts, they will not likely choose to give this any more light or attention than they absolutely have to.
So we are not likely to easily find out what happened. We probably won’t find out what failures of individuals or systems or policies led to this massive embezzlement that happened, not as the result of a single incident, but repeatedly over months and possibly years. We won’t know enough in order to feel comfortable that something like this – or worse – won’t happen again. Other than change its payroll vendor, the Administration is, based on all visible indications, doing nothing different now that it’s been doing for years.
As extremely unsatisfactory as this turn of events is for everyone in the city of Trenton, that’s the Jackson Administration’s story and they are sticking with it.
A couple of weeks ago, as the mystery regarding the City of Trenton’s missing tax millions deepened, I published a piece using the metaphor of a barking dog to explain my befuddlement at how this whole story had rolled out. Based on reporting in the local press, mostly by Cristina Rojas of the Trenton Times and with David Foster – in spite of zero information forthcoming from City Hall – a very unsettling picture was emerging. According to stories by Ms. Rojas, the City had received several notices of tax delinquencies and irregularities from the State of New Jersey throughout 2015, but had taken no action with its payroll vendor, Innovative Payroll Services (IPS), to investigate or resolve major issues. Beyond taking no action, the City had actually gone so far as to extend its contract with IPS last year, twice(!), once in June and once in December, shortly before the matter had gotten too big to ignore, something like $5 Million to $8 Million too big to ignore!!
I compared those frequent notices to the barking of a watchdog. When a watchdog barks in the night, you should listen and take care to see what’s going on. I wrote that on February 22. On that same date, seeing that City Hall was circling its wagons and refusing to give out any information, I filed an Open Public Records Acts (OPRA) request with the city, asking for any documents related to the matter.
This week, I received a block of documents in response to my OPRA request, including the delinquency notices I had asked for regarding the State, notices from the US Internal Revenue – which I had not asked for, figuring anything associated with the estimated $4 Million shorted to the IRS would have been considered embargoed during the course of the City’s civil law suit filed in Federal Court against IPS and its owner John Scholtz – and several email exchanges between the City and IPS throughout 2015.
This document release provides some needed information about this case, but it is very incomplete, despite one of the City’s lawyers telling me by phone yesterday that they have released everything I have asked for, as required by OPRA and no further. I find that extremely difficult to believe, for reasons I will get into below. In the meantime, I will describe some of these documents below. For your perusal, you can find all of the documents I received from the City this week at this link. Please be aware that these are not all arranged chronologically, which is the way I like to look at stories such as these. They are arranged with IRS-related materials first, with NJ State-related items next. There are many blank pages, due to the scanning process I was told. And there are page breaks during email exchanges that make the conversations hard to follow. Bear with all of that, though. Taken together, these docs start to unravel a very sordid tale.
I started this piece with a callback to my watchdog metaphor. A few weeks ago I wondered how the City and the Eric Jackson Administration could have ignored a barking watchdog for most of 2015, as this problem was building. I was wrong. After looking through these documents, I should characterize the warning signals that the City received throughout the year as a pack of werewolves howling at the moon outside the City’s bedroom window all night, every night, since April 24, 2015! The Administration either slept through that howling, or they heard it and put their pillow over their head for eight months. The result is, we are sitting here now, probably close to $5 Million poorer and none the wiser for the experience.
To help me make some sense of all the docs, I made a spreadsheet summarizing the documents, and arranged them by date. A note about my shorthand: the email exchanges I was given this week are all between Mary Henry (MH), an accountant with the City of Trenton, and Mary Tucker (MT), a Business Analyst with IPS. Copied on most all of the correspondence were John Scholtz, owner and then-president of IPS, and Janet Schoenhaar, the City’s Comptroller and Chief Financial Officer.
This is, by the way, the main thing that leads me to think I have been sent an incomplete set of records. Although my request was for correspondence, emails, faxes and so on to and from city employees and elected officials on the delinquencies and contract extensions, all I got were the Henry/Tucker exchanges. The City will have me, and the rest of the public, believe, that the only person in the City to write down anything about this matter was one Accountant in the Finance Department. How likely is that? Not fucking much.
Anyway, here’s a snapshot:
I wanted to lay out these documents to show their timing in relation to the two contract extensions the City granted to IPS in 2015. On February 22, I wrote that, based on what we knew from the press, by the time Council approved the June 18 extension, we should have known something was seriously wrong. These documents prove that without a doubt.
