FBI Launches Fraud Investigation After Payroll Provider Closes

A payroll service provider is under investigation for possible fraud by the FBI and New York state agencies after closing unexpectedly, cutting off about $35 million in wage-payment transactions to its clients and leaving employees with negative bank balances from withdrawn direct deposits.

MyPayrollHR of Clifton Park, N.Y., and its parent company, ValueWise Corp., are under criminal investigation, the FBI said in a statement. The payroll-service provider, which conducted business across the country, abruptly ceased operations about Sept. 5, the agency said.

MyPayrollHR, with about 4,000 clients, allegedly diverted about $35 million in wage and tax payments from accounts, according to several published reports. Attempts by Bloomberg Tax to contact the company Sept. 16 were unsuccessful and its website did not appear to be functioning.

The case against MyPayrollHR follows that of another payroll-services provider that recently experienced financial trouble. A lawsuit against Interlogic Outsourcing Inc. of Elkhart, Ind., was filed July 19, claiming that at least $122 million in funds transfers were processed without enough money in the company’s bank accounts to pay for employers’ transactions. Although several IOI Pay clients said in published reports that employee wage and employer tax payments were interrupted, the company said that it is continuing to process payroll for clients while it attempts to reorganize under Chapter 11 of the federal bankruptcy code.

Third-party payroll service providers generally contract with employers to provide a variety of services, including wage payments to employees, and reporting, collecting, and depositing employment taxes with federal and state agencies. Although a service provider can carry out many tasks, the employer ultimately bears responsibility for paying employment taxes to the Internal Revenue Service and other agencies.

The FBI posted an online questionnaire on its websiteseeking information from MyPayrollHR clients or employees: “If you believe you have suffered a financial loss due to the activities of MyPayrollHR, Valuewise Corporation, or related businesses, please complete the below questionnaire. Based on the responses provided, you may be contacted by the FBI and asked to provide additional information.”

The Better Business Bureau of Upstate New York also encouraged affected customers to file complaints about MyPayrollHR. In an update on its website, the bureau said it had received many complaints about the payroll provider, including copies of an email clients said they received from MyPayrollHR.

“Dear Client: We regret to inform you that due to unforeseen circumstances, we are no longer able to process any further payroll transactions,” the email from MyPayrollHR said. “Please find alternative methods for processing your payrolls. For any payroll batches submitted during this week, including any payroll reversals from last week, please be prepared to find an alternative method to pay employees. We are working to release any funds that are in transit as a result of this matter. We will provide you with updates via this medium as we receive them.”

Complaints also can be filed with the New York state attorney general’s office, the bureau said.

New York Gov. Andrew Cuomo (D) said the state Department of Financial Services is to investigate MyPayrollHR.

“The sudden and unexplained shutdown of MyPayrollHR in Clifton Park is disturbing and completely unacceptable,” Cuomo said in a statement. “Its reckless actions have left employees across the state and the nation with negative bank accounts and forced businesses who depend on its payroll services to scramble to find ways to compensate their employees.”

DailyPay, a New York quick-pay provider, said Sept. 11 in a blogpost on its website that it had established a fund to help pay affected employees’ overdraft and late fees.