Everything we know about the $35 million MyPayrollHR payroll fraud

This week in accounting & bookkeeping news, we've got continuing coverage on the mind-boggling $35 million MyPayrollHR fraud. In other news, QuickBooks Live is trying out volume-based pricing, Gusto has a pretty sweet work environment, complete with construction equipment, and California is shaking up the gig economy with some new legislation that could potentially impact cloud-accounting firms down the road. We also share some thoughts and opinions on #ThoughtLeader & #Influencer leaderboards, read through some new reviews, and more!

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Show Notes

  • 03:22 – MyPayrollHR's simplistic sayonara | Krebs on Security
  •  05:40 – Some questions, some blame, a whole lotta wrath | SearchHRSoftware
  •  07:28 – Governor Cuomo's statement | NYDFS
  •  09:06 – Will the real Michael Mann please stand up? | TimesUnion
  •  10:32 – a brief primer on how a payroll service processes a payroll
  •  12:03 – Bait and switch ... MyPayrollHR redirected employer funds from the holding account to one of their internal accounts
  •  16:02 – Really, Cachet? You're the ONLY victim? 
  •  17:05 – Apparently, Cachet needs bigger, louder, more neon-y warning signs when things are going awry with clients
  •  19:21 – The FBI wants your intel, if you know anything about the MyPayrollHR situation. 
  • 20:58 – Breaking up isn’t hard to do when you do it with email, right?  
  •  23:17 – Payroll company using fraudulent means to report on fraudulent activities of another payroll company? Probably not the brightest bulb in the lamp ... 
  • 25:10 – Earlier this year, Key Bank was at the center of another payroll provider debacle | Albany Business Review
  •  29:20 – Stop back next week for the latest intel on the ongoing MyPayrollHR melee! 
  •  29:37 – QuickBooks Live test-drives a new pricing tier based on the user's annual expenses | Firm of the Future
  •  31:57 – Congratulations to Gusto for having cool workplace digs! | Inc.com 
  •  32:46 – More on Clio's astronomical $250 million raise, straight from the CEO's mouth | LawSites 
  •  33:19 – Visor, the tax-prep company we talked about in Episode 70, is still incognito 
  •  34:21 – Will California set precedent with AB-5 and shake up the gig economy? | CalMatters 
  •  37:43 – Has anyone bothered to ask Cali gig workers whether they WANT to become part-time employees vs contractors? 
  •  38:37 – David sees this legislation as just another part of the innovation lifecycle running its course
  •  40:40 – Madeline Pratt serves up some thought food on the shelf life of influencers | Fearless in Training
  •  41:25 – As David promised, an assortment of links from LinkedIn, and a sampling of leaderboard-y goodness? from AccountingWEB: 
  •  42:43 – Are influencers operating in an echo chamber? 
  •  45:49 – Last, but definitely not least, we got some new reviews in! 
  •  46:45 – Hear Blake's best interpretation of a smooth voice ... 
  •  47:12 – We did make a list! Thanks to all our listeners, and reviewers for making it happen!   

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Transcript

Blake Oliver: So, imagine your paycheck goes into your account. It gets taken out, and then more money gets taken out; amounts that don't even match the payroll. One employee had their account go -$999,000 - a withdrawal of like a million bucks. Everybody's freaking out. Nobody knows what is happening. Apparently, MyPayrollHR had just shut down. Reporters going to their office in Clifton Park ... It was empty. There were no employees. There was no sign. It just disappeared.
 
This episode of The Cloud Accounting Podcast is sponsored by BQE Core. If you have niche clients that are architects, engineers, consultants, or lawyers, BQE Core is the app for them to best manage their firm, increase their staff productivity, and ultimately increase their profits. Even if you don't have those niche clients, Core is a great tool to use in your own accounting or bookkeeping firm, as well. Core is an easy-to-use, all-in-one platform for project management, but includes advanced functionality, like budgets, labor costs, forecasting, contract analysis, and approval processes. Core also includes a standalone accounting module. Even though Core is an all-in-one platform, it still works nicely with other apps, offering you and your clients the maximum amount of flexibility. Core offers a full-function mobile app and recently launched a cutting-edge voice-based assistant for your smart speaker of choice. To learn even more about BQE Core, head over to CloudAccountingPodcast.promo/core. That is Cloud Accounting Podcast dot promo forward slash C-O-R-E. 
 
Blake Oliver: Welcome [00:01:30] to The Cloud Accounting Podcast. I'm Blake Oliver.
 
David Leary: And I'm David Leary. Blake, here we are - another week. 
 
Blake Oliver: Another day, another dollar.
 
David Leary: I got some news stories this week. QuickBooks Live had an update; a teeny update on Visor. Apparently, people are discovering their 2017 taxes were not filed, so that continues on-
 
Blake Oliver: Well, you know, David, that sounds great and everything, but I have what may be [00:02:00] the biggest story in Cloud Accounting Podcast history; bigger than QuickBooks Live - MyPayrollHR. We talked about this at the end of last episode. I kind of buried the lead.
 
David Leary: Well, the story broke right when we were recording-
 
Blake Oliver: Yeah. 
 
David Leary: We had no time. I was upset at the podcast. I was like, "Why didn't you tell me about this over the weekend? I could've just deep-dived on this for hours!" 
 
Blake Oliver: It's crazy. I've been following this since we did our last episode, and it is just a mess. MyPayrollHR is a payroll processor based in Clifton Park, New York; small payroll [00:02:30] company. So, think Intuit Payroll, or Gusto ... But these guys have only 4,000 customers, mostly small businesses- small or medium businesses. Picture a restaurant with 12 employees, or actually picture a senior care service in San Antonio, which has 1,500 employees in 23 states. So, pretty big group of clients. 4,000 of those small businesses; small to medium.
 