By June 18, the City was aware that there were delinquencies totaling around $300,000 for unpaid tax deposits from the first quarters of 2014 and 2015. In addition there was about $40,000 in interest and penalties dating to the tax years of 2011, 2012, 2013, and 2014. Here’s a look at one of the notices, the one from April 24 (page 43 of the document dump):
“Aaoooo, Werewolves of Trenton!!”
No one listened.
Take a look at this notice, a Penalty $20.077.36 (Page 57) from the IRS for “Failure to make a proper federal tax deposit” applied to its First Quarter 2015 tax deposit. Although the IRS notice is dated June 22, a handwritten notation indicates it was “e-mailed 6/16/15,” presumably to IPS, since there is an email message (Page 63) from Mary Henry to Mary Tucker stating – matter-of-factly, as all of the email exchanges are between City Hall and IPS – “We got a couple more notices from the State and the IRS. Thank you very much.”
These messages illustrated above were two of six statements or invoices or failure to report notices received before the contract extension of June 18. None of them mattered. Nothing was done. Not one person other than Mary Henry, if you believe the City’s Law Department, wrote any kind of note or document on the topic.
“Aaoooo, Werewolves of Trenton!!”
By the time of the next – and final – IPS contract extension on December 17, there were no fewer than ten more letters, bills and statements from the State and the IRS. The one received from the State’s Division of Taxation on December 2 was simply too blatant and definitive to ignore. In fact, since we know that the City actually started its damage control effort in December, this may have been the document that got their asses in gear. Even if it had, though, that did not stop the City from approving a contract extension on 12/17. We still have no idea why.
The December 2 statement (Page 95) shows just how bad IPS had gotten with their management of Trenton’s accounts. This document shows that during the third quarter of 2015 – the months of July, August and September – the City had eight bi-weekly payroll periods, for a total amount of taxes due of $1,023,096.74. IPS made only five payments totaling $586,877.02. The balance missing was $436,219.72, plus $11,725.58.
Big problem! But look also at the timing of those payments that were made, and you will see a company struggling with its cash flow:
- The payment due to the state on July 8 was actually made on July 30, 22 days late.
- The payment due on July 22 was made on August 25, 34 days late.
- A payment due on July 29 was made on August 28, 30 days late.
- Payment due on August 5 was made on September 2, 28 days late.
- And the payment due on August 19 was made on October 7, 49 days late.
- After that, payments due on September 2, September 16, and September 30 were never made.
Remember, that all of the funds needed to make all of these tax payments – on time! – had been fronted to IPS by the City. Every time. There was absolutely no reason that any of the payments should have been late by a day let alone 28 to 49 days late. Someone should have known that something was seriously, criminally, wrong.
I won’t print any of the emails here, but you can find them, again, at this link. All I will say about those is that I am amazed – and not in a good way – at the consistent banal, calm, ho-hum unexcited tone of all of them, both on the City side and the IPS side. Most every note from Mary Henry says something along the lines of “Hey, we got another notice from the State and/or the IRS.” The reply is a variation on “OK, we’ll look into it. Have a great day!” There are also curious unexplained references dropped in occasionally, such as an email note by Mary Henry mentioning an unresolved payroll matter from 2012 involving $174,000.
How far back does this IPS mess really go? As of today, we don’t know.
And that’s it for the emails. No rising sense of urgency, no detailed questions or requests for explanations, until the very end of December when the matter has become impossible to ignore. No expansion of the email distribution list to include a greater number of responsible parties in the City. Only Mary Henry wrote anything to IPS, only Janet Schoenhaar was copied. For her part, Ms. Schoenhaar never seemed to respond or intervene in the IPS relationship. As the Comptroller and CFO for the City, she certainly owes an explanation for her role in this matter.
That is, as far as the City of Trenton has chosen to reveal, up to today. This cannot be the end of the paper trail, even though the Jackson Administration is, as has been its MO all during this story, stonewalling any further information release.
As I said in my previous post on February 26, this matter is now in the Courts. IPS has owned up to its responsibility in the matter, and is willing to make restitution – to the probably very limited ability that it can. We are now in the post-IPS period.
We should be hearing how the City is changing its systems, its policies, and – if necessary – its personnel to make sure this doesn’t happen again. The City has changed its payroll vendors, and that’s a big start.
But, as this OPRA document release conclusively shows, the City received multiple. critical, and outright explosive notices throughout 2015 that It. Simply. Ignored.
We have seen nothing come out of City Hall to indicate that ANYTHING is going on to address a system that clearly and repeatedly broke.
