UCUA Stipend Report, My Analysis

Based on scant real information at the February 27, 2014 UCUA Board meeting I expressed my concerns which primarily dealt with the tax consequences of paying employees through 1099 forms (though I was saying 1099-R when it was 1099-Misc that they used):
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Now that the report is out I see the accountants shared my concern:

Butvilla stated that he is the manager of the UCUA account on behalf of the auditing firm and has served in that role since 1983. ButviIla stated that the auditing firm is retained to audit the finances of the UCUA, to review the internal controls on “how revenue comes in and how it goes out”, to review payments made by UCUA and authorization for those payments, to review contracts, resolutions and board minutes to reconcile the payments and the general financial process at the UCUA. Butvilla stated that he became aware of the SSA in October 2013 when he received a call from Cardone, who at the time was running certain reports for the UClA. Cardone noticed the $15,000 payment, requested information on the payment and was advised that UClA was making a monthly payment to UCUA pursuant to a shared services agreement and that UCUA was using a portion of the payment to pay certain employees. Cardone relayed the information to Butvilla that payments were being made by UCUA to its employees as compensation but that the payments were not being run through payroll. Butvilla stated that the day after being informed by Cardone
in October 2013 about payments being made to UCUA employees outside of payroll, he contacted Brennan and advised him that he “cannot do that and that the payments have to run through payroll”. According to Butvi11a, Brennan informed him that he planned to send Tax Form 1099 to the employees and since it was already the end of the year, he would run everything through payroll in 2014.
Approximately 3 weeks after the call between Butvilla and Brennan, Butvil1a attended a meeting at the UCUA facility in Rahway, New Jersey, which was attended by Sullivan, Brennan, Williams and Dennis Enright from NW Financial, financial advisors to the UClA. After the meeting, Butvilla met with Sullivan and advised him that Brennan was not running the employee payments through payroll and that he could not do that since it would get the UCUA “in hot water” with the Internal Revenue Service. Sullivan stated that he would discuss the issue with Brennan.

According to Exhibit I of the report, eight 1099-Misc forms were issued (though only seven employees got the stipends) for 2013.  The problem here (and partially why I assumed the forms would be 1099-R) is that you never (NEVER) issue a 1099-Misc form to an employee.  There is no gray area here.  The instructions for the form define:

Box 7. Nonemployee Compensation
Enter nonemployee compensation of $600 or more. Include fees, commissions, prizes and awards for services performed as a nonemployee, other forms of compensation for services performed for your trade or business by an individual who is not your employee

No manner of convenient rationalization can justify this tax evasion. If you could pay your employees through a 1099-Misc instead of W-2 and avoid FICA taxes then everyone would be doing it. You can’t and the UCUA better get its people on doing some revised filings.

However the most disturbing, and telling, part of the report comes in its last non-redacted paragraph:

It appeared to me that Sullivan genuinely believed that he had the authority to act without the Board’s approval and that the comptroller and the agency’s auditors supported his actions.

This is a carryover from his freeholder days where he genuinely believed in solar panels, a wedding banquet hall, paying million dollar annual fees to DeCotiis, rewarding pay-to-players, and that he earned his paycheck for wielding his rubber-stamp.  Had he, and most of the other freeholders, not had a genuine belief in, what is obvious to everyone else, dysfunctional government then the real rulers of Union County would have never picked him.

2 responses to this post.

  1. Posted by Bill C. on August 12, 2014 at 6:45 am

    Great piece John. My only question is, where are the Feds?

    Reply

  2. […] payment on the solar panel fiasco though UCIA Executive Director Daniel Sullivan, no stranger to misappropriating funds, claimed otherwise: . . You be the […]

    Reply

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