David Leary: Yeah, and I think they were around for 12 years, so they were a legit payroll company. 
 
Blake Oliver: Legit, yeah. 
 
David Leary: They were [00:03:00] around for about 12 years. I think they kinda carved out a niche with a lot of temp staffing agencies.
 
Blake Oliver: Well, the big news is that ... Let's see, it's Friday, September 13th, as we record. So, on Thursday, September 5th, MyPayrollHR sent out an email, a very brief email, to all of its customers, and I'll read that email. They said, "Dear client, we regret to inform you that due to unforeseen circumstances, we are no longer able to process any further payroll transactions. Please [00:03:30] 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."
 
David Leary: Okay, so a company's gonna fold. They're going under. This should be a big deal, because, in theory, the payroll and the payroll taxes that are being moved should be going through an escrow account that should [00:04:00] get to the employees. Okay, fine, so next week's payroll, I'm done. I have to start a new- I have to find a new payroll provider.
 
Blake Oliver: Well, actually, no. They said ... The email says that this week's payroll is not gonna happen. Actually, they're already going out of business, and now I have to suddenly find a new way to pay my employees today-
 
David Leary: New way to pay my employees, yes [cross talk] 
 
Blake Oliver: That's a big red flag, right? So, this was, again, Thursday, the 5th of September. What happened, according to a customer of MyPayrollHR, Agape Animal Rescue, Tonya Willis, [00:04:30] was interviewed about this. On Thursday the 5th, an employee called her. She's the executive director at this animal rescue. The employee said that the deposited pay had been withdrawn from her account, and apparently it happened to all seven of the animal rescue organization's employees. So, Willis called MyPayrollHR, which is doing their payroll-
 
David Leary: So, normally with payroll, the direct deposit happens. It's in your account, and it's in your account. I've been direct deposited for 25 years, and I've never had the payroll [00:05:00] ever withdrawn.
 
Blake Oliver: Right. So, imagine, your payroll goes in, and then all of a sudden, it goes back out. The employees are starting to freak out. So, Willis called MyPayrollHR, and she told the reporter that an employee said there was a "glitch in the system," to keep track of the missing money, and that there were no worries. There obviously wasn't a glitch in the system, and the worries were just beginning, because money continue to drain out of the animal rescue employees' personal accounts. It didn't stop with just one paycheck reversal. [00:05:30] Most of the employees had multiple reversals, so now their bank accounts are negative.
 
Imagine, your paycheck goes into your account. It gets taken out, and then more money gets taken out. The amounts - there are various customer stories in the articles that have been written over the last week and a half - amounts that don't even match the payroll. One employee had their account go -$999,000; a withdrawal of like a million bucks. Crazy, right? Everybody's freaking [00:06:00] out. Nobody knows what is happening. Apparently MyPayrollHR had just shut down. And  reporters going to their. Office in Clifton Park, it was empty. There were no employees. There was no sign. It just disappeared.
 
David Leary: This is where the smaller local media really start picking this up in each town. I didn't know the local media picked it up here in Tucson, Arizona. I saw. Everywhere there's a small business and there's employees that have money getting withdrawn, it's a great local story. Everybody was kind of jumping on that.
 
Blake Oliver: Because these [00:06:30] customers are all over the country. They're not just in New York State. Business owners are calling their local news station and saying, "Hey, this is a story. You guys should cover this." It starts getting picked up on local TV news; the same way the malware infections are starting to get picked up. It's this grassroots kind of news story that starts happening- percolating all over the country. The press, the national press, the industry press, or at least the folks focused [00:07:00] on security HR start to pick up on this, so now we're starting to get more details. This week, we started to get a lot more details about what is going on-
 
David Leary: Because it didn't make any- none of this made any sense, right?
 
Blake Oliver: Right.
 
David Leary: We've never seen a company just shut down and completely vanish like this. One of the surprising things was Governor Cuomo, in New York state, last week, issued a press release that they're gonna start investigating. They're reaching out. Jumped all over that.
 
Blake Oliver: I'll read this statement. Governor Cuomo issued [00:07:30] a press release that said, "The sudden and unexplained shutdown of MyPayrollHR in Clifton Park is disturbing and completely unacceptable. 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 and find ways to compensate their employees. These businesses and workers deserve answers. And I am calling on the Department of Financial Services to investigate this irresponsible company's actions. This is not how we do business in New York, and we will not allow these bad actors to take money away from the hardworking people in this state." That [00:08:00] was one of the first really high-level political/executive responses to this. 
 
David Leary: Then, on Twitter, people were getting very accusatory of the banks involved, of MyPayrollHR, because I think, from the employee's perspective, they just see this bank that they're not- they don't know. Nobody knows what bank is doing the ACH deposit, but they're seeing these withdrawals, so these people are panicking ... sort of ... Like people are hacking into their own individual accounts and stealing money ... It was just very, [00:08:30] very confusing for everybody involved, and the accusations that were on Twitter were really getting rampant. 
 
Blake Oliver: There's a private Facebook group that was created for the employees who were affected. There's thousands of people in that group now. I'm not in that, so I don't know what's going now, but I know that some of the folks in the accounting community are in there helping to counsel them; tell them what to do with your bank, if you wanna get your money back, all that stuff. Let's talk about what actually happened, because I think I finally pieced together the outline of how this potential [00:09:00] fraud was perpetrated [cross talk]
 
David Leary: Because twice a day, there's been some new piece of information.
 
Blake Oliver: So here's what we know. So, MyPayrollHR, based in Clifton Park, New York; the CEO is named Michael Mann. But you found, David, he's invisible online; very difficult to track down, right? Couldn't find a picture of him-
 
David Leary: Yeah, because immediately when I saw this, I started going to their LinkedIn pages, looking around, poking around. Nobody has images. They're not there. The name's been removed. It's just initials - his LinkedIn [00:09:30] profile. You just start Google searching, and this guy just doesn't- these people don't exist. I was actually kind of surprised at how invisible they were.
 
