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State: Mercer County repeatedly failed to make proper payroll tax payments to IRS and N.J. (updated)

In Mercer County, the government has been unable to perform a basic function properly – paying federal and state payroll taxes for its employees in a timely manner.

This failure has cost the taxpayers of Mercer County millions of dollars in penalties and interest, state officials said on Tuesday.

An Office of the State Comptroller investigation found that the government of Mercer County paid nearly $4.5 million in penalties and interest for delinquent tax filings and payments between 2018 and 2021.

During that period, the Mercer County Finance Department consistently made insufficient and untimely payroll tax payments to the Internal Revenue Service and the New Jersey Division of Taxation, according to the state comptroller’s office. For each delinquent filing, Mercer County was assessed penalties and interest that could have been avoided, state officials said.

“Mercer County inexplicably wasted millions of dollars by failing to pay its state and federal taxes on time,” said Acting State Comptroller Kevin Walsh. “When the government doesn’t pay the bills, the taxpayers pay the penalties.”

In the course of the investigation, the state comptroller’s office also discovered that the chief financial officer for the county lacked the proper certification to serve in the position. The office also found that the county finance department’s operations did not follow best practices for the management and operation of a public entity’s finance department, creating additional risk for fraud, waste, and abuse.

State officials allegedly attempted to interview Mercer County CFO David Miller as part of the investigation. According to a comptroller report about the investigation, Miller, through his attorney, allegedly said that if he was interviewed he intended to exercise his right against self-incrimination under the Fifth Amendment to the United States Constitution.

“The county didn’t take basic steps to prevent these wasteful payments and didn’t catch that its unlicensed CFO wasn’t paying the county’s bills on time,” Walsh said. “This wasn’t a one-time mistake. It was a pattern that went on for years.”  

Mercer County officials issued a comment to Planet Princeton through a spokesperson, saying Miller has been fired.

“The report reveals circumstances and events which the county thoroughly investigated through special outside counsel. Those findings led to an immediate referral of the matter to the appropriate law enforcement agencies and is now in their hands. We are cooperating fully with those agencies and have been for months since the administration first uncovered the problems with its CFO in August, 2022,” reads the county statement.

“While we respect the role of the OSC, we do find it curious that it would issue its report knowing that the matter is safely in the hands of law enforcement and that the administration conducted its own prompt investigation and self-reported its outcome to law enforcement,” reads the statement. “Although the OSC report admonishes the administration for poor oversight of Mr. Miller and the department he managed, the report, finding nothing to the contrary, does not dispute that the administration and the county are themselves victims of Mr. Miller’s failure to maintain the proper credentials and licenses for his job. And there is no claim in the OSC report that the County and its Administration had any knowledge of these infirmities before its own investigation revealed them for the first time. The administration and the taxpayers were let down by Mr. Miller. We are doing our level best to learn from this experience and taking steps to avoid their recurrence and to recover the expenses occasioned by Mr. Miller’s conduct and to hold him accountable.”

County officials would not comment further, based on the advice of lawyers and law enforcement officials. The county previously did not release any details to the public about the late payroll tax payments of penalties.

Neither the state nor the county have disclosed who Miller’s lawyer is after being asked.

Investigation timeline

The state first received a confidential complaint about the county finance department in 2021. The Office of the State Comptroller is authorized to conduct investigations concerning alleged fraud, waste, abuse, or mismanagement of state funds.

To conduct its investigation, officials examined numerous documents, including IRS account transcripts for quarterly payroll tax returns for the period from 2018 to 2021. State officials also interviewed current and former employees of the Mercer County Finance Department and the Mercer County Administrator.

The comptroller’s report of its findings was released on the morning of Tuesday, Jan. 24.

What a county CFO does

The Mercer County CFO is appointed by the county executive and serves as treasurer and director of the finance department. The CFO is responsible for providing accounting records and preparing the county’s annual financial statements, preparing the annual budget, and working out long-term capital financing for county entities. New Jersey law requires every county to appoint a chief financial officer who is responsible for the proper financial administration of the county. The CFO’s statutory duties include acting as custodian of all public funds, developing a system of internal controls to protect assets and ensure proper accounting compliance, and complying with IRS regulations regarding employee payroll and vendor payments.

County CFOs are appointed for three-year terms and must hold a county finance officer certificate issued by the state’s Division of Local Government Services, a division within the New Jersey Department of Community Affairs. Requirements to obtain a certificate include higher education requirements, experience as a county finance officer, and the satisfactory completion of various training courses.