If nothing is changing, that means the werewolves are still howling, and still No One Pays Attention.
Who and what will they eat next??
Aaooooo!! Werewolves of Trenton!
As of this morning – Friday, February 26, 2016 – the most recent Press Release on the website of the City of Trenton is from February 5. That date happened to be the very day we first heard news about what turned out to be the theft of Millions of Dollars from the City of Trenton by its private payroll service.
February 5 is not the most recent day that the City has made news, but it is the most recent day that Mayor Eric Jackson and his Administration condescended to provide the public with any information about the public’s business; namely, any details about that payroll theft, which recent estimates make the total amount embezzled under the noses of the very same Mayor and Administration to be in the neighborhood of around $4 Million Dollars.
So what was that last item of News and Announcement that did make the grade, that the Administration decided was worth the municipal imprimatur? An announcement titled “Trenton mayor Eric Jackson Joins Call to Stop ICE Raids,” in which we read “Mayor Eric Jackson, his Latino Advisory Council (L.A.C.), and a coalition of Latino civic and nonprofit organizations, have come together to address the growing fear and misinformation among the city’s immigrant community about the recently announced campaign of arrests conducted by the Department of Homeland Security’s Immigration and Customs Enforcement (ICE).” The press release later states, “No such arrests have taken place in Trenton. However, residents have expressed concern over a perceived increase in ICE presence in our City.”
This is certainly an area of great concern to many in the Latino community in Trenton, as it is in towns all across the country. However, as a matter of national import and national policy, it’s not something over which the Mayor of Trenton has any control or influence. His February 5 statement is fine in itself. It’s a nice gesture of solidarity with and support for many Trentonians. But it doesn’t really exactly mean very much in terms of any impact it may have.
Which is a pretty good summary for the Jackson Administration so far: nice words over matters that it doesn’t really have any control over, but not much real effect or impact on anything actually under its influence. Like, for instance, how $4 Million Dollars (or more) gets skimmed off the City’s payroll monies over the better part of an entire year.
There’s another featured item on the front page of the City’s website worth re-visiting, in the (so far, silent) aftermath of the payroll theft, for what it says about the track record of this Administration nearly half-way through its term.
On the front page of the City of Trenton site, right next to a portrait of Mayor Jackson, is a link to the text of the Mayor’s 2015 State of the City Address, delivered on October 22, 2015.
The Mayor was very proud of this Address, and of what it represented to residents of the City as well as those outside of Trenton, believing it showcased this town as rebuilding from many decades of economic and social decline, and more recently several years of governmental malpractice and criminal corruption.
Re-reading that October address – a time, we now know, which was smack in the middle of the worst of the payroll embezzlement by John Scholtz of Innovative Payroll Services (IPS) and his two daughters – the self-congratulatory language now comes off as more than a little hollow. For example:
We’ve focused our efforts on restoring our municipal
government, getting its finances in order, addressing
critical personnel matters and the myriad tasks our
employees must accomplish everyday in a professional
To that end, we are executing a governance strategy that
is supported by eight pillars: restoration, collaboration,
communications, accountability, benchmarking,
measuring results, transparency and innovation.
The residents of Trenton expect nothing less, and as
Mayor, it is my charge to deliver on that promise every
day, every minute, every hour.
Thanks to the work of Business Administrator Terry
McEwen and the staff of the Department of Administration,
we prepared a 188-million-dollar budget encompassing
11 separate departments. And with the help of City
Council, we passed that budget. Because of the renewed
confidence that the state has in our management team,
we successfully negotiated a 2-million-dollar increase in
our transitional aid.
Whew. If the state increased our transitional aid by $2 Million, “because of the renewed confidence that the state has in our management team,” what will happen now, after that same management team oversaw the theft of over twice that $2 Million Dollar increase the Mayor was so proud of? Will we thank the work of Business Administrator Terry McEwen then?
Aside from the outrage of the theft itself, the thing that bothers me most about this payroll scam this month is how much it has illustrated the wide gap between this Administration’s rhetoric and promises, dating back to the 2014 campaign season, of transparency, accountability and ethics; and the reality of the last two years. Re-reading the State of the City text, so proudly displayed on the City’s website to this very day, just reinforces that.
How well, for instance, did the Mayor use some of his “eight pillars of governance strategy” – specifically, Communications, Accountability, and Transparency – during the IPS matter? Not well, at all. More like pillars of governance failure, if you ask me. This Administration failed during the IPS matter, in ways we do not yet know because this Administration is anything but Communicative, Accountable and Transparent.