Blake Oliver: The company, MyPayrollHR, is owned by a holding company called ValueWise Corporation. That website was shut down. No longer online, although you can access it through Wayback Machine, and see old versions of it, which some of the reporters have been doing. MyPayrollHR has been around for 12 years. Michael Mann apparently bought the company six years ago. It [00:10:00] was operating just like a normal small payroll company.
 
Now, here's how it went down. Here's how this whole thing went down. This has to do with the way that payroll services actually make direct deposits happen. Payroll services don't have the ability to move money themselves. They have to partner with a payment processor. In this case, the payment processor - there were two of them - the one handling most of the money was called Cachet Financial Services, or [Cash-Et], however they pronounce that ... They're [00:10:30] based in Pasadena.
 
The way MyPayrollHR would normally process a payroll is they would generate essentially a text file. They don't say it in the article, but I'm guessing like a CSV. That file tells the payment processor which employer accounts to debit, and which employee accounts to credit for their net payroll checks. Pretty simple, right? The way the money moves is Cachet, the payment processor, reads [00:11:00] those instructions and then debits the employer accounts. The money goes into a clearing account that Cachet controls. Then it gets taken from that account and credited into the employee accounts. That all happens very quickly.
 
David Leary: A company like Cachet might be providing this service for hundreds of payroll companies.
 
Blake Oliver: Right. They have an account with the National Clearinghouse - NACHA - that manages ACH among all the banks.
 
David Leary: ACH? 
 
Blake Oliver: Yeah.
 
David Leary: Got it. 
 
Blake Oliver: That payment processor [00:11:30] also has a bank partner to manage the clearing accounts. In this case, the banking partner of the payment processor is Pioneer Bank. Apparently what happened is that that text file, that file with the payment instructions, or the money-moving instructions that came from MyPayrollHR, contained manipulated account numbers.
 
David Leary: Cachet had the numbers to put money in employees' accounts. Then Cachet realized, "Wait a second. We never got our part of the money to be putting in people's [00:12:00] accounts," and that's why they went to retrieve it, because they basically … 
 
Blake Oliver: According to the lawyer for Cachet, MyPayrollHR manipulated the account numbers in the electronic file so that the money was taken out of the employer account and put into an account controlled by MyPayrollHR, not the Cachet settlement account, as it should have been. So, instead of money going from the employer into the settlement account, or the clearing account, it went into an account controlled by MyPayrollHR Cash. Cachet had already initiated [00:12:30] the transfer of the funds from their settlement account into the employee funds, making that account go negative.
 
David Leary: This is the same process. For 12 years, assuming they were partners in this for 12 years, Cachet, every week, would get that file, import it in, payroll runs; do it every single week. They really had no reason to suspect a partner of 12 years- this file would have manipulation inside of it.
 
Blake Oliver: Here's where things started to get really messed up. Apparently, Cachet, and, actually, this is according to their lawyer, [00:13:00] realized what was happening, but too late. The money had already been moved into the employee accounts. So, they initiated reversals to get its money back. The lawyer, Slavkin - I think it's Lisa Slavkin - said it's a standard process, but they messed up when they initiated that reversal, because the first reversal wasn't coded properly. Then they sent a second file. I guess the banks should have ignored the first file, but they didn't, so that's why so many employees had two paychecks- two [00:13:30] paycheck amounts withdrawn from their accounts.
 
David Leary: I mean, I can see how that happens. You're Cachet. You're probably in a panic. "Oh, my God! We outlaid $26 million. We did not get the $26 million we were supposed to get." Somebody raced to go start to recover that money. Then a mistake was made. Then a second mistake was made. So, yeah.
 
Blake Oliver: Right now, just knowing what I know, I'm thinking this is crazy that a payroll processor could send a file with payment instructions to [00:14:00] Cachet and there's no controls, no internal controls, to prevent the account numbers from being changed; that Cachet would simply execute without checking instructions saying to a debit all of these employer accounts and credit an account controlled by MyPayrollHR, and not Cachet's settlement account [cross talk] 
 
David Leary: Didn't Cachet even kind of half admit this, saying that they have policies and procedures; they've had to stop external threats, external hackers. They've stopped external fraud ... Something internal like [00:14:30] this, they didn't see it coming.
 
Blake Oliver: Yeah. They apparently weren't prepared for an internal threat like this, or a partner threat. Then there's a big question I have about whether or not it was even proper for them to reverse these employee transfers, because, according to an article on a site called Personnel Today, which seems to be like an H.R. publication, it may not even have been appropriate, according to NACHA rules. You can't just debit an employee's account for a valid payroll transaction. Cachet [00:15:00] was trying to claw back the money, but that wasn't appropriate, potentially.
 
David Leary: There's a possibility they broke some standards or some laws by trying to recover that money.
 
Blake Oliver: Yeah, and Cachet actually had a change of heart - after the employee started freaking out, and the banks are calling - and abandoned that process, because the employees who were quick to notice this was happening and do something, called their banks, and said, "Hey, these are not valid ACH debits, stop them." Then, the banks that were doing better customer [00:15:30] service actually did and stopped those ACH debits. 
 
David Leary: Just a side note, a side conversation on this, I saw a lot of that chatter on Twitter. People who had smaller banks, they were getting better customer service, and these things were getting stopped, but the major banks, the Bank of Americas, the Chases, et cetera, weren't stopping this.
 
Blake Oliver: That is what we know about Cachet. Their response, I think, with the press had something to be ... Left something to be desired. Wasn't there a quote from that lawyer? Something like-
 
David Leary: Oh, they're [00:16:00] the victim. They're the only victim in this [cross talk] 
 
Blake Oliver: She said, "Really, we're the only victim." Yeah ... 
 
