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I Forgot to Ask Them to Be Honest

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?

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,

this worksite 14


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

this worksite 12

This Workplace is an Information-Free Zone

this worksite 11

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