Columbia payroll services company defrauded clients, Small Business Administration Date: January 5, 2023 Contact: newsroom@ci.irs.gov A Rocheport, Missouri, woman has been indicted by a federal grand jury for using her payroll services business in a $1.5 million fraud and embezzlement scheme. Kathryn L. Cunningham, also known as "Kat," was charged in a 38-count indictment returned under seal by a federal grand jury in Jefferson City, Missouri, on December 13, 2022. That indictment was unsealed and made public today following Cunningham's arrest. Her initial court appearance and arraignment will be held this afternoon. Cunningham is the former owner and CEO of Moresource, Inc., in Columbia, Missouri., which provided payroll services for approximately 141 clients when it closed in June 2020. Moresource contracted with each of these clients to accurately calculate the client's payroll and the state and federal payroll and income taxes for the client's employees, to obtain funds from the client to cover that payroll, to disburse payroll funds to the client's employees, to remit payroll and income tax payments to state departments of revenue and the IRS, and to generate and submit all required state and federal payroll tax forms. Cunningham allegedly embezzled money from the payroll account held in trust for Moresource's clients. She took her clients' money for her personal benefit, the indictment says, as well as to fund her company's operations. Cunningham allegedly embezzled approximately $1,545,427 of payroll deposits from 24 Moresource clients. As part of her fraud scheme, the indictment says, Cunningham also used money from Moresource's operating account for her personal use. Cunningham borrowed money on multiple occasions from at least two non-bank lenders to cover shortfalls in the client funds in the Moresource payroll account. She also paid the principal and interest on several of those loans from the client funds in Moresource payroll account. According to the indictment, Cunningham fraudulently obtained a guaranteed loan and a line of credit from the Small Business Administration by concealing a financial liability. On multiple occasions, Cunningham caused SBA guaranteed funds to be disbursed into Moresource's operating account and then transferred into Moresource's payroll account to replace client funds she had embezzled rather than use the SBA funds for working capital. According to the indictment, Cunningham embezzled federal funds from Abilities for Business, Inc. (subsequently known as Mid-Missouri Business Leadership Network, Inc.), an organization of which she was president. Cunningham deposited funds embezzled from this organization into Moresource's payroll account to replace client funds she had also embezzled. Cunningham also deposited funds embezzled from Abilities for Business into her personal bank accounts. Cunningham attempted to conceal her embezzlement of client funds by causing Moresource to stop making timely and accurate IRS filings, the indictment says, and to stop making regular payments to the IRS for the employment taxes owed by her clients. Cunningham caused documents to be transmitted to her clients that falsely stated all payroll tax obligations had been satisfied. Cunningham falsely told her clients that the IRS sent them tax deficiency notices because the IRS was behind in processing tax payments, because the IRS misapplied the tax payments, and because of issues with Moresource's payroll software. The federal indictment charges Cunningham with 24 counts of bank fraud, four counts of stealing from an organization that receives federal funds, and 10 counts of wire fraud. The charges contained in this indictment are simply accusations, and not evidence of guilt. Evidence supporting the charges must be presented to a federal trial jury, whose duty is to determine guilt or innocence. This case is being prosecuted by Supervisory Assistant U.S. Attorney Michael S. Oliver. It was investigated by IRS-Criminal Investigation and the FBI.
