Finding Text
Program
ALN 16.575 - Crime Victim Assistance
Criteria
Employers are required to make timely deposits of payroll tax liabilities with the appropriate federal, state and local tax authorities.
Condition
Beginning in approximately July 2023 the Organization began to fall behind in remitting payroll tax liabilities. This includes both the employer portion and the employee portion that was withheld from employee payroll. As of September 30, 2023 the Organization owed federal payroll taxes of approximately $32,800 and Michigan state payroll taxes of approximately $7,700. In addition, the Organization continues to remain behind in remitting payroll tax liabilities during the subsequent accounting periods. As of the audit report date, this liability has grown to exceed $125,000 owed. The quarterly Forms 941 were submitted reflecting that the applicable tax deposits had been made.
Questioned costs
None
Context
The finding is the result of audit procedures performed and observation and inquiry with Organization management.
Effect
Failure to pay payroll taxes timely has resulted in material noncompliance with payroll laws and regulations. This results in significant penalties and interest being accrued on the outstanding balance that the Organization owes. This can also result in the Organization incurring significant legal and other professional service fees when working to resolve the nonpayment consequences.
Cause
The root cause is an inadequate internal control environment and inadequate monitoring of financial processes.
Recommendation
We recommend that the Organization consult with a tax advocate specialist or attorney as soon as possible to begin working towards addressing this issue.
Views of the Responsible Officials and Planned Corrective Action
In July 2023, the previous executive director decided to postpone the payment of income taxes due while continuing to file Form 941 quarterly filings. In September 2024 when the new executive director joined the Organization, the Organization immediately began to pay and file the payroll withholding. The late tax payments were brought to the attention of the executive director by the auditing firm during the audit. The board of directors immediately contacted a tax attorney. The tax attorney has been communicating with the IRS and the State of Michigan on behalf of the Organization and has since joined the Organization's board of directors. The new internal controls in place and the new arrangement of contracting with an outside financial management firm will improve oversight in the future. The Organization has accepted a purchase agreement for the Organization's building at 118 S Mitchell Street. The balance of the payroll taxes owed will be paid from the proceeds of the sale.