Audit of Air Carrier Worker Support Certifications - Paradigm Jet management, Inc

Summary

Department of the Treasury Office of Inspector General Audit Report OIG-23-027, Audit of Air Carrier Worker Support Certifications - Paradigm Jet Management, Inc., dated June 6, 2023, with a transmittal memorandum signed /s/ by Deborah L. Harker, Assistant Inspector General for Audit, to Acting Chief Recovery Officer Jessica Milano. The memorandum states that Saggar & Rosenberg, P.C. performed the audit, which covered April 1, 2019 through September 30, 2019, and found that Paradigm incorrectly reported information in the Awardable Amounts section of the PSP1 Application, resulting in a $90,822 overstatement. It states that applying the 78.2 percent pro rata distribution, Paradigm received a $71,023 overpayment, and that the auditor recommends that the Chief Recovery Officer seek reimbursement of that amount.

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Audit Report

OIG-23-027
CORONAVIRUS DISEASE 2019 PANDEMIC RELIEF
PROGRAMS
Audit of Air Carrier Worker Support
Certifications - Paradigm Jet Management,
Inc.
June 6, 2023
Office of Inspector General
Department of the Treasury

This Page Intentionally Left Blank

June 6, 2023

MEMORANDUM FOR  JESSICA MILANO

ACTING CHIEF RECOVERY OFFICER

FROM:

Deborah L. Harker /s/

Assistant Inspector General for Audit

SUBJECT:

Audit of Air Carrier Worker

Support Certifications – Paradigm Jet Management, Inc.

Attached is our audit report for the Audit of Air Carrier Worker Support
Certifications – Paradigm Jet Management, Inc. (Paradigm) (OIG-23-027; dated
June 6, 2023). Under a contract monitored by our office, Saggar & Rosenberg,
P.C. (S&R), a certified independent public accounting firm, performed the audit.
The objective of this audit was to assess the accuracy, completeness, and
sufficiency of Paradigm’s sworn financial statement or other data used to certify
the wages, salaries, benefits, and other compensation amounts submitted and
approved by the Department of the Treasury (Treasury) for the Air Carrier Payroll
Support Program (PSP1). The scope of this audit covered the time period from
April 1, 2019 through September 30, 2019 and included the certified PSP1
Application, sworn financial statements, tax returns, and other documentation
submitted to Treasury.

In its audit report, S&R found Paradigm incorrectly reported information in the
Awardable Amounts section of the PSP1 Application, resulting in a $90,822
overstatement. Specifically, the:
• Inclusion of unallowable corporate officer compensation, resulted in an
overstatement of $
;

• Reimbursement of unallowable expenses, resulted in an overstatement of
$
;

OFFICE OF
INSPECTOR GENERAL
DEPARTM ENT OF THE TREASURY
WASHINGTON, D.C.  20220

• Compensation paid to three independent contractors, resulted in an
overstatement of $
; and

• Data errors, resulted in an understatement of $
.

Treasury’s awards to passenger air carriers under PSP1 included a 78.2 percent pro
rata distribution of application amounts. Applying this formula, Paradigm received a
$71,023 overpayment from Treasury.

Accordingly, S&R recommends that Treasury’s Chief Recovery Officer:

• Seek reimbursement of the $71,023 overpayment for PSP1 financial
assistance; and

• Review Paradigm’s requested amount for unallowable expenses under the
Payroll Support Program Extension (PSP2)1 authorized by the Consolidated
Appropriations Act, 2021 and the Payroll Support Program 3 (PSP3)2
authorized by the American Rescue Plan Act of 2021, and seek
reimbursement for overpayment, if applicable.

Another matter of concern identified in this audit is that Paradigm did not report
certain compensation paid to workers on its Internal Revenue Service (IRS)
Form 941. The unreported compensation was paid to workers outside of routine
weekly payroll from April 1, 2019 through September 30, 2019. It consists of
(1) two workers that had an operational control agreement with Paradigm, and
(2) eleven company employees that received routine payroll but were also paid
bonuses or commissions outside of routine payroll that was not subject to employer
taxes.

For the two workers identified in item (1), S&R believes that the status of these
employees is in question, and Paradigm management should seek an official opinion
from the IRS regarding the treatment of these workers as either independent
contractors or employees for purposes of federal employment taxes and income tax
withholding. For the eleven company employees in item (2), S&R determined that
Federal tax compliance is outside the scope of the audit objective, and as such, we
will refer this matter to the Treasury Inspector General for Tax Administration.

1  The Consolidated Appropriations Act, 2021 (P.L. 116-260), enacted on December 27, 2020,
created the Airline Worker Support Extension for passenger air carriers and certain contractors.
Treasury referred to this as Payroll Support Program Extension (PSP2).
2  The American Rescue Plan of 2021 (P.L. 117-2), enacted on March 11, 2021, created the Air
Transportation Payroll Support Program Extension authorizing Treasury to provide additional
assistance to passenger air carriers and contractors that received financial assistance under
PSP2. Treasury referred to this as Payroll Support Program 3 (PSP3).

Our contract required that the audit be performed in accordance with generally
accepted government auditing standards. In connection with the contract, we
reviewed S&R’s report and related documentation and inquired of its
representatives. Our review, as differentiated from an audit performed in
accordance with generally accepted government auditing standards, was not
intended to enable us to express an opinion on Paradigm’s compliance with
Treasury’s PSP1 policies and procedures. S&R is responsible for the attached
auditor’s report and the conclusions expressed therein. Our review found no
instances in which S&R did not comply, in all material respects, with generally
accepted government auditing standards.
We appreciate the courtesies and cooperation provided to S&R and our staff during
the audit. If you have any questions or require further information, please contact
me at (202) 486-1420, or a member of your staff may contact Lisa DeAngelis,
Deputy Assistant Inspector General for Audit, at (202) 487-8371.

