I have seen many cases over the years like the one before the Board of Equalization last week.  A CEO of a small business had an accountant on staff who had embezzled money.  In this case, the embezzlement included sales tax money collected from customers that was laundered into the pocket of the accountant rather than paid to the State of California.  The accountant was eventually imprisoned, but that still left the tax liability.  Under the law, the interest on sales tax proceeds starts the moment the return is due.   If the embezzlement goes on for years, that is a lot of interest, on top of the tax dollars and penalties.  In the case before us, the accountant set up a phony shipping company and directed the sales tax money to that company and called the expense “shipping.  CEOs and other corporate officers need to have a higher level of awareness than was exhibited in this case.  Under the law, other corporate officers cannot simply blame the accountant and not have to pay the interest, penalties and tax.  I am willing to sponsor a bill that gives the Board more flexibility when the interest clock should start so the Board can make a judgment as to when the CEO should have known taxes were not being paid.   But my point is that CEOs should have controls in place so that such extensive fraud does not go unnoticed, and their lack of controls is not a legitimate excuse if the fraud occurred over a long period.

This entry was posted on Monday, December 21st, 2009 at 12:00 am and is filed under Blog Posts.