David Leary: Which I kinda get, because when it's all said and done, the employees are gonna get their money- 
 
Blake Oliver: Right. 
 
David Leary: But they're really not the only victim, because there's also, when you pay employees, you have to have federal money; you have to pay the tax deposits.
 
Blake Oliver: Right.
 
David Leary: Well, apparently that bank who handled- there's a different ACH company that handles the tax deposits. Apparently, they're claiming that they're out of money now, as well.
 
Blake Oliver: There were two separate processes - one for the payroll tax, one for the net paychecks. [00:16:30] They both seem to have been scammed. Here's what's interesting is that ... I'm trying to figure out this timeline. How did this happen? Apparently, the last time that Cachet was in touch with Michael Mann, the owner of MyPayrollHR, was on September 4th, the day before this all went down. 
 
Cachet was trying to do a conference call with Mann, and Pioneer Bank. Apparently, Pioneer had already frozen his Pioneer account. Mann told Cachet [00:17:00] that he would call them back in 15 minutes, but he never called back. And then he never responded to phone calls. There was this sign that there was a problem and that the bank account had been frozen. Yet Cachet still allowed this payroll ACH file to be uploaded like normal. There's also this loan from Pioneer Bank, right? You know about that, David. What was this loan? 
 
David Leary: Yeah. Pioneer Bank coincidentally is in the same business park as MyPayrollHR.
 
Blake Oliver: They share a parking lot.
 
David Leary: Yeah, share a parking [00:17:30] lot. They're right there. That makes sense. Businesses are like this. You're like, "Hey, we see these guys every day. I'm gonna take my business to that business, because that's what I know. They're right there ..." They're almost co-workers, in a sense of a word; you figure people that are in the same office park/office building ... I don't know how much they worked with MyPayrollHR. They may have just been MyPayrollHR's bank, but not MyPayrollHR's ... They're not doing the actual payroll part of the processing. They're [00:18:00] not part of that part of the equation. Apparently, they gave a loan of $36 million dollars to MyPayrollHR and provided $16 million of it already. They also report there's some sort of - this is in the article - "deposit activity" from the payroll company. So, normally that- 
 
Blake Oliver: Right. Because the employer money was diverted from the settlement account at Cachet to Pioneer Bank.
 
David Leary: Correct.
 
Blake Oliver: So, I'm wondering ... Here's [00:18:30] here's my theory, Michael Mann got a loan from Pioneer Bank; Pioneer Bank advanced $16 million of it. The bank said that. They had to file this report with the SEC about the exposure. Pioneer Bank gave him $16 million. Michael Mann withdraws that money. Pioneer Bank sees that huge withdrawal and freezes his accounts, because that probably went against his loan agreement, I imagine. He grabs the money, [00:19:00] they freeze his account, and then he has the money from Cachet, diverts that into the Pioneer Bank accounts, and maybe that unfroze it, and then he was able to get the money out. That's my theory. He's already out of the country, probably. He got away with it. There was all this shady behavior going on, apparently, the day before, and yet this still happened.
 
FBI is investigating. They've tweeted out asking for information. If anyone knows about anything, they should email MyPayrollHRvictims@FBI.gov. [00:19:30] Provide your company contact information, number of employees, and the estimated financial impact to your business and the employees. This made the national news. Like I said earlier, it was on NBC Nightly News last night. It was on CBS This Morning, this morning. It made Fox News.
 
David Leary: It's fascinating, because I think there's a lot of unknowns. The actual money ... Where's the money at is the biggest question, and then-
 
Blake Oliver: Where's Michael Mann? 
 
David Leary: Where's he at? Right? But the money, it feels like [00:20:00] they could trace that. It feels like, "Okay, it moved from this bank to this bank to this bank ..." There's probably parts of the story that are not public yet, right? 
 
Blake Oliver: Yeah. 
 
David Leary: Where this guy is ... Were there co-conspirators involved? 
 
Blake Oliver: Maybe somebody at the bank, at Pioneer Bank. So, I'm thinking maybe he wired the money out of the country. If that happened, and there's no extradition treaty - there's no way to get the money back - then he really did get away with it. What else is the end game? Was it fraud, in the sense that he's trying to steal the money, or was it just he was trying to keep [00:20:30] the business afloat until he could get this loan from Pioneer Bank? He was just trying to play the game to survive ... 
 
David Leary: That, or is he compromised? Was he planning this for a very, very, very, very long time? Was this a long play? He bought it six years ago, and he had this long play to do this? 
 
Blake Oliver: Here's the thing, though. Something that makes me question whether or not it was fraud or makes me think it was fraud was this email to the employees that you found?
 
David Leary: Yes, that was very strange.
 
Blake Oliver: Here's [00:21:00] the email that went out to the employees. The employees, apparently, most of them, didn't know this was happening, which would explain why, on Thursday, when that woman called MyPayrollHR - the business owner, the executive director who was questioning it - the employee said, "Oh, it's just a bug. We'll fix it." Here's the email that went out to the employees. I think this was on  Thursday; same time when the clients found out, but I'm not sure exactly.
 
It says, "Hi all. I am sorry to inform you that it is now official that MyPayrollHR will no [00:21:30] longer be conducting business. I am lucky to have worked with you all and wish you the best. If you had a personal belongings at the office, you can meet Bob and I tomorrow morning between 8:30 and 9:00 to get those. In an effort to avoid any safety concerns or potential media attention, we gathered some personal belongings from a few people's desks. We'll be in the Price Chopper parking lot over closer to the liquor store. We will have the key FOBs disabled, so that you do not need to travel in to get those to us. We recommend that you log into the website to get your last two pay stubs. You can certainly [00:22:00] print them all, if you would like. We do not know how long we will have access to that information." Then there is information about health insurance, and they say they don't even know if it's been terminated or ... [cross talk] 
 
David Leary: It was like this email was from their HR person, because they cover unemployment; they cover COBRA health insurance type stuff; they cover about their 401k plan. So, somebody obviously cared about the employees. Like I said, they were a legit company. That's what's even crazier about this. It wasn't-
 
Blake Oliver: It's just nuts. So, yeah, that's [00:22:30] the story as well as we can ... Hopefully that made sense. That timeline is the best I can reconstruct it. We'll certainly be talking about this, I think, in the weeks to come.
 
