Magazine article American Banker

Mellon Closing Unit That Lost Tax Returns: IRS Canceled Contract for Northeast Lockbox

Magazine article American Banker

Mellon Closing Unit That Lost Tax Returns: IRS Canceled Contract for Northeast Lockbox

Article excerpt

Mellon Financial Corp. says it lost a contract to process individual federal tax returns in the Northeast for the Internal Revenue Service because a breakdown in internal controls somehow caused a "significant" number of individual taxpayer returns to be hidden or destroyed.

As a result of the cancellation, the Pittsburgh company said it would have to fire or reassign 106 employees and shut down its Pittsburgh IRS processing unit.

Martin G. McGuinn, Mellon's chairman and chief executive officer, said in a sternly worded memorandum to employees late Friday that several unidentified employees of the Pittsburgh unit had been fired after an internal investigation, and that the company was continuing to cooperate with federal investigators.

Mr. McGuinn called the incident the result of "a gross disregard" of the company's employee code of conduct and "a failure" to follow corporate policies.

The disclosure of problems in Mellon's IRS processing unit came one year after the General Accounting Office published a report warning the Financial Management Service -- the Treasury Department unit that oversees the lockbox arrangements with financial institutions -- that it needed to keep a closer watch on whether commercial banking companies were adequately safeguarding and properly processing billions of dollars of federal collections.

A spokesman for Mellon would not comment on how many tax returns were affected by the breakdown, but published reports in the Pittsburgh news media over the weekend put the number of missing returns at 1,800. …

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