Tax Consultant Pleads Guilty to $3.3M+ in Thefts; UNITE HERE Las Vegas Local Is Out $673,000

las-vegas-strip-at-nightDeborah DiFrancesco kept two sets of books. Her mistake was assuming she was too smart for anyone to catch on. Last Thursday, DiFrancesco, founder and head of the now-defunct Lakes Payroll Inc., which handled payroll taxes for Las Vegas-area employers, pleaded guilty in Las Vegas federal court to three counts of wire fraud and one count of tax evasion in connection with her embezzlement of more than $3.3 million in funds. Significantly, thefts from Culinary Workers Local 226, the largest affiliate of the UNITE HERE International Union, accounted for about a fifth of the total. That figure doesn’t even include the roughly $500,000 in penalty and interest she owes clients or the more than $1.1 million she owes the IRS, each part of the plea deal. Sentencing is set for September 4.

National Legal and Policy Center has described in detail a number of recent cases in which outside consultants took union clients for a ride. A few years ago Melissa King, owner of a company that handled benefits for New York City’s Laborers International Union of North America Local 147 (the “Sandhogs”), was arrested and charged with embezzling $42 million from contractor contributions. She eventually pleaded guilty, and was sentenced last June to six years in prison. On a much smaller yet hardly insignificant scale, Gregory Sims, an employee of a Tampa/St. Petersburg, Fla.-area benefits consulting firm, pleaded guilty to making more than $800,000 in unauthorized transfers from International Brotherhood of Electrical Workers Local 915 to a church where he served as pastor; Sims would receive a 30-month prison sentence.

Dozens of small businesses paid Deborah DiFrancesco, now 55, to do their payroll taxes. But her most important client was a union, Culinary Workers Local 226 in Las Vegas. Now with about 60,000 members, the local is by far the most powerful affiliate of the roughly 265,000-member UNITE HERE. Current International President D. Taylor, like his immediate predecessor, John Wilhelm, had served as secretary-treasurer (the highest-ranking position) of the local. Representing non-gaming employees of hotel-casinos in Las Vegas and Reno, Nev., Local 226, along with another UNITE HERE Las Vegas affiliate, Bartenders Local 165, can make life exceedingly uncomfortable for nonunion establishments; the management of The Cosmopolitan of Las Vegas learned the hard way this March. But the union itself now is on the receiving end of a uncomfortable lesson about how to do business.

Deborah DiFrancesco founded Lakes Payroll Inc. in 2001 and came to do payroll taxes for more than 60 small businesses. As standard procedure had it, she would inform a client of the amount of taxes due, and the client in turn would authorize the transfer of these funds to DiFrancesco for payment to tax authorities. Starting as early as 2005, say federal prosecutors, she added a wrinkle to the process. She knowingly would underreport payroll amounts and under-remit tax payments during the first three quarters of a given calendar year, and then, for the fourth quarter, file reports months after the due date. This enabled her to use current deposits to pay off prior year liabilities, plus any penalties and interest, and pocket the difference. During 2009, 2010 and 2011 this added up to more than $3.3 million from about two dozen entities.

Early in 2011, the leadership of one of those entities, Culinary Workers Local 226, had grown suspicious that DiFrancesco was failing to forward scheduled payroll tax payments. The union hired an independent auditor to review its own tax filings. The conclusion: Local 226 was short $673,000. Local leaders notified the IRS, which in turn launched an investigation. By July 2011, DiFrancesco had closed Lakes Payroll. The following month, she confessed to embezzling funds, and for good measure, provided IRS special agents with spreadsheets identifying clients from whom she embezzled. The primary destinations for her ill-gotten money were personal expenditures and gambling. As far as gambling was concerned, she certainly picked the right city.

As part of her plea agreement, Ms. DiFrancesco agreed to pay $3,823,543.70 in restitution to aggrieved clients, a sum representing over $3.3 million stolen, plus another half-million dollars in penalties and interest. In addition, she agreed to pay the IRS $1,128,505, an amount representing her combined tax liability for embezzled funds during 2009-11. DiFrancesco also pleaded guilty to underreporting income on her personal tax returns for 2009. DiFrancesco faces a minimum 63 months in federal prison, a sentence not binding on the judge. Given how much money she took, judicial leniency isn’t anything she should take for granted.