To a great extent, though, that incident is done, it’s behind us. The money’s long gone. A civil court process is under way to attempt to recover as much of the City’s money as possible. Criminal investigations have begun on the state and federal levels that will surely result in indictments and prosecutions of those responsible at IPS.
The Mayor and his Administration have a chance now to do much better in the IPS aftermath. Whatever, and whoever, failed to prevent the loss – policies, procedures, management structure or individual employees – needs to be disclosed, analyzed and fixed so nothing like this happens again.
How confident am I this will happen? What do you think? Yeah, I thought so…
On the other hand, Eric Jackson will have to try to make something positive happen. He’ll have to say something good at his next State of the City speech, after all.
I never learn.
I’d spent almost two weeks of bitching about the total news blackout of information coming from Trenton City Hall about the scandal connected with the theft of Millions of Dollars of money intended for tax payments to the State and Federal Governments by the City’s former payroll vendor Innovative Payroll Services (IPS). I complained in print that not one word had been spoken by any Trenton official, while the local press was full of stories reporting rumor and speculation. At last Thursday’s City Council session, I spoke in person ab0ut the complete lack of openness about the scandal, taking Council members to task for failing to live up to their grand promises of transparency.
I even read to the Members a quote from the July 1 2014 Inaugural speech of current Council President Alpha Phi Alpha Brother Zachary Chester, when he promised Trentonians “We will do things transparently. We will do things in the open. We will let Trentonians know what their government is doing. This is my pledge to you.” I challenged the Council that night, “This evening is a test of that pledge. Frankly over the last two weeks the City has done a pretty poor job of giving us the transparency that you and the Mayor promised us. You have a chance – no, more than that, you have an Obligation – to start to make that better tonight. Before you and your colleagues vote on Resolution 16-60, you must end the coverup of the last two weeks. You must explain to us how we got here.”
That was OK, as far as it went. However, all that time I asked the Mayor and Council to talk to us, and explain to us, I forgot One Little Thing.
I forgot to ask them to be honest.
Silly me, I know! Who’d have thought that needed to be specifically requested? I guess I know better now.
Since Thursday, the Wall of Silence around City Hall has been breached, twice. Once on Thursday by Trenton Mayor Eric ZT Jackson, in remarks made to Trenton Times reporter Cristal Rojas. And the second time by Council President Brother Chester, in on-camera comments featured in a story filed by WPVI-TV reporter Nora Muchanic on Friday night. In both of these stories, both Mr. Jackson and Mr. Chester made statements that are flat out wrong and misleading. For the damage done to their credibility and truthfulness, they – and the public – would have been better served had they just continued their silent stonewalling.
In his statement to the Times, Mayor Jackson explained that the City’s own workers discovered that there was a problem with missing money. “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 [the problem to upper levels of management],” he said.
We know this to be wrong. On several occasions throughout 2015, at least as early as April 24, the State of New Jersey notified the City – in writing – that tax payments normally made on the City’s behalf by IPS to the State were missing.The State notified the City of a problem. Not the other way around.
When asked if both State and Federal taxes were involved, the Mayor said, “We believe it’s just the one agency,” meaning the State, which up to that last week had been the only subject of speculation in the press.
The Mayor on Thursday stated that he believed that “just the one agency” – NJ – was involved, even though the very next day the City filed a lawsuit in United States District Court alleging that IP stole $3.4 Million Dollars in city funds intended as tax deposits to be paid to the US Internal Revenue Service. The Mayor had known for at least close to two months that more than one government agency had been defrauded by IPS. By the time the Mayor spoke to Ms. Rojas of the Times, the City had received a letter from IPS’ lawyer admitting that the company and its owner had stolen the City’s money for their own purposes.
Mr. Jackson also described a sequence of events from the internal discovery of a problem up to reporting it to law enforcement that now seems very unlikely. On Thursday, Jackson told the Times “When it was brought to his attention, his administration double-checked to make sure there weren’t any omissions or mistakes made by employees before meeting with representatives from IPS. The city then alerted the authorities. ‘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,’ Jackson said.” [Emphasis mine - KM]
We now know that the City learned about the matter of the missing IRS money – putting aside its knowledge of missing State money – in “late December,” according to the Times’ account of the City’s lawsuit. Yet the City did not contact the Mercer County Prosecutors Office until early February. A lapse of four to six weeks can’t be considered “immediate action” by any charitable interpretation of the phrase.
