Three owners of a Mexican restaurant chain were sentenced to home detention after underreporting about $23 million in sales at 26 restaurants.
That included underreporting about $683,000 in sales at the El Rodeo location at Smith Valley Road and State Road 135 in Greenwood from 2010 to 2012.
The owners operate dozens of El Rodeo and El Jaripeo restaurants, most of which are in central Indiana. Francisco Salgado and Jose Melendez each pleaded guilty to 10 counts of theft, while Abel Bustos pleaded guilty to two charges of theft.
Salgado and Melendez each will serve two years on home detention and eight years on probation. Bustos was sentenced to one year of home detention and one year of probation.
The owners agreed to forfeit $4.53 million in cash as part of the plea agreement with the Marion County Prosecutor’s Office. About $1.86 million will go toward paying sales and food and beverage taxes that were due based on the company’s actual sales. The remaining amount will be divided among police departments and prosecutor offices that took part in the investigation.
“The investigation uncovered a deliberate and systemic effort to underreport sales to the state and commit these crimes,” Marion County Prosecutor Terry Curry said in a new release. “I hope this sends a clear message that we will investigate similar crimes and hold business owners responsible to provide a level playing field for the legitimate businesses serving our community.”
The company operates the El Rodeo location off Smith Valley Road and was in the process of building a second location on Emerson Avenue near County Line Road in Greenwood when the investigation was launched. Police raided multiple restaurants and seized financial records in November 2013 and also raided the company’s accounting firm in Greenwood, Custom Business and Tax Solutions, according to court documents.
The state began investigating in May 2013 after an auditor noticed a discrepancy in the amount of sales that the company was reporting for tax purposes. A restaurant typically charges a markup of four to seven times the cost of its food and beverages, while the Mexican restaurants were reporting markups of two to three-and-a-half times the cost.
Restaurants also make bank deposits that account for 40 to 60 percent of sales. No restaurant was depositing more than 20 percent of sales as cash, and some locations were banking less than 1 percent, according to court documents. The Johnson County location made deposits of $2.3 million, but only 2 percent of that amount was cash.
After analyzing financial records, the state estimated the company underreported about $22.7 million, or about 25 percent, of total sales from 2010 to 2012. That amount was based on a conservative estimate, meaning the sales totals might have been higher.
Investigators also found evidence that restaurants were engaging in cash skimming, by taking cash at the register but not calculating the sales into the daily total, according to court documents. The restaurants also kept separate financial records of actual sales and sales being reported to the state.
Three owners of El Rodeo and El Jaripeo restaurants were sentenced Monday after they underreported more than $22 million in sales at their restaurants. Here’s a look at the total and the amounts that were not reported from the El Rodeo location in Greenwood:
All 26 restaurants investigated
Total sales: $88.2 million
Reported sales: $65.4 million
Percentage of unreported sales: 26 percent
El Rodeo No. 21, 3113 W. Smith Valley Road, Greenwood
Total sales: $3.05 million
Reported sales: $2.59 million
Percentage of unreported sales: 15 percent
SOURCE: Marion County Prosecutor’s Office