March 15, 2004
Payroll dejá vu | Sharon Treat's effort to protect businesses from payroll company fraud is a repeat of her attempt in 1997
By Sean Donahue
When Senate Majority Leader Sharon Treat (D-Kennebec County) moved to a new house last year, she decided it was time to throw out files from her first term in the Legislature, including documents related to her efforts to pass legislation protecting small businesses from payroll company fraud after the 1996 Mainely Payroll collapse. Though the Legislature voted that bill down, she thought the new rules it subsequently adopted had resolved the issue ˆ until a few months after her move, when Saco-based payroll processor Harmon-Baert Associates shut down amid charges of defrauding the IRS and absconding with million of dollars of its clients' tax payments.
Treat decided to speak out ˆ again ˆ in favor of tougher payroll company regulations, and was able to recover her previous testimony from the Legislature's archives. "I could have just changed the names of the companies and come back in [to the Legislature] with the same thing," says Treat.
In late February, Treat testified in front of the Business, Research and Economic Development Committee on behalf of a bill she's co-sponsoring with Rep. Matthew Dunlap (D-Old Town). The bill, LD 1843, An Act to Require Surety Bonding by Payroll Processing Companies, contains new rules intended to protect businesses from Harmon-Baert-style catastrophes. The bill's centerpiece is a requirement that all payroll processing companies carry a surety bond that would cover unpaid client taxes and interest fees arising from the payroll processor's mismanagement or criminal conduct. The Legislature is debating the amount of bond coverage to require, but Treat says any surety bond would provide more protection than the insurance currently required by state law.
To help prevent future payroll scandals, the bill also would require regular audits of payroll processing companies and would shift responsibility for the oversight of payroll processing companies from the Maine Revenue Services to the Department of Professional and Financial Regulation, the body that oversees banks and insurance companies.
What's frustrating to Treat, though, is that these are virtually the same rules she proposed in 1997 after the Mainely Payroll collapse, which were voted down after opposition from payroll processing companies and other business groups across the state. This time, only a national association representing payroll processing companies spoke out against LD 1843, while individual payroll processors such as Auburn-based Payroll Management Inc. and business groups such as the Maine State Chamber of Commerce actually testified in favor of the bill. "At some point we have to figure out what is really pro business: having no regulations, or protecting small businesses," says Treat. "I think that's why we've seen a huge turnaround since 1996 in people's understanding of this issue."
Though Treat, an environmental law expert and the coordinator of Colby College's Environmental Studies Program, may seem like an unlikely champion for financial regulatory reforms, she says she's twice led initiatives for stricter payroll processing rules because of her constituents: Augusta-based Mainely Payroll's collapse affected dozens of small businesses in her district, Treat says, as did the Harmon-Baert scandal.
Treat expects the details of the bill to change as it's debated by the Legislature in the coming weeks. But given the change she says she has seen in legislators' and the business community's attitude toward tightening payroll processing regulations, Treat anticipates new rules could be passed by the end of March. And though she would rather not have given a repeat performance of her 1997 testimony, Treat hopes her connection to Maine's prior high-profile payroll scandal helped give a sense of urgency to legislators who weren't in office back in 1997. "I'm glad I wasn't kicked out by term limits yet so I could go back there and give some history to the committee," says Treat. "We can't prevent crime entirely, but we have to do everything we can do to resolve this problem."
Treat decided to speak out ˆ again ˆ in favor of tougher payroll company regulations, and was able to recover her previous testimony from the Legislature's archives. "I could have just changed the names of the companies and come back in [to the Legislature] with the same thing," says Treat.
In late February, Treat testified in front of the Business, Research and Economic Development Committee on behalf of a bill she's co-sponsoring with Rep. Matthew Dunlap (D-Old Town). The bill, LD 1843, An Act to Require Surety Bonding by Payroll Processing Companies, contains new rules intended to protect businesses from Harmon-Baert-style catastrophes. The bill's centerpiece is a requirement that all payroll processing companies carry a surety bond that would cover unpaid client taxes and interest fees arising from the payroll processor's mismanagement or criminal conduct. The Legislature is debating the amount of bond coverage to require, but Treat says any surety bond would provide more protection than the insurance currently required by state law.
To help prevent future payroll scandals, the bill also would require regular audits of payroll processing companies and would shift responsibility for the oversight of payroll processing companies from the Maine Revenue Services to the Department of Professional and Financial Regulation, the body that oversees banks and insurance companies.
What's frustrating to Treat, though, is that these are virtually the same rules she proposed in 1997 after the Mainely Payroll collapse, which were voted down after opposition from payroll processing companies and other business groups across the state. This time, only a national association representing payroll processing companies spoke out against LD 1843, while individual payroll processors such as Auburn-based Payroll Management Inc. and business groups such as the Maine State Chamber of Commerce actually testified in favor of the bill. "At some point we have to figure out what is really pro business: having no regulations, or protecting small businesses," says Treat. "I think that's why we've seen a huge turnaround since 1996 in people's understanding of this issue."
Though Treat, an environmental law expert and the coordinator of Colby College's Environmental Studies Program, may seem like an unlikely champion for financial regulatory reforms, she says she's twice led initiatives for stricter payroll processing rules because of her constituents: Augusta-based Mainely Payroll's collapse affected dozens of small businesses in her district, Treat says, as did the Harmon-Baert scandal.
Treat expects the details of the bill to change as it's debated by the Legislature in the coming weeks. But given the change she says she has seen in legislators' and the business community's attitude toward tightening payroll processing regulations, Treat anticipates new rules could be passed by the end of March. And though she would rather not have given a repeat performance of her 1997 testimony, Treat hopes her connection to Maine's prior high-profile payroll scandal helped give a sense of urgency to legislators who weren't in office back in 1997. "I'm glad I wasn't kicked out by term limits yet so I could go back there and give some history to the committee," says Treat. "We can't prevent crime entirely, but we have to do everything we can do to resolve this problem."
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