So to recap, Mayor Jackson gave an incorrect account of the discovery of the problem. His stance on how extensive the problem is was wrong. And his characterization of how quickly the City involved law enforcement authorities begs further explanation about what his Administration did when it sat on the problem for at least a month. All in all, not a real good showing for the guy who told us as a candidate that “the next mayor has to lead by example. Municipal government is only as strong, ethical and transparent as its leader.”
But I wrote all about the Mayor’s comments on Friday and Saturday. Why go over them again? In order to illustrate that Mr. Jackson IS leading by example. Just not exactly in the way he promised us two years ago. Mr. Chester is nicely following the example set by the Mayor in making misleading and dissembling public on-the-record statements to the press.
In a news report that aired on 6ABC Friday evening, and which I only saw and read about yesterday, Chester gives the impression that he doesn’t know many of the details of the story that he had been closely involved in for several weeks, if not longer. He told Nora Muchanic, “Not knowing what the amount is, whether it’s a million (dollars), $800,000, that’s a million or $800,000 that we don’t have in our budget.”
That is an extremely misleading statement. Once again, Friday was the day the City filed its lawsuit. The City – and Mr. Chester – damn well knew that IPS stole money intended for the Feds, and money intended for the State. He’d chaired several Executive closed Council sessions in which the Administration discussed the matter before the full Council, and he knew well before his colleagues about the problem, according to one of those colleagues, Phyllis Holly-Ward. He knew the details of the lawsuit. By the time he spoke to Muchanic, he DID know “what the amount is,” and that is was far in excess of “a million or $800,000.”
Since to date Mr. Jackson and Mr. Chester are the only two officials to have made any public comments on this whole mess, and since those comments are all flawed, misleading and wrong, what do we make of this?
Last week we were led to believe that the silence coming from City Hall was necessary to keep the details of an ongoing law enforcement investigation secure and confidential. Sure, there are still investigations ongoing on the state and federal level, but there is no mystery or air of confidentiality left. As of Friday, we know that the guilty parties owned up to stealing the City’s money.
On February 3rd – before the first news story had appeared in print, and weeks before the City made its first comments – IPS’ lawyer wrote,
IPS further acknowledges that it is obligated to the City of Trenton in the amount of the remitted taxes, as well as any interest and penalties which taxing authorities may assess against the City as a result.
BOOM! Case closed, in other words! That public revelation on Friday transformed this case from a “Whodunit?” into a “Howdowegetitback?” The crime has been solved, now the process of asset retrieval will see how much of the City’s millions can be recovered to settle our debt with the State and the IRS. And no doubt some of those funds are gone forever, and there will be remaining balances that we’ll owe to the Feds and NJ. That will probably come from the pockets of the city’s taxpayers.
Since this crime was basically solved before it became public, there are a few conclusions to be drawn.
The weeks of stonewalling and cover-up came from City Hall not to serve the needs of a criminal investigation, but to prevent political embarrassment. When those weeks of silence ended, the first words we heard from our Mayor and Council President have been incomplete, misleading, lies.The City of Trenton put a lid on this problem as long as it could because making it public would mean exposing major failures by employees of the City and members of this Administration.
The primary guilt for this theft, of course, falls on John Scholtz, the owner of IPS, and his daughters, by their own admission.
But they were able to steal SO much for SO long from the City of Trenton due to major long-term failures of policy, procedures, judgment, and oversight. The details of these we do not yet know, but we must find out what happened. We know that multiple warning signals were received, in the form of written notices from the State that were ignored. The reasons for this must come to light. There must be accountability. Scholz and his daughters are the thieves here, but they were aided and abetted by the City of Trenton.
Seen in the same light as other recent lapses in policy, procedure and judgment, such as the hiring of an unqualified IT vendor whose contract will cost millions of dollars more than perfectly good alternatives would have; and the Federal designation of the City as a “high-risk grantee of federal funds” after numerous problems administering US Department of Justice grant funds were found in audits; this latest problem indicates that there are serious and systemic problems in the administration that are not being addressed.
The complete – and totally unnecessary – lack of transparency, candor and honesty shown by the City over this last month shows that the folks running this City are in deep denial about how badly they are fucking up. What will be next to go wrong?
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?
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.
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.
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.
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?
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.
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.
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,
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:
- How much is missing? To whom were the payments due? The State? The USA? Both?
- 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?
- 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?
- 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?
- 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.
- 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.