David Leary: Well, there's a bunch of side action, too, on this.
 
Blake Oliver: Oh, yeah?
 
David Leary: So, all these other payroll companies, all of them have been out there on social media, on Facebook, on LinkedIn - LinkedIn, I think, was the worst. I feel like every ADP sales rep had the exact same message, "Affected [00:23:00] by MyPayrollHR? Give us a call!" They're just capitalizing this from a marketing perspective. It's so bad that one company even stole- they flat-out stole somebody else's content. Do you know Shannon Theis?
 
Blake Oliver: Online, yes. 
 
David Leary: She's a bookkeeper or accountant in our industry. She, on Facebook, put out a post about what people should do if they were affected by this - a valuable content post. Another company, a payroll company called American [00:23:30] Time and Labor, stole her content and put it out as their own in a press release. A bunch of places all picked up the press release, because that was in Business Wire. I kind of find it ironic that a payroll company used fraudulent marketing techniques to capitalize on the fraudulent behavior of another payroll company.
 
Blake Oliver: Not the right way to do PR. Not the ethical response, and how crazy-shady ... 
 
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Blake Oliver: So, [00:25:00] here's my takeaway from this. Apparently, payroll services like this are not regulated, so that could change, based on this. There have been other payroll fraud stories. Earlier this year, Key Bank filed a lawsuit against a payroll processing company in Indiana for, apparently, a $122 million overdraft. I can't name them off the top of my head, but I have heard of other smaller payroll service fraud issues.
 
David Leary: Somebody sent me [00:25:30] a link to an article in Australia. Apparently, the son of the head of the Australian Tax Office, which is like the IRS, he committed some huge $150 million payroll fraud.
 
Blake Oliver: Oh, wow. 
 
David Leary: With lavish gifts, and mistresses, and the whole nine yards. It was-
 
Blake Oliver: It's almost easier to do a payroll fraud than to do a bill pay, or a bookkeeping fraud because the reports are so complex, most business owners never read them. Even if you're in a CPA firm, you're doing payroll manually. [00:26:00] How many partners actually go and look at the detail of these payroll reports before they sign them?
 
We talked at the Accountex conference with Dawn Brolin, who's a fraud expert - that interview will be coming out soon - and she mentioned payroll as being one of the top threats; that payroll fraud is super-common. Not necessarily a service, itself, but people manipulating the payrolls to pay themselves extra or more, create [00:26:30] fake employees, all that stuff. It's something you've gotta really keep your eye on, if you're a business owner or if you're a CPA who has anything to do with payroll for your clients.
 
David Leary: Couple takeaways here. One is the import files. This goes back to everybody ... "Oh, I'm just gonna take some file [a CSV file, or the old IIF files for QuickBooks, back in the day] and import those in." Fundamentally, there is no error-checking on those, so you're just risking your data; you're risking data corruption or, in this case, data fraud. This is [00:27:00] why APIs are much more secure. I'm surprised .... This goes back to the ACH system, itself. It's fundamentally- what? 1971 it was created? '72?
 
Blake Oliver: Yeah, it's essentially- ACH is people uploading a bunch of text files with account numbers and routing numbers; that is- and amounts, and maybe a description line. That is how basic it is. That's why it's actually really easy to manipulate a payment instruction file. Apparently, what happened here is [00:27:30] you can literally just open it up on Excel, modify it, save it, and then upload it, and just change all the numbers; which, if you had some sort of online system, you could have controls in place to prevent that from happening, or you'd have alerts. The whole industry just needs to catch up. I think we might see some regulation. You know what? I wouldn't be surprised if one of the presidential candidates had a statement come out this next week.
 
David Leary: Oh, this is right up Elizabeth Warren's ... Absolutely, Elizabeth Warren's gonna make the podcast again. It's right outta there. [00:28:00] There's a startup company that- it's called DailyPay. So, it's again, one of those companies where you get paid every day. They look at your time records, and they ... We talked about these last week. They're not really payroll advance, or payday loans, but they're just paying you instantly for your day's work. 
 
Blake Oliver: Right. It's basically a payday loan. It's just under a different- it's another way of doing it.
 
David Leary: Yeah, but they don't charge ... .A lot of them aren't charging the employees, because what they're doing is they're charging the companies, because the companies are providing this as a service or benefit to their employees. Anyways, this [00:28:30] company DailyPay, they actually set up a relief fund of $25,000 to cover any of the overdraft or late fees that employees may have suffered because of this.
 
Blake Oliver: See, that is the way that you build goodwill. Don't capitalize on the pain of people by advertising to them. Actually help them out. That's great. 
 
David Leary: Except for I have mixed feelings on this, because I clicked the link to go to it. You can't actually fill out the form there. You've got to send an e-mail. They're gonna gather the email of every employee that's been affected by this, and now they can market their service [00:29:00] to these employees. I question it a little bit. I think the intentions are good, but there should just be a form that people fill out, submit receipts, and work on getting a refund. But it's like, immediately, "Send us your email address."
 
Blake Oliver: That's the big story. I mean, we've almost taken up our entire time here today. David, is there anything else we wanna talk about?
 
David Leary: I think we've kinda beat that story ... I imagine we'll have more information next week, because I think you're gonna start seeing the money trail. He's gonna have to be most wanted. I mean, people have gotta be looking for this guy, at this point. [00:29:30] There's too much money. There's $35 million just gone. Wanna jump into regular news? 
 