Attachment

cc:
Jason Morrow, Attorney Advisor, Department of the Treasury
Victoria Collin, Chief Compliance and Finance Officer, Office of Recovery
Programs, Department of the Treasury
Jeff Davis, Partner, Saggar & Rosenberg, P.C

i

Contents
Audit Report
Results in Brief ................................................................................................... 2
Background ........................................................................................................ 4
Treasury Disbursement Processes .................................................... 6
PSP1 Interim Audit Report ............................................................... 7
Paradigm Jet Management, Inc. ....................................................... 7
Audit Results ...................................................................................................... 8
Finding 1 Inaccurate Compilation of the PSP1 Application Awardable Amount ..... 9
Initial Understatement on PSP1 Application ....................................... 9
Corporate Officer Compensation .................................................... 10
Reimbursement of Expenses .......................................................... 11
Independent Contractor Compensation ............................................ 12
Matter of Concern ............................................................................................. 15
Improper Employer Tax Reporting to the IRS .................................... 15
Recommendation .......................................................................... 17
Appendices
Appendix 1: Objective, Scope, and Methodology .................................................. 19
Appendix 2: Schedule of Monetary Benefits ......................................................... 23
Appendix 3: Treasury Management Response ...................................................... 24
Appendix 4: Report Distribution .......................................................................... 27

Abbreviations
CARES Act
Coronavirus Aid, Relief, and Economic Security Act
COVID-19
Coronavirus Disease 2019
DOT
Department of Transportation
GAO
Government Accountability Office
Guidelines
Guidelines and Application Procedures for Payroll Support to Air
Carriers and Contractors
IRS
Internal Revenue Service
OIG
Treasury Office of Inspector General
Paradigm
Paradigm Jet Management, Inc.
PSP1
Payroll Support Program, CARES Act

ii

PSP2
Payroll Support Program Extension, Consolidated Appropriations
Act, 2021
PSP3
Payroll Support Program 3, American Rescue Plan Act of 2021
S&R
Saggar & Rosenberg, P.C.
Treasury
Department of the Treasury

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Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
1

June 6, 2023
Jessica Milano
Acting Chief Recovery Officer
Department of the Treasury
This report presents the results of our audit of Paradigm Jet
Management, Inc. (Paradigm) certifications made to the
Department of the Treasury (Treasury) as part of its participation in
the Air Carrier Payroll Support Program (PSP1). This audit was
mandated by Title IV, Subtitle B, Air Carrier Worker Support, of the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act).3
Under the CARES Act, Treasury was to provide $32 billion in
financial assistance to passenger air carriers, cargo air carriers, and
certain contractors to be exclusively used for the continuation of
payment of employee wages, salaries, and benefits, in response to
the economic impact of the Coronavirus Disease 2019
(COVID-19).4 Furthermore, the Treasury Office of Inspector General
(OIG) is required to audit certifications made by passenger and
cargo air carriers that do not report salaries and benefits to the
Department of Transportation (DOT) (hereinafter referred to as
non-241 air carriers)5 and contractors.
Under a contract with the OIG, Saggar & Rosenberg, P.C. (S&R)
conducted this audit. Our audit objective was to assess the
accuracy, completeness, and sufficiency of Paradigm’s sworn
financial statement or other data used to certify the wages,
salaries, benefits, and other compensation amounts submitted and
approved by Treasury for PSP1. The scope of our audit covered the
time period from April 1, 2019 through September 30, 2019 and
included the certified PSP1 Application, sworn financial
statements, tax returns, and other documentation submitted to
Treasury on April 3, 2020.6

3  P.L. 116-136 (March 27, 2020).
4  The financial assistance provided under the CARES Act was split between Passenger Air Carriers
($25 billion), Cargo Air Carriers ($4 billion), and Contractors ($3 billion).
5  Passenger and cargo air carriers that are not required to report salaries and wages to DOT under 14
CFR, Part 241, “Uniform System of Accounts and Reports for Large Certificated Air Carriers”.
6  Paradigm submitted the PSP1 Application and related supporting documentation on April 3, 2020.

Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
2
To accomplish the objective, we reviewed applicable laws and
regulations; and Treasury’s policies and procedures, including but
not limited to, the Title IV, Subtitle B, Air Carrier Worker Support of
the CARES Act, Guidelines and Application Procedures for Payroll
Support to Air Carriers and Contractors (Guidelines), PSP1
Agreement, and Frequently Asked Questions: Application
Procedures for Payroll Support to Air Carriers and Contractors. We
interviewed key personnel from Paradigm, Treasury, and contracted
consultants engaged by Treasury to evaluate certified company
applications. We conducted our fieldwork from September 2021
through May 2022. Appendix 1 contains a more detailed
description of our objective, scope, and methodology.
Results in Brief
In brief, S&R found that Paradigm, a passenger air carrier, reported
correct information for three of the four sections reviewed on its
PSP1 Application.7 These sections are: (1) Applicant Information,
(2) Applicant Type, and (3) Certification. For the Awardable
Amounts section, we found that Paradigm requested a total
overstatement of $90,822. Specifically, Paradigm requested
(1) unallowable corporate officer compensation resulting in an
overstatement of $
, (2) reimbursement of unallowable
expenses resulting in an overstatement of $
,
(3) compensation for three independent contractors resulting in an
overstatement of $
, and (4) data errors resulting in an
understatement of $
. Treasury’s awards to passenger air
carriers under PSP1 included a 78.2 percent pro rata distribution of
application amounts. Applying this formula, we found that
Paradigm received a $71,023 overpayment from Treasury. As a
result, we question the costs totaling $71,023 and recommend
that the Chief Recovery Officer seek reimbursement of
the $71,023 overpayment to Paradigm for PSP1. Additionally, we
recommend that Treasury review Paradigm’s requested amount for
unallowable expenses, under the Payroll Support Program

