The Council of Jewish Federations is waging a legal battle over millions of dollars it believes the company that was handling its payroll swindled from it over a period of nearly two years.
The now-bankrupt company, Payroll Express of Brookfield, Conn., apparently stole “up to several million dollars in payroll taxes earmarked for payment” to the Internal Revenue Service, according to a statement issued this week by CJF, the umbrella organization for some 200 local federations in North America.
CJF Executive Vice President Jay Yoskowitz said that, along with perhaps over a dozen other companies, CJF had been “victimized” by Payroll Express.
“They purposefully went out to steal money,” he told JTA.
How much of that money CJF will be liable for, if any, remains unclear at this time.
CJF used Payroll Express beginning in 1991 to prepare the payroll for about 150 people from its own staff and those of four other Jewish agencies that had contracted with CJF for accounting and bookkeeping services: Business Network Israel, the Jewish Council for Public Affairs, the Jewish Education Service of North America and the National Foundation for Jewish Culture.
The executives of CJF and the other agencies involved declined to speculate on the actual total amount of stolen funds or CJF’s ultimate liability.
CJF executives say they discovered the financial irregularities only in August after Payroll Express declared bankruptcy.
Last month, lawyers for CJF filed a claim, along with other organizations that may have fallen prey to the failed company’s alleged scheme against Payroll Express in federal court in Connecticut.
A complete list of claimants is not yet available.
Yoskowitz said the FBI and the Justice Department were involved in a criminal case against the payroll company.
The federal action could hold up the civil proceedings, explained Paul Berger, a tax lawyer in Washington who co-chairs an oversight committee appointed by CJF in the wake of the crisis.
The government will usually “suspend any activity on civil claims pending resolution of criminal investigations,” Berger said. “Among other things, it is highly likely that the government will seek to get the assets of any individuals relating to the company into the bankrupt estate.”
CJF’s liability for unpaid taxes and penalties “depends on how far and deep this goes,” Yoskowitz explained.
Assets remaining in the estate of Payroll Express might cover all or part of the government’s tax claims. Alternatively, an arrangement could be worked out between CJF and the federal government.
“It’s premature to talk about at the end of the day what’s going to happen.” said Yoskowitz. “Right now, the truth is, we’re at the very preliminary stages in this.”
According to its statement, CJF immediately severed ties in August with Payroll Express upon discovering evidence of the apparent theft and launched an internal investigation to determine the extent of its losses.
CJF then informed its own staff, federation leadership and the other involved Jewish organizations of the situation, assuring all employees that no personal tax liability would result for them.
Nevertheless, several staffers, fearing greater IRS scrutiny, have hired personal accountants, according to sources within the organization.
Meanwhile, CJF has set up a committee of lay leaders, chaired by Berger and another noted tax lawyer, Daniel Shapiro of New York, to look into CJF’s internal procedures, to see if they contributed in any way to the debacle. An outside investigator has been engaged by CJF’s New York law firm, Proskauer, Rose LLP, to examine the situation and make recommendations.
CJF’s leaders put the blame for the alleged tax fraud on deceitful maneuvers by Payroll Express, which it says may have made partial tax payments in some quarters and no payments in others.
Although under normal circumstances, the IRS would notify an employer of delinquent tax payments first by letter, then by telephone, CJF’s director of accounting, Martin Wallack, said in a telephone interview that he received no such notification.
CJF’s leaders anticipate that the independent investigator’s report will vindicate the organization’s internal procedures and its hiring of Payroll Express, which according to the CJF statement, had a stable financial rating and excellent references at the time it was engaged.
“At this point, there is no evidence of mismanagement by our institution,” said CJF’s president, Dr. Conrad Giles of Detroit.
“My sense is that this will not materially affect any of the ongoing discussions in the creation” of the merger with the United Jewish Appeal and the United Israel Appeal, Giles said, adding that UJA President Richard Wexler was invited to sit on the internal oversight committee.
CJF recently entered into a partnership with the UJA and UIA, but remains a separate legal entity with its own accounting department.
“It is obvious that while this is a contingent liability moving forward,” Giles said, “this liability will not stop the momentum toward the creation of the new unit.”
The heads of the other affected Jewish organizations said they are satisfied with CJF’s handling of the situation so far.
“I think they’ve been very responsive,” said Lawrence Rubin, executive vice chairman of JCPA, which has had CJF handle all its financial affairs since 1994.
“So much needs to be uncovered,” said JESNA’s executive vice president, Jonathan Woocher.
In a case with “combined bankruptcy, fraud, taxing authorities, multiple agencies and insurance companies,” he said, “there’s a lot to sort through.”
The Archive of the Jewish Telegraphic Agency includes articles published from 1923 to 2008. Archive stories reflect the journalistic standards and practices of the time they were published.
