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IRS audit of city raises questions

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Yawu Miller
Yawu Miller
Yawu Miller is the Banner’s senior editor. VIEW BIO
IRS audit of city raises questions
Mayor Martin Walsh speaks with BPS Superintendent Tommy Chang at the annual Countdown to Kindergarten event at the Boston Children’s Museum.

When news broke that the city had been audited by the Internal Revenue Service last Monday, the focus of news coverage was on Boston Public Schools Superintendent Tommy Chang and his apparent failure to notify School Committee members and the mayor of the audit’s findings: that BPS principals had paid employees and contractors off the books using student activities funds.

Last Thursday Walsh told reporters he hadn’t received findings of the audit until the previous week.

“The superintendent had the findings,” Walsh was quoted as saying in the Boston Globe. “The School Department had the findings. I didn’t have them.”

Yet the Walsh administration paid a total of $944,000 on Nov. 7 — Election Day — when an unnamed city official handed off a check to an IRS representative in City Hall. The school department’s share of that — $32,000 for paying employees off the books from student activity funds — represented a tiny share of the total payoff. Most of the fees and penalties came from the city’s failure to deduct Medicaid withholdings from some employees paychecks.

The seeming improbability that the Walsh administration could a) receive the findings of a major IRS audit; b) negotiate a nearly million dollar settlement and c) cut a check for that settlement without the knowledge or imprimatur of the city’s chief executive had some critics questioning Walsh’s version of events.

“Burning #bospoli questions of the day: Who physically gave $1MILLION check at City Hall on Election Day to IRS employee for tax evasion that Walsh swears he knew nothing about?” wrote Jamaica Plain resident Heshan Berents-Weeramuni, director of communications and external affairs and education policy advisor for City Councilor Tito Jackson, Walsh’s challenger in the mayoral election. “Sure as hell wasn’t Supt. Chang.”

Adding his voice to the chorus of doubters, former Education Secretary Paul Reville told WGBH that the school department could not have been solely responsible for failing to disclose audit findings.

“It’s clear the city knew about this a long time ago,” he said. “It’s not just the school department and the school department didn’t inform the mayor. The city knew about it a long time and, in fact, the city office has been negotiating with the IRS over the penalties, not the school department, and that negotiation was wrapped up Nov. 2.”

In addition to Chang, Walsh also pointed to previous mayoral administrations — those of Raymond Flynn and the late Thomas Menino, under whose watch school principals had paid employees off the books. But yesterday, Walsh appeared to back off that criticism.

“I’m not blaming any of our predecessors here,” Walsh was quoted in the Boston Herald. “Somebody should have caught this a long time ago. We should have caught it three years ago.”

At the same press conference, Chang took responsibility for not informing the School Committee of the audit findings sooner.

Misappropriated funds

The $32,000 portion of the fine BPS paid to the IRS stemmed from principals’ misuse of student activity funds — monies raised for extracurricular activities such as arts, music or sports through bake sales, from foundations or parent contributions.

Principals in approximately three-quarters of the 26 schools audited approved payments from student activity funds for work or contracts that had nothing to do with student activities. In some cases, principals used the funds for proctoring exams — paying teachers or administrators to monitor students during examinations.

Boston Municipal Research Bureau President Samuel Tyler said the principals’ errors may have been attributable to lack of adequate training.

“There’s a lack of understanding of how those funds should be used,” he said. “It’s a simple matter of making sure there are written directions as to how those funds are used and accounted for.”

A portion of the fine incurred by BPS was attributed “bad accounting practices.” The department came under fire last year for not keeping track of payments to outside vendors.

The $32,000 fine represents a thousandth of a percentage point of the BPS $1.08 billion budget. But the principals’ misuse of the funds underscores the effects of budget cuts to schools that have often left administrators scrambling to pay for needed services.

The bulk of the $944,000 fine the city paid the IRS came from other city departments, including a $700,000 whack for the city’s failure to properly deduct Medicare and other payroll taxes from city employees’ pay checks.

Tyler said the city’s Human Resources Department had the capability to be sure the proper amounts were withheld, but that employees were not properly trained in the use of the payroll software.

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