7  The PSP1 Application is comprised of eight sections. Four sections - Financial Institution Information,
Employment Levels, Taxpayer Protection, and Additional Information, were not subject to audit
procedures. Details regarding the sections not reviewed can be found in appendix 1.

Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
3
Extension (PSP2)8 authorized by the Consolidated Appropriations
Act, 2021 and the Payroll Support Program 3 (PSP3)9 authorized
by the American Rescue Plan Act of 2021, and seek
reimbursement for overpayment, if applicable.
We also noted a matter of concern from our review of Paradigm’s
employee and independent contractor compensation and the
reporting of the compensation to the Internal Revenue Service
(IRS). Since Federal tax compliance is outside the scope of our
audit objective, which is described in detail in appendix 1, we
suggest that Paradigm management seek an official opinion from
the IRS regarding the treatment of these workers as either
independent contractors or employees for purposes of federal
employment taxes and income tax withholding. In addition, we will
refer information on the treatment of certain bonus and other
compensation to the Treasury Inspector General for Tax
Administration.
Appendix 2 contains more details on questioned costs.
As part of our reporting process, we provided Paradigm
management an opportunity to comment on a draft of this report.
Despite our multiple requests for comment, Paradigm did not
respond or provide comments to the findings and recommendations
outlined in the report. Accordingly, the report is issued without
Paradigm management’s response or comments.
In a written response, Treasury management concurred with our
recommendations and agreed that any overpayments of PSP funds
should be recouped. Treasury stated it will review the findings,
consider any response from the recipient, and seek recoupment of
any amounts that Treasury determines have been overpaid. Also,
Treasury will review awardable amounts requested under PSP2 and
PSP3 and seek recoupment where appropriate. Treasury
management will need to record an estimated completion date for
these actions in the Joint Audit Management Enterprise System
(JAMES). Management’s planned corrective actions meet the intent

8  The Consolidated Appropriations Act, 2021 (P.L. 116-260), enacted on December 27, 2020, created
the Airline Worker Support Extension for passenger air carriers and certain contractors. Treasury
referred to this as Payroll Support Program Extension (PSP2).
9  The American Rescue Plan of 2021 (P.L. 117-2), enacted on March 11, 2021, created the Air
Transportation Payroll Support Program Extension authorizing Treasury to provide additional
assistance to passenger air carriers and contractors that received financial assistance under PSP2.
Treasury referred to this as Payroll Support Program 3 (PSP3).

Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
4
of our recommendations. Treasury management’s response, in its
entirety, is included as appendix 3 of this report.
Background
Title IV, Subtitle B, of the CARES Act, Air Carrier Worker Support,
requires Treasury to provide financial assistance to air carriers and
contractors that must exclusively be used for the continuation of
payments of employees’ wages, salaries, and benefits. Financial
assistance is to be provided to:
(1) passenger air carriers, in an aggregate amount up to

$25 billion;
(2) cargo air carriers, in the aggregate amount up to $4 billion;
 and
(3) contractors, in an aggregate amount up to $3 billion.

According to the CARES Act, Treasury is required to provide
financial assistance to air carriers that report salaries and benefits
to the DOT (referred to as 241 carriers),10 in an amount equal to
the salaries and benefits reported to DOT for the period
April 1, 2019 through September 30, 2019. For air carriers that do
not report such data to DOT (referred to as non-241 carriers), and
contractors, financial assistance is required to be in an amount that
the air carrier or contractor certifies using sworn financial
statements or other appropriate data as the amount of wages,
salaries, benefits, and other compensation paid to employees
during the period of April 1, 2019 through September 30, 2019.
The amounts submitted on the application to Treasury were
considered sworn financial statements. To be eligible for payments,
air carriers and contractors had to enter into agreements with
Treasury certifying that they meet certain required assurances,
terms, and conditions.

10  14 CFR, Part 241 “Uniform System of Accounts and Reports for Large Certificated Air Carriers”
defines “Air carrier, large certificated” as an air carrier holding a certificate issued under 49 U.S.C
41102, as amended, that: (1) operates aircraft designed to have a maximum passenger capacity of
more than 18,000 pounds; or (2) conducts operations where one or both terminals of a flight stage
are outside the 50 states of the United  States, the District of Columbia, the Commonwealth of
Puerto Rico and the U.S. Virgin Islands. These air carriers are required to report financial information
to DOT. Paradigm is not a Large Certificated Air Carrier.

Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
5
On March 30, 2020, Treasury posted on its website the
Guidelines, which included the PSP1 Application. The PSP1
Application is comprised of eight sections:
1. Applicant Information ─ (1) applicant name; (2) taxpayer
identification number and address; and (3) contact person’s
name, title, phone number, and email address.
2. Applicant Type ─ selection of applicant type whether it is
passenger air carrier, cargo air carrier, or contractor.
Additionally, if the applicant is a contractor, this section would
identify the contractor’s service functions and the name of the
air carrier or airport to which services are provided. Finally, this
section includes affiliate and parent company information.
3. Financial Institution Information ─ (1) the applicant’s banking
account number and routing number; and (2) the financial
institution’s name, address, and telephone number.
4. Employment Levels ─ applicant’s average number of employees
for 2019 and involuntary reductions after March 1, 2020.
5. Awardable Amounts ─ applicant’s sworn financial statement
consisting of salaries, wages, benefits, and other compensation
for the period April 1, 2019 through September 30, 2019.
6. Taxpayer Protection ─ table that outlines in detail the proposed
financial instrument to be issued to Treasury.
7. Additional Information ─ applicant’s verification of submitting its
IRS Form 941 – Employer’s Quarterly Federal Tax Return11
covering the period April 1, 2019 through September 30, 2019
along with the PSP1 Application submitted to Treasury.
8. Certification ─ names, titles, and signatures of two certifying
officials12 and the applicant name and application submission
date.
On April 18, 2020, Treasury published a sample PSP1 Agreement
on its website, which provided definitions, terms, and conditions

11  IRS Form 941 is a tax form that businesses file quarterly to report income taxes, Social Security
taxes and Medicare taxes they withheld from employee paychecks.
12  The certifying officials attested under penalty of perjury that the information and certifications provided
in the application and its attachments are true and correct.

Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
6
for participation in PSP1, and required applicants to submit
completed applications by April 27, 2020. After Treasury reviewed
and approved an application, both parties were required to sign the
PSP1 Agreement.
Treasury Disbursement Processes
In an effort to disburse PSP1 payments to passenger air carrier
applicants as quickly as possible and prior to the application
deadline of April 27, 2020, Treasury applied an initial estimated pro
rata rate of 76 percent to the awardable amount because not all
applications had been submitted at the time. After the application
deadline, Treasury determined the total amount requested by all
passenger air carrier applicants was approximately $31.8 billion,
which exceeded the $25 billion available financial assistance.
Because its initial estimated pro rata rate was low, Treasury
calculated an additional 2.2 percent, the top-off amount, for
passenger air carriers making the final awarded pro rata rate
78.2 percent. Generally, Treasury disbursed an initial lump sum
payment of one-third of the awardable amount, followed by four
equal subsequent payments to ensure it provided sufficient and
timely financial assistance corresponding to the applicants’ payroll
schedule. In instances where Treasury needed to perform additional
follow-up with passenger air carriers or needed additional time to
approve applications, Treasury compressed the payment schedule
on a case by case basis. Generally, Treasury disbursed the top-off
amounts for passenger air carriers in September 2020. Treasury
officials told us that if recoupment was necessary for an
applicant’s inclusion of unallowable expenses such as corporate
officer compensation and employer-side payroll taxes in the
application, the recoupment method was dependent on timing. If
the need for recoupment was known prior to the top-off
distribution then the recoupment was offset from the top-off
payment. For recoupment amounts not known until after the top-
off payment, Treasury has not made a decision how those funds

Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
7
will be collected and whether those funds will be reallocated at a
later date.
PSP1 Interim Audit Report
In a prior audit report,13 OIG identified two recurring issues
affecting the payment amounts administered to all PSP1 recipients
for non-241 air carriers and contractors. Specifically, employer-side
payroll taxes and corporate officer compensation were included in
the awardable amounts for some recipients. Treasury management
acknowledged that the recipients audited included unallowable
employer-side payroll taxes or corporate officer compensation in
their calculation of the “awardable amount” on their PSP1
Applications and agreed to (1) review payments issued under PSP1
to ensure awarded amounts are allowable per the CARES Act and
Treasury guidance; and (2) remedy the incorrect amounts awarded
under PSP1.
Paradigm Jet Management, Inc.
Headquartered in Muskegon, Michigan, Paradigm provides
worldwide executive charter, aircraft management services, and
acquisition consulting. Paradigm also offers services for operating
and maintaining aircrafts owned by clients.
Paradigm, a non-241 passenger air carrier, submitted its PSP1
Application totaling $
 on April 3, 2020. Treasury
awarded $947,678 to the company, 78.2 percent pro rata
distribution to passenger air carriers. Treasury’s disbursements to
Paradigm were as follows:
• April 23, 2020 - $307,005.08
• June 04, 2020 - $153,502.90
• July 07, 2020 - $153,502.90
• August 06, 2020 - $153,502.90
• September 04, 2020 - $153,502.90

13  OIG-21-025, Interim Audit Update – Air Carrier and Contractor Certifications for Payroll Support
Program (Interim Audit), March 31, 2021.

Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
8
• Top-off: September 30, 2020 - $26,661.03
In addition to PSP1, Treasury awarded Paradigm $641,077 under
PSP2 and $597,932 under PSP3. PSP2 and PSP3 were not the
subject of this audit.
Audit Results
We found that Paradigm reported correct information for three of
the four sections reviewed on its PSP1 Application. These sections
are: (1) Applicant Information, (2) Applicant Type, and (3)
Certification. We compared information provided in each section of
the PSP1 Application to supporting documentation including air
carrier certificates, general ledger data, company sworn financial
statements, IRS Form 941, organizational charts, payroll data, and
third-party benefit invoices.
We also found that Paradigm reported incorrect information in the
Awardable Amounts section. Specifically, the company included (1)
corporate officer compensation resulting in an overstatement of
$
, (2) reimbursement of unallowable expenses resulting in
an overstatement of $
, and (3) compensation for independent
contractors resulting in an overstatement of $
. However,
the overstatement was partially offset by an initial understatement
on the PSP1 Application totaling $
, resulting in a net
overstatement of $90,822. Table 1 illustrates a breakdown of
Paradigm’s overstated amounts.
Table 1. Total Overstatement