Blake Oliver: Yeah, so, David, what else is new?
 
David Leary: QuickBooks Live has their September update out. They've been really proactively communicating all the changes they're doing. They're now running some new tests on their website, which they're going to test some tiered pricing points, based on your annual expenses.
 
Blake Oliver: I was wondering when this would happen, given that, up til now, it's been a straight $400 dollars a month, no matter what kind of business you are, no matter how big or small you are. That [00:30:00] just didn't seem sustainable to me.
 
David Leary: Yeah, this is kinda that next tier on their journey of trying to figure out how this is gonna be priced. Other than that, I didn't really see any other updates related to this. It's just really they're practicing this new tiered pricing.
 
Blake Oliver: So, let's look at the pricing. I just opened up the page. Thank you for the link. Tier one is $200 a month, and that is for 0 to $25,000 in annual expenses; tier two, $400 a month. That is for $25,000 to $150,000 in [00:30:30] annual expenses; not revenue expenses, which I think is important, because a lot of businesses are pre-revenue when they sign up. Tier three is $600 dollars a month, and that is for $150,000-plus, which ... That leaves a lot of room, given that the potential market for QuickBooks Live is right up to ... It could be up to $10 million a year in revenue, or at least a million. From $150,000 to a million is a lot of range. 
 
David Leary: Yeah, maybe they have more. But in the grand scheme of the bell [00:31:00] curve of QuickBooks users, most are probably gonna fall into tier one/tier two. 
 
Blake Oliver: This is so funny, though, because it's like watching Intuit build a bookkeeping service and go through all the same mistakes that I did, and I've seen other people go through. They're doing the same thing. First you start out with just one price, and then you realize, "Oh, okay, some clients are much more complex. Let's create tiers ..." We'll see a lot more sophistication as the months go on.
 
David Leary: Well, what I actually like about them basing it off the expenses versus number [00:31:30] of transactions, because you might have [cross talk] all transactions that are the same, but they're low. It's just me, being a small business owner now, I feel much more comfortable with a model like this, than [cross talk] it's tied to my realistic expectations of what I can afford, and I can pay, versus just a random number of pieces of paper or something that I have to scan in. 
 
Blake Oliver: I agree with you. Hey, I got something app-related. Here's an article that popped up on Inc.com. The 10 Coolest Offices of 2019. Right [00:32:00] there on the list is Gusto, in San Francisco. I don't know when it was, either last year or a couple years - it was recent - they bought a warehouse on Pier 70 in San Francisco and turned that into the Gusto headquarters. It's super-cool. You gotta look at the pictures. It is this three-, four-, five-story warehouse. They left the original crane that moves horizontally [00:32:30] through the warehouse in the space. I'm not sure I'd wanna sit under the crane, but-
 
David Leary: No, that stuff's safe.
 
Blake Oliver: Yeah. Hopefully, in an earthquake, that thing won't come down, but it looks pretty cool. If you're in San Francisco and you're a Gusto partner, definitely go check it out and say hi to Will Lopez.
 
David Leary: Some follow-up ... We'll put a link in the show notes, but if you're interested in learning more about the Clio story and their $250 million raise, the CEO was interviewed on a podcast called LawNext. It really goes a little bit [00:33:00] deeper than some other blog posts. It's a good conversation he had with Bob Ambrogi on that [cross talk] we'll put that in the show notes. 
 
Blake Oliver: Yeah, that was something we talked about last episode. So, if you missed that, check out episode 111 - all the details about the Clio giant fundraise of $250 million.
 
David Leary: I think I mentioned it briefly, but it looks like Visor Tax ... Way back when we did episode 70, we talked about Visor Tax. Visor Tax was a tax service that was promising, "Hey, for $99, we'll do your taxes, and you get 24/7 access to [00:33:30] a CPA." Turns out CPAs weren't doing the taxes. It turns out worse than that. Taxes weren't even being filed. It was kind of a big nightmare last April for tax deadlines- 
 
Blake Oliver: Yeah. 
 
David Leary: -but then I saw recent tweets; people are complaining that they're discovering their 2017 taxes were never filed.
 
Blake Oliver: So, is Visor still in business? Are there still people working there? 
 
David Leary: That's not clear. They haven't updated their website in a while. They still have that "Because of the tax deadline, we're overburdened right now," or whatever, but they haven't changed- the website hasn't changed in months.
 
Blake Oliver: I have a [00:34:00] feeling they're done. If they still haven't filed people's taxes, there's a lot of liability there now [cross talk] maybe a class action lawsuit coming-
 
David Leary: I don't know how they can push through that. Yeah, that's not good for them.
 
Blake Oliver: I have an update on California matters, which could end up impacting all of us. 
 
David Leary: Oh, I was hoping you'd bring this. This is ...
 
Blake Oliver: It's the AB5. It's the bill that would reclassify a bunch of gig economy workers into part-time [00:34:30] or full-time employees. This would affect Lyft and Uber. It was specifically targeting them, but it will end up impacting a lot of businesses. CalMatters.org has a great article talking about who is in and who's out of AB5, because, like any legislation, there are businesses that have lobbied to be excluded from this new treatment.
 
David Leary: My gut instinct would be where do accountants fit in? Where do bookkeepers fit in? Where do ...? 
 
Blake Oliver: There's [00:35:00] a good infographic in the article listing out the jobs impacted by AB5. Here are the groups of people that would likely be forced to reclassify into employees, due to the new stricter standards for freelancers: rideshare and delivery services, such as Uber, Lyft, DoorDash, Post Mates, truck drivers, janitors and housekeepers, health aides, newspaper carriers, unlicensed manicurists. The licensed manicurists get a two-year exemption, land surveyors, [00:35:30] landscape architects, geologists, campaign workers, language interpreters, strippers, and rabbis are all going to have to now be employees rather than contractors. I don't know why rabbis, specifically ...
 
