Worcester payroll company owners plead guilty to defrauding IRS

 

By Steven H. Foskett Jr.

Telegram & Gazette Staff

Posted Sep. 2, 2015 at 9:47 PM

WORCESTER - The co-owners and former owner of a payroll company have pleaded guilty in U.S. District Court to defrauding the Internal Revenue Service and tax evasion.

The U.S. attorney's office said the defendants failed to pay more than $5 million in taxes.

One of the co-owners of Harpers Data Services also pleaded guilty to embezzling client and employee funds, according to U.S. Attorney Carmen Ortiz's office. 

William McCullough, 72, of Westboro, pleaded guilty to two counts of conspiracy to defraud the IRS, four counts of false statements, four counts of tax evasion, and one count of wire fraud. Mr. McCullough's son, Robert McCullough, 43, also of Westboro, pleaded guilty to two counts of conspiracy to defraud the IRS, four counts of false statements, and four counts of tax evasion. Gary Davis, 74, of Jupiter, Florida, pleaded guilty to one count of conspiracy to defraud the IRS, and three counts of tax evasion.

On Monday,William McCullough faced two formal criminal charges, and Wednesday, Robert McCullough and Mr. Davis faced one formal criminal charge. U.S. District Court Judge Timothy S. Hillman scheduled a Dec. 1 sentencing for William McCullough, a Dec. 8 sentencing for Mr. Davis, and a Jan. 14 sentencing for Robert McCullough.

According to the U.S. attorney's office, the McCulloughs are co-owners of Harpers Data Services, a payroll company. William McCullough is also the treasurer and Robert is the president. Gary Davis was a former owner and president of Harpers until retiring in 2010.

In a press release posted on the Prescott Street company's website Wednesday, the company sought to assure customers it will continue to serve them without interruption. 

The release noted that all financial obligations have always been met, and full restitution will be made prior to sentencing. 

"The actions of the individuals did not affect the operations of the company or the service that Harpers continues to provide to all its customers," the release stated. "While these actions were taking place, Harpers continued to process payroll for all its customers in a timely, efficient, and responsible manner." 

The 50-employee company, founded in 1967, has fully cooperated with the investigation, the release stated.

Beginning around 2006, William and Robert McCullough opened and operated two corporate bank accounts at Webster Five Cents Savings Bank. From 2007 to 2012, they funneled around $11 million of taxable income into the accounts. The McCulloughs kept the accounts off of the corporation’s books and concealed their existence from the corporate accountant, the U.S. attorney's office said. The income deposited into these accounts was not reported to the IRS on the corporation’s annual tax returns. As a result, the corporation failed to pay approximately $3.78 million in taxes, the U.S. attorney's office said. 

Also during that time, William McCullough wrote checks totaling around $4.7 million from one of the Webster Five corporate accounts to himself, Robert McCullough and Mr. Davis. In addition, from 2007 to 2011, William McCullough wrote bonus and dividend checks from Harpers totaling around $2.7 million to himself, Robert McCullough and Gary Davis. William McCullough ensured that none of this income appeared on the appropriate tax reporting forms, according to the U.S. attorney's office, and as a result, the defendants failed to pay approximately $1.7 million in taxes from 2007 through 2011.

In a separate information, William McCullough pleaded guilty to one count of wire fraud. From 2009 through 2011, Harpers maintained client trust accounts and a client tax account, the U.S. attorney's office said. These accounts contained client funds, which were to be used to pay employees’ paychecks and employees’ federal and state taxes. From 2009 through 2011, William McCullough took approximately $1 million from the client trust accounts and deposited it into a Harpers account. In 2010, he took $750,000 from the client tax account and deposited it into a Harpers account, the U.S. attorney's office said. At the time William McCullough took this money, the funds belonged solely to the clients of Harpers Data Services. The U.S. attorney's office said the McCullough’s fraud resulted in a theft of approximately $1.8 million.

The case is being prosecuted by Karin M. Bell, chief of Ms. Ortiz’s Worcester branch office.