Description
Amount
Initial Understatement on PSP1 Application
$

Compensation Paid to Corporate Officers
$

Reimbursement of Expenses
$

Compensation Paid to Independent Contractors
$

TOTAL OVERSTATEMENT
$(90,822)
Source: S&R Calculation of the Awardable Amount

Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
9
Finding 1
Inaccurate Compilation of the PSP1 Application
Awardable Amount

Initial Understatement on PSP1 Application
The Treasury Guidelines defines wages, salaries, benefits, and
other compensation as “remuneration paid by the applicant to its
employees for personal services and includes salaries, wages,
overtime pay, cost-of-living differentials, and other similar
compensation, as distinguished from per diem allowances or
reimbursement for expenses incurred by personnel for the benefit
of the applicant.” In addition, the Guidelines defines the Awardable
Amount as “an amount that such contractor certifies, using sworn
financial statements or other appropriate data, as the amount of
wages, salaries, benefits, and other compensation that such
contractor paid its employees during the time period.”
Paradigm incurred $
 in total salaries, wages, and
benefits from April 2019 through September 2019. The amounts
requested on the PSP1 Application were derived from two
categories: (1) payroll and benefit compensation paid on behalf of
individuals included in weekly payroll processing,14 and (2) payroll
and benefit compensation paid on behalf of individuals not included
in weekly payroll processing.15 However, we found that this
amount exceeded the amount requested by $
, as
illustrated below in Table 2, which initially understated the PSP1
Application.

14  Individuals who receive payments through routine payroll receive an IRS Form W-2, Wage and Tax
Statement.
15  Individuals compensated outside of routine payroll processing received IRS Form 1099-MISC in
2019. This compensation included certain salaries, bonuses, commissions, and expense
reimbursements.

Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
10
Table 2. Initial PSP1 Application Understatement
Category
Requested
Amount
Supported
Amount
Difference
Salaries and Wages
$
 $

$

Benefits
$

$

$-
TOTAL UNDERSTATEMENT
$
 $

$

Source: S&R Calculation of the Awardable Amount
Paradigm management stated that compilation errors resulting in an
initial understatement to the PSP1 Application stemmed from
unintentional oversight during the application process. In addition,
Paradigm management could not recall specific reductions that
would have been taken to arrive at the final amounts on the PSP1
Application.
Corporate Officer Compensation
Both the CARES Act and Treasury’s Guidelines define “employee”
as “an individual, other than a corporate officer, who is employed
by an air carrier or contractor in the United States (including its
territories and possessions).” In addition, the signed PSP1
Agreement, effective April 20, 2020, subsequently defines a
corporate officer as, with respect to the Recipient, “its president;
any vice president in charge of a principal business unit, division, or
function (such as sales, administration or finance); any other officer
who performs a policy-making function; or any other person who
performs similar policy making functions for the Recipient.
Executive officers of subsidiaries or parents of the Recipient may
be deemed Corporate Officers of the Recipient if they perform such
policy-making functions for the Recipient.”
We found that Paradigm included unallowable compensation paid
to its sole corporate officer, the company President, in the
requested amount through discussions with management and
review of Paradigm’s 2019 organizational chart.
The inclusion of a corporate officer in the PSP1 Application
resulted in an overstatement of $
 in the requested amounts,
as shown below in Table 3.

Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
11
Table 3. Corporate Officer Inclusion

Month
Unallowable Corporate
Officer Compensation in
the PSP1 Application
April 2019
$

May 2019
$

June 2019
$

July 2019
$

August 2019
$

September 2019
$

TOTAL OVERSTATEMENT
$

Source: S&R Calculation of the Awardable Amount
Paradigm management stated that the definition of a corporate
officer was unclear in the PSP1 Agreement and that the term was
not defined in the application guidelines. In addition, management
stated that it believed the term corporate officer was common in
larger aviation carriers, not smaller ones such as Paradigm.
Reimbursement of Expenses
The Treasury Guidelines defines “Wages, salaries, benefits, and
other compensation” as “remuneration paid by the applicant to its
employees for personal services and includes salaries, wages,
overtime pay, cost-of-living differentials, and other similar
compensation, as distinguished from per diem allowances or
reimbursement for expenses incurred by personnel for the benefit
of the applicant.”
Paradigm included non-payroll expense reimbursements related to
(1) charges made by pilots or mechanics for working on its
aircrafts, (2) travel charges made by pilots or mechanics working
on its aircrafts, (3) charges incurred for chartering an aircraft, and
(4) miscellaneous non-payroll expenses that do not have a
particular accounting category from April 2019 through
September 2019.

Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
12
The inclusion of unallowable expenses for reimbursement resulted
in an overstatement of $
 in requested amounts, as shown
below in Table 4.
Table 4. Reimbursement of Expenses
Reimbursable Expense Category
Amount
Crew Expenses
$

Travel Expenses
$

Aircraft Charter Expense
$

Miscellaneous Expense
$

TOTAL OVERSTATEMENT
$

Source: S&R Calculation of the Awardable Amount
Paradigm management stated that it did not believe that the
reimbursement of employee expenses should be excluded from the
PSP1 Application.
Independent Contractor Compensation
The PSP1 Agreement defines an employee as, an individual who is
employed by the Recipient and whose principal place of
employment is in the United States (including its territories and
possessions), including salaried, hourly, full-time, part-time,
temporary, and leased employees, but excluding any individual who
is a Corporate Officer or independent contractor.
Paradigm included three independent contractors who earned
compensation for services performed for Paradigm from April 2019
through September 2019. Specifically, these independent
contractors consisted of (1) two workers that Paradigm considered
company employees due to an operational control agreement,16 and
(2) one worker who was not a company employee and did not have
an operational control agreement, but earned compensation from
Paradigm. These three workers were not considered employees,
but rather independent contractors, for purposes of Paradigm’s
filed IRS Form 941. More information regarding the tax treatment

16  The operational control agreement states that the worker is an exclusive full-time employee of
Paradigm, who controls the exclusive direction and control of the worker performing his/her duties.

Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
13
of company workers is included in the “Matter of Concern” section
of this audit report.
For the two workers with an operational control agreement,
Paradigm management stated that it considers these individuals to
be company employees and that it did not believe that excluding
them from employer tax reporting to the IRS would preclude them
from PSP1 eligibility.
For the one worker without an operational control agreement,
Paradigm management stated that this individual was not
considered as a company employee.
The inclusion of independent contractor compensation resulted in
an overstatement of $
 in requested amounts, as shown
below in Table 5.
Table 5. Independent Contractor Compensation

Month
Salaries and
Wages
Benefits
Total
April 2019
$

$-
$

May 2019
$

$-
$

June 2019
$

$-
$

July 2019
$

$

$

August 2019
$

$

$

September 2019
$

$

$

TOTAL OVERSTATEMENT
$

$

$

Source: S&R Calculation of the Awardable Amount
Based on our calculation, the total compensation that is eligible for
PSP1 financial assistance is $
 and Paradigm requested
$
, which resulted in overstatement of $90,822. See
Table 6 below.

Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
14
Table 6. Awardable Amount Comparison
Category
W-2
Workers
1099-MISC
Workers
Total
Gross Compensation Paid
$

$
 $

Gross Benefits Paid
$

$

$

(Less) Corporate Officers
(Table 3)
$

-
$

(Less) Reimbursement of
Expenses (Table 4)
-
$

$

(Less) Independent
Contractors
(Table 5)
-
$

$

Allowable Compensation
$

$
 $

PSP1 Application

 $

DIFFERENCE

$(90,822)
Source: S&R Calculation of the Awardable Amount
Since Treasury disbursed PSP1 funds pro rata for passenger air
carriers at 78.2 percent of the requested awardable amount,
Paradigm received an overpayment of $71,023.
To remedy the findings listed in the prior OIG audit report,17
Treasury required PSP2 applicants to re-certify their PSP1
awardable amounts. Paradigm certified to Treasury under PSP2,
that its PSP1 Application did not include corporate officer
compensation. Treasury stated it relies on applicants’ certifications
that they did not include unallowable expenses (i.e., corporate
officer compensation and employer-side payroll taxes) and no
further validation checks were performed; as a result, the company
likely included corporate officer compensation in its PSP2 and PSP3
financial assistance request.

17  OIG-21-025, Interim Audit Update – Air Carrier and Contractor Certifications for Payroll Support
Program (Interim Audit), March 31, 2021.

Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
15
Matter of Concern
Improper Employer Tax Reporting to the IRS
Paradigm did not report certain compensation paid to workers on
its IRS Form 941. The unreported compensation was paid to
workers outside of routine weekly payroll from April 1, 2019
through September 30, 2019. It consists of (1) two workers that
had an operational control agreement with Paradigm, and (2)
eleven company employees that received routine payroll but were
also paid bonuses or commissions outside of routine payroll that
was not subject to employer taxes. The cumulative amount of
payments made to these workers is shown below in Table 7.

Table 7. Unreported Compensation to the IRS
Category
Amount
Operational Control Agreements
$

Bonuses and Commissions
$

TOTAL
$

Source: S&R Calculation of the Awardable Amount
Employees with Operational Control Agreements
IRS Publication 15-A, Employer's Supplemental Tax Guide, “2.
Employee or Contractor” provides employers with guidance on
whether individuals should be classified as an employee or
independent contractor. The publication goes on to state that “If
you classify an employee as an independent contractor and you
have no reasonable basis for doing so, you’re liable for employment
taxes for that worker.”
The two operational control agreements, which were effective
between the workers and Paradigm beginning October 13, 2010
and April 4, 2019, respectively,18 state that each worker is an
exclusive, full-time employee of Paradigm and that Paradigm
controls the exclusive direction and control of the worker
performing his/her duties. However, Paradigm’s exclusion of such

18  Compensation paid by Paradigm to these workers outside of the April 1, 2019 through
September 30, 2019 scope period was not reviewed or quantified.

Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
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compensation on its IRS Form 941 indicates that these workers
were treated as independent contractors for tax purposes. Based
on our work in this audit, we believe that the status of these
employees are in question, and Paradigm management should seek
an official opinion from the IRS regarding the treatment of these
workers as either independent contractors or employees for
purposes of federal employment taxes and income tax
withholding.19
Employees Paid Bonuses and Commissions
Paradigm employees who receive payments through routine payroll
receive an IRS Form W-2, Wage and Tax Statement, and their
compensation is included on Paradigm’s IRS Form 941 – Line 2,
“Wages, tips, and other compensation”. According to the
Instructions for IRS Form 941 (2019), employers are to “Enter
amounts on line 2 that would also be included in box 1 of your
employees' Forms W-2”.
The General Instructions for Forms W-2 (2019), Box 1—Wages,
tips, other compensation states that this box consists of “[…] total
taxable wages, tips, and other compensation that you paid to your
employee during the year. Sub-Paragraph one states that wages,
tips, and other compensation includes “Total wages, bonuses
(including signing bonuses), prizes, and awards paid to employees
during the year.”
Paradigm’s failure to include bonus and commission compensation
on its IRS Form 941 indicates that these payments to company
employees were not reported to the IRS.
Paradigm management stated that it does not pay employer taxes
on any compensation paid outside of routine payroll processing.
Additionally, for company employees who received bonuses and
commissions outside of routine payroll, management stated that
historical challenges with blending payroll processing and one-time
payments led to operational challenges, so company policy was
modified. Since Federal tax compliance is outside the scope of our

19  Firms and workers file Form SS-8, Determination of Worker Status for Purposes of Federal
Employment Taxes and Income Tax Withholding, to request a determination of the status of a worker
for purposes of federal employment taxes and income tax withholding. A firm filing a Form SS-8
requesting a “worker status” determination means the firm is asking the IRS to establish if the
services provided by the worker are those of an employee or an independent contractor.
(https://www.irs.gov/forms-pubs/about-form-ss-8)

Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
17
audit objective, which is described in detail in appendix 1, we will
refer this matter to the Treasury Inspector General for Tax
Administration.
Recommendation
S&R recommends that Treasury’s Chief Recovery Officer:
1. Seek reimbursement of the $71,023 overpayment of PSP1
financial assistance.
Management Response
Treasury will review the findings, consider any response from
the recipient, and seek recoupment of any amounts that
Treasury determines have been overpaid.
S&R Comment
Management’s planned corrective actions meet the intent of our
recommendation. Treasury management will need to record an
estimated completion date for these actions in JAMES.
2. Review Paradigm’s requested amount for unallowable expenses
under PSP2 and PSP3, and seek reimbursement for the
overpayment, if applicable.
Management Response
Treasury will review awardable amounts requested under PSP2
and PSP3 and seek recoupment where appropriate.
S&R Comment
Management’s planned corrective actions meet the intent of our
recommendation. Treasury management will need to record an
estimated completion date for these actions in JAMES.

* * * * * *

Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
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We appreciate the courtesies and cooperation provided to our staff
during the audit. A distribution list for this report is provided as
appendix 4.
Saggar & Rosenberg, P.C. /s/

Appendices

Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
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Appendix 1: Objective, Scope, and Methodology
Our objective was to assess the accuracy, completeness, and
sufficiency of Paradigm Jet Management, Inc.’s (Paradigm) sworn
financial statement or other data used to certify the wages,
salaries, benefits, and other compensation amounts submitted and
approved by the Department of the Treasury (Treasury).
The scope of our audit covered the time period from April 1, 2019
through September 30, 2019 and included the certified Payroll
Support Program (PSP1) Application, sworn financial statements,
tax returns, and other documentation submitted to Treasury on
April 3, 2020.20
To accomplish this objective, Saggar & Rosenberg, P.C. (S&R)
performed the following activities during audit fieldwork conducted
remotely, due to the Coronavirus Disease 2019 (COVID-19)
pandemic from September 2021 through May 2022:
•
Reviewed applicable Federal laws, regulations, and guidance,
including:
o Title IV, Subtitle B, Air Carrier Worker Support, of the
Coronavirus Aid, Relief, and Economic Security Act
(CARES Act);21 and
o 14 CFR, Part 241,22 Uniform System of Accounts and
Reports for Large Certificated Air Carriers, amended
August 12, 2022.
•
Reviewed Treasury’s policies, procedures, and guidance related
to PSP1:
o Guidelines and Application Procedures for Payroll Support
to Air Carriers and Contractors, which included the
PSP1 Application, March 30, 2020;

20  Paradigm submitted the PSP1 Application and related support documentation on April 3, 2020.
21  P.L. 116-136 (March 27, 2020).
22  14 CFR, Part 241 “Uniform System of Accounts and Reports for Large Certificated Air Carriers”
defines “Air carrier, large certificated” as an air carrier holding a certificate issued under 49 U.S.C
41102, as amended, that: (1) operates aircraft designed to have a maximum passenger capacity of
more than 18,000 pounds; or (2) conducts operations where one or both terminals of a flight stage
are outside the 50 states of the United  States, the District of Columbia, the Commonwealth of
Puerto Rico and the U.S. Virgin Islands. These air carriers are required to report financial information
to the Department Of Transportation. Paradigm is not a Large Certificated Air Carrier.

Appendix 1: Objective, Scope, and Methodology
Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
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o PSP1 Agreement;
o Question and Answer: Payroll Support to Air Carriers and
Contractors, (April 2, 2020, April 3, 2020, and
April 20, 2020 versions); and
o Frequently Asked Questions: Application Procedures for
Payroll Support to Air Carriers and Contractors,
April 3, 2020.
•
Performed 100 percent testing for four of the eight sections of
the PSP1 Application; specifically, the Applicant Information,
Applicant Type, Awardable Amounts, and Certification sections.
The other four sections were not reviewed because the
Taxpayer Protection section generally applied to 241 air
carriers, with exceptions; the Employment Levels, Financial
Institution Information, and Additional Information sections had
no impact on Treasury’s determination of recipients’ award
amounts.
•
Interviewed key Treasury personnel and contracted consultant
personnel engaged by Treasury to aid in its evaluation of the air
carriers’ and the contractors’ certified applications and other
data.
•
Interviewed Paradigm representatives responsible for the sworn
financial statement. The amounts submitted in the Awardable
Amounts section of the PSP1 Application were considered the
sworn financial statement.
•
Reviewed sworn financial statements and documents to support
the requested payroll support amount. The documentation
included general ledger data, company pay registers, benefit
invoices, Internal Revenue Service (IRS) Form 941 – Employer’s
Quarterly Federal Tax Return,23 and organizational hierarchy
information.
•
Reviewed Government Accountability Office’s (GAO) Standards
for Internal Control in the Federal Government24 to identify the
components of internal control that are significant to the audit
objective. Understanding internal control within the context of
an entity’s internal control framework can help auditors

