ATO Fraud

From 23 April 2014 to 26 April 2017, those in control of Plutus Payroll Australia (“Plutus”) managed to misappropriate approximately $167 million in PAYG tax owed to the ATO. Plutus was formed by three pre-insolvency advisors and one tech entrepreneur. With the funds they misappropriated they lived a lavish lifestyle, buying expensive houses, fast cars and travelling to exotic places.

Background to the scheme

At the core of Plutus, there was a legitimate business that provided a payroll administration service to various clients around Australia. The clients were mostly large corporate employers sourced by the tech entrepreneur.

It was Plutus’ responsibility to ensure the accurate and reliable payment of all the salaries, superannuation and PAYG tax of its clients’ employees. And for this they would regularly transfer large amounts of cash to Plutus.

So how did the scheme work?

Plutus would engage the service of second tier companies (which were under the control of the three pre-insolvency advisors and one tech entrepreneur) to actually complete the payroll administration services. There were many second-tier companies and each had a straw director. A straw director would be the director of a company on paper to hide the true identity of the persons in full control. As there were many straw directors, it became a full-time position for one of the pre-insolvency practitioners who controlled Plutus to manage and control them.

Once these companies had been setup, Plutus would begin transferring the cash from its clients to them. The company would then pay the client’s employee salaries and superannuation as expected however, it would either not pay, or underpay the PAYG payable to the ATO.

Plutus would then issue false invoices to a second-tier company and siphon out the PAYG not paid. This enabled the four people running the scheme to fund the operation and charge a zero fee to their clients, which exponentially attracted more clients. It also allowed them to siphon off millions of dollars of tax which should have been paid.

Avoiding the ATO

To stay ahead of the ATO, the pre-insolvency practitioners would arrange for the wind up of a second tier company and then create a new fresh company with a new straw director. This company would begin engaging payroll services and withholding the PAYG from the ATO. Plutus was able to complete this over 3 different waves before the ATO shut it down in coordinated raids with the AFP on 26 April 2017.

The ATO had been watching Plutus for some time and had been in the process of collecting vital information before it could shut down the operation. One of the difficulties in cracking the operation was linking the conspirators to the failed second tier companies, as the straw directors were essentially unknown individuals. This is what enabled the scheme to continue for so long. Just before the operation was shut down, it is alleged that the Plutus scheme was misappropriating $2 million a day.

Could this happen again?

It would be unlikely to see a repeat of this behaviour with the introduction of Single Touch Payroll. Single Touch Payroll requires all employers whether legitimate or not to be providing payroll details each time an employee is paid. The ATO can then effectively have its finger on the pulse of companies not paying the correct amount of PAYG tax or superannuation, significantly reducing the time lag between becoming aware of the liability and knowing when employers are not reporting.

The issue of straw directors still exists, as it is easy for anyone of legal age to setup a company without any training or business experience. However, you can guarantee that the ATO will be conducting its own analytics for the early detection of fraudulent activities or misappropriation of government funds.

Contact us for assistance?

If you are struggling to meet your PAYG liabilities and/or are behind with your reporting to the ATO, we encourage you to be proactive and seek advice on the next steps. Please don’t hesitate to on 1300 906 966 or send us an email at mail@cactusconsulting.com for a free initial consultation.

Posted on 26-11-19 in ATO Debts, Corporate finance insights and updates, Debt management.