The government put four witnesses on the stand today who have formerly worked as financial controllers for staffing companies owned or controlled by Greensboro businessman Greg Harrison over the past decade.
Although they worked for Harrison at different times, they shared something in common: They prepared quarterly federal payroll tax returns — known as 941s — for the staffing companies during years when Harrison is accused of willfully failing to pay payroll taxes on thousands of temporary staffing employees across the country, along with taxes on a dozens of permanent employees in support functions at the conglomerate’s corporate headquarters in Greensboro.
Two of the controllers, along with a former chief operating officer for Harrison's conglomerate, have testified in the first two days of a trial that federal payroll taxes were withheld from their paychecks, but later discovered in letters from the Social Security Administration that there were no wages or Social Security contributions reported from their work for Harrison.
The testimony of Toni Johnson, who became interim controller in 2005 and prepared quarterly federal payroll tax returns for each of the staffing conglomerate’s state subsidiaries, was typical.
Prosecutor Frank Chut placed a federal tax form on the courtroom’s overhead projector.
“What is this?” he asked.
Johnson told him it was a 941 return for US Staffing of Florida for the second quarter of 2005.
Chut pointed to a field on the form and asked her to read the amount.
Then the prosecutor asked her what the number meant. She explained it was the amount of payroll tax liability for that quarter.
Then Chut pointed to a signature box, where Harrison’s name was handwritten.
“Who wrote that?” he asked.
“I did,” Johnson responded, explaining that she had prepared the form for Harrison’s signature, though it ultimately remained unsigned.
After preparing the returns, Johnson testified that she would take them upstairs to Harrison’s office and either hand them to him personally or leave them on his chair. Johnson testified repeatedly that Harrison assured her he would take care of the payments.
And so it went, one unpaid tax return after another in mind-numbing succession, with former employees describing in excruciating detail how they prepared them and what happened or didn’t with them afterward.
The indictment against Harrison includes a total of 59 counts related to failure to pay payroll taxes, each of which corresponds to a quarterly 941 report for any of a dozen-plus staffing companies that he owned and controlled. In increments ranging from $42,800 to $1 million, the amount of payroll taxes allegedly withheld from employees but not paid over to the Internal Revenue Service for the years 2004, 2005, 2006, 2008 and 2009 totals almost $16 million.
Julie Akers, a controller who worked for the staffing companies in 2008 and 2009, testified that she typically had to call Harrison to request funds to make payroll, but there was never enough money available to pay payroll taxes to the federal government.
“What happened when you asked Mr. Harrison for money to make payroll tax payments,” Chut asked.
“It was denied,” Akers said. She said she confronted Harrison about the fact that payroll taxes were not being paid.
“And his response?”
“That he would get them paid.”
“And were they?”
“Not to my knowledge.”
Akers testified that eventually she filed a return without Harrison’s authorization even though no money was available in the corporate account to make payments because “at this point it was the right thing to do.”
Another time, Akers said she became concerned about an outstanding tax liability, and asked Harrison to meet with her. Harrison authorized her to send a check to the IRS for $145,693, the amount due. The check did not clear the bank, Akers said, and the company’s president and vice president resigned.
The government has promised in its trial brief to prove that Harrison “knew he had an obligation to pay over employment taxes for his staffing companies in 2004-2006 and in 2008-2009, but willfully failed to do so.”
The government’s witnesses gave ample evidence to support that position.
To underscore the notion that Harrison clearly understood his tax obligations, the government introduced USA Staffing’s employee handbook bearing Harrison’s signature as president, and asked a witness, former controller Samantha Lee Hooker, to read aloud from a passage stating that the company matched employees’ contributions to Social Security and unemployment insurance.
Robert Patterson testified that he was brought in to break up the two companies, Hobbs Staffing and US Labor, into state subsidiaries, even as administrative functions remained consolidated at the longtime headquarters on South Swing Road in Greensboro.
Patterson said he became alarmed on one occasion when he observed in the company’s general ledger that tax liabilities had continued to grow with no payment offsets. He went to Harrison’s office to share his discovery.
“He told me those were the old companies, and the old companies weren’t my concern,” Patterson testified. “I was to be concerned with the new company roll-outs, and that if there were any problems with the old companies he would take care of it.”
Tom Cochran, the public defender assigned to Harrison, attempted in cross examination of the government’s witnesses to shift responsibility to Ray McDaniel and Mark Griffin, respectively the chief operating officer and general counsel of Harrison’s company through 2006.
Patterson testified that he was hired by McDaniel and Griffin, and that he reported to McDaniel. Under cross-examination, McDaniel said he did not recall whether he ever told Patterson that he was his supervisor.
“Who ran the company on a day-to-day basis?” Cochran asked.
“Ray McDaniel and Mark Griffin,” Patterson replied.
Notwithstanding the two men's central roles in the business, Patterson testified that he typically left the 941 returns on Harrison’s desk, and never gave them to McDaniel or Griffin.
“Is it fair to say that the tax issues were handled and handled well while you were there?” Cochran asked.
“Yes, that’s fair to say,” Patterson replied.
Patterson’s testimony about the circumstances of his departure raised questions about McDaniel and Griffin’s motives. Cochran asked him what reason the two had given him when they called him in to fire him in April 2005.
“Their reason was I had failed to win over the ladies in accounting,” Patterson responded tartly, “and this just wasn’t going to work.”
McDaniel testified that he didn’t recall whether he was involved with Patterson’s termination.
Johnson, who was trained by Patterson and succeeded him, testified under cross-examination that McDaniel and Griffin were running the company at the time of her employment, notwithstanding her work preparing 941 returns for Harrison.
Cochran asked Johnson if during the time she served as controller she ever observed any expenditures by the state subsidiaries that raised her suspicions.
“Yes,” she answered. “It occurred more than once.” She said she brought the matter to Mark Griffin’s attention, but never learned how it was resolved.
During Cochran’s cross-examination, McDaniel had testified that he traveled to the branches weekly or every other week to ensure they were performing efficiently, see to it that clients were happy and cultivate new clients. McDaniel testified that he didn’t recall Harrison ever taking part in any of the branch visits. Cochran asked McDaniel if he would ever entertain clients as part of the business of generating new revenue, but Judge James A. Baity sustained an objection from the government.
Cochran asked Johnson if she developed an opinion on McDaniel’s truthfulness, but again the judge sustained an objection.
On the first day of the trial, McDaniel had testified that was never responsible for making payroll tax payments for Harrison’s staffing companies, but today testified that, in fact, he had filed two 941 payroll tax returns to the IRS on behalf of Harrison’s companies.
Cochran also attempted to create an impression of Harrison’s former business partners as lavish spenders by asking McDaniel if he and Griffin purchased half an interest in an airplane together after they went into business for themselves and acquired Harrison’s assets. The judge blocked the question.
Johnson testified that she preferred working under Harrison to McDaniel and Griffin, opting to stay on and work for another of Harrison's enterprises after the former partners acquired the staffing businesses.
The government has asserted that McDaniel and Griffin paid over payroll taxes during the period when they controlled those assets from late 2006 to late 2008, in contrast to the defendant, demonstrating his willful violation of the law. Cochran attempted to poke holes in that portrayal by bringing up tax difficulties faced by StaffCo, the company founded by McDaniel and Griffin.
Cochran asked McDaniel if he remembered Julie Akers, who would later work for Harrison, telling him that StaffCo had gotten behind on its taxes.
“No, I don’t recall,” McDaniel answered.
Cochran introduced Defense Exhibit No. 14, a notice of a federal tax lien against StaffCo. McDaniel said the first time he had seen it had been three or four weeks ago.