23  IRS Form 941 is a tax form that businesses file quarterly to report income taxes, Social Security
taxes, and Medicare taxes they withheld from employee paychecks.
24  GAO-14-704G (September 2014).

Appendix 1: Objective, Scope, and Methodology
Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
21
determine whether internal control deficiencies exist. We
concluded that one of the five internal control components,
Control Activities, as related to the Paradigm payroll system,
was significant to the audit objective.25 This component states
that control activities are the actions management establishes
through policies and procedures to achieve objectives and
respond to risks in the internal control system, which includes
the entity’s information system. To assess the controls over
Paradigm’s payroll system, we examined Paradigm’s response
to a Data Supplier Questionnaire26 and interviewed Paradigm’s
management responsible for generating and using the data.
Additional details regarding our assessment of the reliability of
the data is reported in the section below.
•
Reviewed GAO’s Assessing Data Reliability27 guidance, which
states that a data reliability determination does not involve
attesting to the overall reliability of the data or database. For
this audit, the audit team has only determined the reliability of
the specific data sources needed to support the findings,
conclusions, or recommendations in the context of the audit
objective. Paradigm prepared the PSP1 Application using
information from its system of record. We reviewed accounting
entries supported by payroll registers generated from the payroll
system at the individual employee level, transactions paid to
employees compensated outside of weekly payroll, as well as
third-party vendor benefit invoices to the amounts presented in
the Awardable Amounts section of the PSP1 Application.
To assess data reliability of these sources, we examined
Paradigm’s response to Data Supplier Questionnaire for the
payroll and accounting system and interviewed Paradigm
management responsible for generating and using the data.
Based on our assessment, we determined that the data was
sufficiently reliable to support the findings and conclusions to
answer the objective of this audit.
We conducted this performance audit in accordance with generally
accepted government auditing standards. Those standards require

25  The five components in GAO’s Standards for Internal Control in the Federal Government are Control
Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring.
26  A Data Reliability Assessment is completed to assess the reliability of data originating from a system
to determine if it is reliable for the purposes of the audit. The Data Supplier Questionnaire would be
one of the tools used during the Data Reliability Assessment.
27  GAO-20-283G (December 2019).

Appendix 1: Objective, Scope, and Methodology
Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
22
that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and
conclusions based on our audit objective. We believe that the
evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objective.

Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
23
Appendix 2: Schedule of Monetary Benefits
According to the Code of Federal Regulations,28 a questioned cost
is a cost that is questioned by the auditor because of an audit
finding:

(a) which resulted from a violation or possible violation of a
statute, regulation, or the terms and conditions of a Federal
award, including for funds used to match Federal funds;

(b) where the costs, at the time of the audit, are not supported
by adequate documentation; or

(c) where the costs incurred appear unreasonable and do not
reflect the actions a prudent person would take in the
circumstances.

Questioned costs are to be recorded in the Department of the
Treasury’s (Treasury) Joint Audit Management Enterprise System
(JAMES). The amount will also be included in the Office of
Inspector General (OIG) Semiannual Report to Congress. It is
Treasury management's responsibility to report to Congress on the
status of the agreed to recommendations with monetary benefits in
accordance with Section 5(b) of the Inspector General Act of
1978, as amended.

Recommendation

Questioned Costs
Recommendation No. 1

$71,023

The questioned costs represent amounts provided by Treasury
under the Payroll Support Program (PSP1). As discussed in
Finding 1, Paradigm Jet Management, Inc. overstated its PSP1
Application awardable amount to Treasury by $90,822 due to the
inclusion of (1) corporate officer compensation, (2) reimbursement
of expenses, (3) compensation for three independent contractors,
and (4) data errors. However, since Treasury disbursed PSP1 funds
pro rata for passenger air carriers at 78.2 percent of the requested
awardable amount, the questioned cost related to the overstated
PSP1 Application is $71,023.

28 2 CFR § 200.84 – Questioned Cost.

Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
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Appendix 3: Treasury Management Response

Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
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Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
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Audit of Air Carrier Worker Support Certifications - Paradigm Jet
Management, Inc. (OIG-23-027)
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Appendix 4: Report Distribution
Department of the Treasury
Treasury Secretary
Deputy Secretary
Treasury Audit Liaison
Office of Strategic Planning and Performance Improvement
Office of the Deputy Chief Financial Officer, Risk and Control
   Group
Paradigm Jet Management, Inc.
President
Office of Management and Budget
OIG Budget Examiner
United States Senate
Committee on Homeland Security and Governmental Affairs
Committee on Finance
Committee on Banking, Housing, and Urban Affairs
Committee on Commerce, Science, and Transportation
Committee on Appropriations
Committee on the Budget
United States House of Representatives
Committee on Oversight and Reform
Committee on Financial Services
Committee on the Budget
Committee on Transportation and Infrastructure

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