The groups that will be exempted include ... These are people who aren't going to be impacted and will continue to be able to be contractors: doctors, some licensed professionals, such as lawyers, architects, and engineers, financial services, which includes accountants and investment [00:36:00] advisors, real estate agents, direct sales, provided the salesperson's compensation is based on actual sales rather than wholesale purchases or referrals, commercial fishermen until 2023, builders and contractors, professional services, such as marketers, HR administrators, travel agents, graphic designers, grant writers, fine artists; freelance writers and photographers, provided that the worker contributes no more than 35 submissions to an outlet in a year, hairstylists and barbers, as long as they set their own rates and schedule, estheticians, electrologists, and manicurists. I [00:36:30] have no idea what an electrologist even is. They have to be licensed, though, to qualify as exempt; tutors, provided they teach their own curriculum - does not apply to public school tutors. Lastly, AAA-affiliated tow truck drivers are exempt. Whooo ... Quite a list.
 
David Leary: The two companies that are fighting this the most is Uber and Lyft. They have huge pocketbooks and huge legal teams, so it'll be interesting to see where - for the next coming election - where this [00:37:00] all lands, in California.
 
Blake Oliver: Like you said, Lyft and Uber are likely to be the most impacted, although the trucking industry, that's a big deal. That's really gonna change things for truckers. Lyft and Uber have vowed to fight this at the ballot box. So, in California, we have a direct initiative system where anyone, if they get enough signatures, can put a measure on the ballot to be voted on, like direct democracy, right? The voters of California will likely get to vote, [00:37:30] themselves, at the next election as to whether or not this bill should be struck down. It'll be interesting to see how many people care about Uber, and Lyft, and the workers.
 
I'm really curious to know how many actual drivers want to be contractors versus employees. Has anyone asked the drivers what they think? The big impact is going to be higher costs. If this goes through, then Lyft and Uber are gonna have to charge more for rides, because they're gonna be having to pay [00:38:00] into all these benefits for part-time employees. I'm torn on this. I see the point of  some people, this is their full-time job, and they're not getting Social Security, and Medicare; they're not getting unemployment - all these protections for workers. But then, for a lot of people, Lyft, and Uber, it's a part-time thing. It's what they do extra.
 
David Leary: Side hustle.
 
Blake Oliver: Yeah. You're just making it harder now for Lyft and Uber to have those people come on the platform and come off of it. They'll probably use fewer of those side-hustle people, and probably more closer to full-time people, because it's just always cheaper to have [00:38:30] fewer employees, because you just have less to worry about.
 
David Leary: Well, some of this is the innovation lifecycle, right? Somebody creates something innovative, and then it starts getting regulated, and then it becomes someone stodgy. Then Lyft and Uber, themselves will want regulations, because it keeps competition out of the market. It's just this cycle goes on, and it has gone on for history. Eventually, some new startups will disrupt this whole game.
 
Blake Oliver: Let's not forget, this could really impact cloud-accounting firms, because a lot of firms [00:39:00] employ contractors. I did this with Cloud Sourced Accounting. I employed a lot of contract bookkeepers to work part-time in my practice, especially if they were out of state, and I didn't wanna deal with employment. Now, we eventually switched them all to employee status, because we didn't wanna deal with the risk of having them reclassified, or something like that, at some later date. 
 
I think there's a lot of firms that are using contractors, especially during busy season. In [00:39:30] California, anyway the new rule is that if it's core to your business, if it's a core service in an accounting firm - doing taxes, for instance, it's a core service - then you won't be able to pay those people as contractors, necessarily. Although the exemption is for accountants, so I guess bookkeeping ... I don't know what the definition is. You'd have to actually dig into the law and see if that specific person is exempt or not. Anything else we wanna talk about? 
 
David Leary: We could talk about influencers.
 
Blake Oliver: Oh, like Instagram influencers? [00:40:00]
 
David Leary: Instagram influencers, LinkedIn influencers ... "QuickBooks stars." There's a lot of different people in this space that are influencers. Arguably, we're in that space, right?
 
Blake Oliver: Do you consider yourself an influencer, David?
 
David Leary: I don't know ... Jokingly, because [cross talk] there's been a lot of discussions happening ... I'm not answering the question, right? 
 
Blake Oliver: Okay. Would you ever put influencer on your LinkedIn subtitle?
 
David Leary: No, I did better than that ... There's been a lot of arguing going on, on [00:40:30] LinkedIn, about influencer lists - this list, and this list ... I actually just changed my last name to-
 
Blake Oliver: David Thought Leary. 
 
David Leary: So, I'm not an influencer. I'm a thought leader. That's the other set of people. Madeline [Pratt] wrote a blog post on her blog, Fearless in Training. Her argument is, because of social media, people could decide to become an influencer or a thought leader and then exploit social media to become that versus, you know, in the olden days, you'd have to put in work for 10 years, and then you just ... You didn't set out to be [00:41:00] a thought leader or set out to be an influencer. It just happened. What's happened now is this whole influencer economy is just ... You probably get emails, and you probably get LinkedIn connections, and they have it right in their title - "I'm an influencer; I'm a thought leader."
 
Blake Oliver: Yeah. 
 
