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FINANCIAL INVESTIGATIONS – CASH FLOW ANALYSIS

A Professional Employer Organization (PEO) discovered it had withheld but failed to remit nearly $30 million of payroll taxes.  At a prior firm, an HMP executive was hired by Counsel to analyze operations, investigate disbursements to owners and related parties, and create a forecast of future excess cash. This forecast would then be used by the PEO to create a proposed repayment plan which would be presented to the IRS for its payroll tax obligations.

Issues:

  • The CFO resigned immediately prior to our engagement and refused to answer questions or assist with our analysis. The PEO’s accounting staff attempted to help us but had limited knowledge since the CFO historically restricted access to key financial records.
  • Payroll periods were not synchronized with payroll being run nearly daily. This infrequent basis resulted in extensive modeling to forecast future cash inflows and outflows.
  • The unpaid payroll taxes spanned several years with the PEO acquiring defunct competitors during this time.

Approach:

  • Created a 13-week cash flow projection which would be used by the PEO to develop a payment plan that could be presented to the IRS
  • Reviewed disbursements to management and related parties to compute potential preference payments
  • Conducted interviews with management and accounting personnel

Results:

  • After providing preliminary observations to Counsel and management, the PEO was raided by the Internal Revenue Services for failure to remit payroll taxes.
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