IRS penalties

From October 2018 through the end of 2020, Mercer County incurred more than $900,000 in penalties due to its failure to file timely federal payroll tax returns, ultimately paying nearly $830,000 after an IRS abatement of $73,000. In 2018, the County filed its fourth quarter payroll tax return nine months late. County officials failed to file one timely payroll tax return for 2020. On average, the 2020 quarterly returns were filed five months late, with the third quarter return filed more than seven months late and the fourth quarter return filed almost nine months late.  This resulted in the IRS assessing late filing penalties of almost $700,000 to the county, with Mercer County paying $600,000 after receiving an IRS abatement. IRS account transcripts dated May 18, 2022, indicated that Mercer County, as of that date, had not filed the 2021 fourth-quarter payroll tax return and, as a result, may be subject to additional penalties and interest. 

Mercer County also incurred failure-to-pay penalties for 13 consecutive quarters from July 2018 through September 2021. This resulted in Mercer County paying more than $2.7 million in penalties after the IRS abated almost $1 million in penalties for late payments for the same period.

From July 2018 through March 2021, the county also incurred more than $363,000 in interest charges and paid more than $334,000 after an IRS abatement. During that time, there was only one quarter in which Mercer County was not charged interest due to late payments. For that quarter, the third quarter of 2019, the county overpaid its tax liability by more than $3 million, according to the state investigation. The IRS automatically applied part of that overpayment to Mercer County’s prior delinquent taxes as far back as 2015 and refunded the remaining amount.

New Jersey tax penalties

During the course of this investigation, the state requested information about penalties and interest Mercer County paid to the New Jersey Division of Taxation in excess of its payroll tax liabilities, but the county did not provide any responsive records. As a result, state officials then went to the New Jersey Division of Taxation and obtained a summary of penalties and interest incurred and paid by Mercer County since 2009. Between 2018 and 2021, Mercer County paid the state $599,889 in penalties and interest, the records showed.

Policies and procedures?

The state requested the county’s written policies and procedures governing the filing and payment of payroll taxes and was informed that the county did not maintain any. As a result, the state obtained information about the county’s payroll tax processes through interviews with county employees.

The county’s accounting software generates paper checks to pay payroll taxes.  But according to county employees, Miller regularly instructed the payroll clerk to void these checks and instead submit the federal tax deposit through the IRS’s automated phone system. Employees also reported that Miller would take the voided state payroll tax checks and wire the payments to the taxing authority himself.

Employees could not identify a reason why the payroll tax deposits and returns were not filed in a timely manner. According to state officials, one witness reported that Miller described the penalties and interest as simply “the cost of doing business.” State officials said that in spite of several requests, Mercer County did not provide a complete list of all its bank accounts, the names of the individuals who had access to the accounts, or documentation of how the penalties and interest were paid.  

A lack of proper credentials

Under state statute, a finance officer for counties must hold a county finance officer certificate issued by the state to serve as a county CFO. According to state officials, Miller allegedly did not hold, or even apply for, a county finance officer certificate during his entire tenure as the CFO for Mercer County, meaning Mercer County was without a properly credentialed CFO for more than a decade.

Inadequate staffing

According to the state comptroller’s office, the county also failed to follow best practices for the operation of the department and was inadequately staffed. The county administrator, who is responsible for overseeing the finance department, allegedly told state officials she was unaware of any written policies or procedures guiding the operation of the finance department.  When asked specifically about policies governing internal controls and the segregation of department duties, the county administrator allegedly told the comptroller’s office that an employee’s formal job title and the duties assigned to that title ensure department duties are effectively segregated.  Officials said when she questioned further, she acknowledged that the formal job titles and duties do not necessarily correspond to the work employees perform or ensure the segregation of duties. The administrator held monthly meetings with department heads but told state officials she provided Miller with substantial discretion with regard to his administration and operation of the finance department, with no direct oversight of the department’s day-to-day operations.

County officials, in response to the state’s findings, have asserted that Miller was responsible for the daily operations of the finance department and was expected to bring issues of concern to the attention of the county administrator. 

“Any discretion provided to department leaders over the daily operations of their respective departments, however, does not relieve county management of the duty to proactively ensure that county departments are operating efficiently, preventing waste, and adhering to best practices,” reads the state’s report on the investigation.