David Leary: She has a good blog post on it. We'll get the links in the show notes; there's two or three threads on LinkedIn, because some people have [00:41:30] made lists of the top LinkedIn influencers in the accounting industry. Then there was this other four-quadrant chart ranking other people. Then, obviously, Avalara puts out that top social media people on Twitter. There's these lists that are out there. I think they're all what they are ... My competitive side's like, "I wanna be number one," but I can't get it. I have an ego. I wanna be number one in these lists. At the same time, they're really just a way for people to just get attention of all of the other people and get free exposure. [00:42:00]
 
Simple as Avalara. Avalara makes that list of those 100 people, every week. Guess what happens? Those 100 people talk about Avalara, and the list. It's the same reason some of these companies will do, like, "Hey, come vote on these things. Vote for the top bookkeeper. Vote for the top accounting firm." It's just so you ... Whatever property's doing that voting, you're banking your readers or the people on the list drive traffic to your site to go vote for them. It's [00:42:30] all about eyeballs, and all that, but people are very, very argumentative about this. People are accusing each other of collusion to fake the numbers. It's a little on the crazy side the last two weeks.
 
Blake Oliver: The funny thing is, I imagine that most of the people looking at this stuff are ... It's just a bunch of influencers all influencing each other. It's just an echo chamber [cross talk] ... Here my thoughts on this. First of all, don't call yourself an influencer or a thought leader. That's something that other people should [00:43:00] be calling you. Right?
 
David Leary: So, I have to go change my LinkedIn name now? 
 
Blake Oliver: Well, I like yours because it's funny, right? But whenever I see somebody who has thought leader in their LinkedIn profile, upfront there, I just ... I don't know. I understand self-promotion; you gotta do it. Sometimes, you just gotta call yourself something for other people to start doing it, too, but I don't know ... I don't like that.
 
The problem with a lot of these folks, or some of these folks, is it doesn't seem ... There's people out there talking about how to build a firm, [00:43:30] how to sell a firm, how to be great at sales, how to make your marketing amazing, and they've never done it themselves. That's problematic. But I think people see through that, right? I hope they would.
 
I think the other big problem with these lists is that it just incentivizes bad behavior. Like the Avalara list, that's cool. It's fun to be on that list, but then, the way this list is generated is based on how many people are liking the stuff that you post on Twitter, or how many people are retweeting it. If you really wanna just game [00:44:00] the system, you just gotta create a bunch of controversy, and say a bunch of nothing, and just get retweeted. It's not about actually saying anything meaningful ... You can game the systems. Same thing as a list that's based on how many LinkedIn followers you're getting. All right, well, I could just pay somebody to go and connect with everybody on LinkedIn. Anyway, it's just silly, and I bet nobody even cares, anyway, outside of the people who are on the list.
 
David Leary: Absolutely. In the grand scheme, and we talk about it all the time ... In [00:44:30] the grand scheme of everything, we don't exist. The people on that list don't exist. We're just ... We don't exist. 
 
Blake Oliver: Nobody knows who these people are.
 
David Leary: Everybody's very upset about this.
 
Blake Oliver: So, David, we need more followers so that we can advance to the top of these lists- 
 
David Leary: You're going right into this.
 
Blake Oliver: So, if you wanna help me conquer the influencer heap of just, like, crap, connect with me on LinkedIn. Send me a message with your invite, please, and let me know that you're a listener. [00:45:00] I would love to connect with you and learn more about what you're up to. I'm also on Twitter: @BlakeTOliver. How about you, David?
 
David Leary: Oh, I'm at David Leary on Twitter, but apparently my focus right now is LinkedIn. I have to get more LinkedIn followers to move up on these other lists. So, go to LinkedIn, and follow me, and like my stuff on LinkedIn, because that's ... My ego needs that. As always, you can find The Cloud Accounting Podcasts on all the socials. Just search for Cloud Accounting Podcast, and you can stay on top of all the news articles and things that we post out during the week. [00:45:30] And then, what else? What else? What else?
 
Blake Oliver: Head to my website at BLakeOliver.com and click the blue Subscribe banner at the top to get on my email list, and I will email you the show notes and notify you when new episodes are up.
 
David Leary: And don't forget to head over to your favorite iTunes podcast player and leave a review; there, or- 
 
Blake Oliver: Oh, we got some reviews we have to read, David.
 
David Leary: Oh, yeah, let's read those, and then we'll give the other location for Podchaser. 
 
Blake Oliver: Here's the first one. This is from HealyHoops - five stars - "Go-to podcast [00:46:00] for tech-forward accountants. Blake and David are the leaders in accounting tech news, gossip, and thought leadership ..." Oh, no ... 
 
David Leary: Thought leadership! Got it! 
 
Blake Oliver: " ... All accounting leaders should pay attention to these guys to know what accounting technology is coming around the curve." Well, thank you, Healy. You said it, not me.
 
David Leary: Now, we can put that on our LinkedIn profile. That's awesome. Here's one. This is cloudaccountingpro - five stars. This one's actually on Podchaser-
 
Blake Oliver: This is from cloudCOUNTINGpro.
 
David Leary: Oh, cloud COUNTING ... See, I have to get thicker glasses, Blake. Okay, cloudcountingpro - "Blake and Davis ..." I hope this is just a typo ... " ... hash it out on each [00:46:30] episode with an in-depth look at the news and technology in the accounting industry. Each brings a unique perspective that comes together to form the best accounting podcast around. Blake's smooth voice doesn't hurt."
 
Blake Oliver: Oh, why, thank you ...
 
David Leary: "[Bingeing] their episodes, your ears (and your brain) will thank you."
 
Blake Oliver: Awesome. Last one from JazFun. "The speed of technology has nothing on David and Blake. They truly are ahead of the curve, and it is entertaining and fun to listen [00:47:00] to each podcast; talking about truly relevant information that affects our day-to-day lives. The Cloud Accounting Podcast is a requirement if you are in the accounting industry." And I think that's Jan, so, thank you, Jan, so much for that review. 
 
David Leary: Thanks for all your support. We are now the number-one business-news podcast on Podchaser because of all your great reviews! Thank you, thank you, thank you, so much! 
 
Blake Oliver: All right, that's it for me, David.
 
David Leary: All right, that's a wrap. Bye. 
 
Blake Oliver: Bye. 
 

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