Federal authorities have just concluded the largest under-the-table cash payroll scheme ever prosecuted in Massachusetts.
The hidden payroll generated an estimated $10 million loss to the IRS and an additional $7 million to workers’ compensation insurance companies.
Aimee King McElroy of North Dartmouth, Massachusetts, was sentenced to 6 ½ years in prison Tuesday, September 23, in the wake of her conviction for paying cash wages through her temporary employment agency to evade millions of dollars in tax payments and workers’ compensation premiums.
King McElroy was convicted of paying out more than $43 million in cash wages through the temporary agency she ran with her husband, Daniel W. McElroy, according to the U.S. Attorney’s Office in Boston.
The couple were also ordered to pay $9.1 million in restitution.
In February, King McElroy and her husband were convicted after a 2½-week jury trial of conspiring to defraud the IRS and their workers’ compensation insurers; three counts of mail fraud; and 14 counts of procuring false payroll tax returns.
Daniel McElroy was earlier sentenced to nine years in prison, followed by three years of supervised release and restitution.
The couple’s trial revealed that from the early 1990s to June 2001, they ran a temporary employment agency based in Taunton, and later in Easton, Massachusetts. They did business as the Dan Agency, Daily Agency, Daily A. King Labor Inc., ProTemp Co., PTC and Precission Temp. Corp. Federal authorities said the couple paid a large share of the businesses’ payroll in cash to avoid paying employment taxes such as Social Security and Medicare, and to minimize the businesses’ workers’ compensation insurance premiums.
Every employer is required to pay payroll taxes and to have workers’ compensation insurance. The dollar amount of those taxes is based on the size of the company’s payroll.
The agencies supplied hundreds of laborers to factories and food-processing plants throughout eastern Massachusetts. About one-third of the employees worked at fish-processing plants in New Bedford, Massachusetts.
A civil action brought against the Mcelroys by the U.S. Department of Labor led to a 1994 court order forbidding them and their agency to pay employees in cash. Authorities said that led the couple to take added measures to conceal their payroll. The couple then started a straw corporation called ProTemp Co., through which they funneled most of their cash payroll, authorities said. Later, they opened another straw corporation called Precission Temp for the same purpose. Their businesses—Daily A. King, ProTemp and Precission Temp—were run as a single business.
The couple disguised their ownership of ProTemp and Precission Temp by having two employees named as presidents of the two companies, authorities said. And the company’s in-house accountant, they added, was directed to file false tax returns in the names of the three businesses that omitted the company’s cash payroll. The in-house accountant was also allegedly directed by the couple to report a falsely lowered payroll amount to mislead insurance auditors.
Edward Lenz, general counsel for the Alexandria, Virginia-based American Staffing Association, which represents 1,400 staffing firms globally, has followed the McElroy case.
“This is completely outrageous,” Lenz said. “It’s hard to know in a large industry whether players are playing by the rules. I can’t recall seeing anything like this in recent years.”
The association’s members pay dues and subscribe to a code of ethics, the first of which is “to comply with all laws and regulations applicable to their business.”
Crooks in the industry, he said, don’t tend to belong to such industry organizations.
“They hide in the shadows,” Lenz said. “This was outright fraud. These people evidently knew what they were doing.”