County audits flagged issues

Annual independent audits of the county repeatedly noted issues regarding a lack of adequate staffing within the finance department, according to the state. The auditor noted that inadequate staffing levels resulted in untimely reconciliations and untimely compliance with audit requirements, according to the state comptroller’s office investigation. At least twice, the external auditor discussed with the current and former county administrators a need for additional staff in the finance department to ensure the County remained current with its audit requirements. The auditor stated that the annual audits were consistently delayed because the county did not provide the necessary documentation in a timely manner.

In 2019, the external auditor recommended that the County hire a deputy CFO. In its response, The county also claimed that it took steps to hire one additional staff member, a deputy CFO. But did not actually hire a Deputy CFO until May 2022, almost three years after receiving the recommendation from the independent auditor, according to the report. County officials told the state the delay in hiring a Deputy CFO from 2019 to 2022 was due to the COVID-19 pandemic.


The state comptroller’s office has made six recommendations for Mercer County:

  1. The county should files all taxes, including payroll taxes, in a timely manner and pay the amounts due within the timeframe required by taxing authorities. The county should also identify all outstanding tax penalties and promptly request abatements for penalties. 
  2. The county should ensure that all employees who require a license, certificate, or other forms of credentials to perform their duties possess those credentials and maintain them in good standing. The county should also verify on an annual basis that employees possess and maintain the credentials necessary to perform their job duties.
  3. The county should adopt an organizational chart that clearly establishes the department’s reporting structure and includes a current list of positions, employees, and supervisors.
  4. The county should develop an accounting procedures manual. The manual should establish a clear segregation of duties and a system of checks and balances to ensure financial systems are properly managed and that issues identified in this report, such as the untimely filing of tax returns and paying payroll taxes, are avoided.
  5. The county should establish a committee to oversee finance, including its financial reporting practices, internal department controls, and compliance with laws and regulations affecting the department. (The county already has established a committee in response to the state’s investigation.)
  6. The county should increase oversight of the CFO. The county CFO should be required to submit operational reports on a monthly basis that include expenditures and revenues. The monthly report should include a list of all tax liabilities and payments for that month and disclose penalties and interest.


  1. I am rather upset. According to this article , the county is treating our taxes like monopoly money. No one is keeping an eye on the cash register. This leads me to think what other funds are leaking out of the county budget!?

  2. Pretty major scandal! And we are not a wealthy county – so many in need could have benefitted from those significant funds, now lost.
    I would ask: Who hired the Mercer County CFO David Miller, when he lacked the required credentials for the position? And who did he report in to? Who chose not to fire, demote, or reassign him when significant abuses and gross errors were discovered year after year? Who benefitted, and who’s bidding were they doing?

  3. Which elected official hired David Miller and why aren’t they mentioned in the article? Ultimately they are responsible for the taxpayers getting shafted. Or, doesn’t anyone care any more?

    1. Miller ensured that others had the required certifications. Residents continue to vote for a gang of thieves and one by one they walk away in shame. Wake up Mercer County residents. Do you recall this past farcical election? You deserve better than this ship of dangerous fools that continue to line their pockets at the taxpayers expense.

  4. It’s always seemed to me that the county level of government is pretty much ignored, and that our county commissioners and employees can get away with almost anything because people in the towns are focusing on, well, their own towns, not the county.
    One immediate question this raises for me is who among the commissioners was responsible for financial oversight? On Princeton’s website, you can see what might be called “committee assignments” – which council member is assigned as liaison to which board or department, reporting back to council on what is going on. On Mercer County’s website, I don’t see this information.
    I hope this serves as a reminder to our elected officials to take their work seriously. It’s not just about meeting and greeting, or listening, it’s not even just about passing ordinances. It’s about making sure money is used as it was intended, and that there is no corruption or even simple incompetence going on.

  5. This unnecessary extra $4.5 million that Mercer County just paid undercuts its claim to be holding the line on County taxes – the second largest component of property taxes after school taxes. I’m very disappointed by this lack of proper oversight by senior County administrators and our County Commissioners.

  6. Disgusting. The taxes throughout NJ and Mercer county are ridiculously high. Now we learn, our county officials are incapable of managing this county’s finances. Who goes to prison? This corrupt mis-management can not go unpunished.

  7. This is a pretty bad situation. Clearly, Mercer County executive Hughes wasn’t doing proper oversight as he hired someone without the proper credentials. It’s time for him to step down.

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