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Superintendent Issues Letter to School Community Regarding IRS Audit
On Friday, December 1, Superintendent Tommy Chang issued the following letter to the Boston Public Schools community:
Dear Boston Public Schools Community:
The trust of our families, our staff and the public at large is of the utmost importance to me and the rest of the Boston Public Schools.
Over the last fifteen months, the Internal Revenue Service (IRS) conducted an extensive and comprehensive audit of the City of Boston’s federal employment tax returns for the tax periods 2014, 2015 and 2016. This audit included a review of 16 student activity accounts at Boston Public Schools (BPS).
Yesterday, Mayor Martin J. Walsh announced that the City of Boston is hiring an independent auditor, Ernst & Young, to conduct a comprehensive and independent review of all student activity accounts. We are confident that we will receive the information we need to correct these issues, achieve complete transparency, and continue to earn the trust of the public we serve.
During the routine audit, the IRS identified the following:
- 10 instances where Form 1099-MISC were not issued when paying a vendor, such as a bus provider for a field trip, as required by the IRS.
- Wages directly paid to individuals that may have been misclassified as vendors, such as tutors, coaches and exam proctors, which may have resulted in the nonpayment of taxes.
- Wages directly paid to employees of the City of Boston, rather than through payroll, which may have resulted in the nonpayment of taxes. Examples of these payments include overtime, work beyond regular school hours or reimbursements.
This audit was completed on November 2, 2017. As a result, BPS was issued $2,000 in fines for failure to file Forms 1099-MISC and the City of Boston provided $28,378 in owed tax payments to the IRS. We appreciate the IRS auditors for bringing this issue to our attention.
When we learned of potential irregularities during the auditing process, we took swift and decisive action to correct issues with decades-old account practices with our student activity accounts. My administrative team has spoken with school staff across the district about the need to rectify this problem and reform our practices.
On June 5, 2017, I sent a memo to all school leaders notifying them of the IRS audit and instructing them to follow strict guidelines on the proper accounting and distribution of the student activity monies.
The district, in August, held training sessions at four sites across the city with more than 200 BPS principals and teacher representatives and clarified the rules governing student activity account practices. We shared with school staff a training video, a manual and a PowerPoint presentation outlining appropriate accounting practices related to student activity accounts. We also posted these resources on the BPS website in August.
Additionally, we took the following corrective measures last spring:
- We immediately put into place stopgap measures to ensure student activity funds are following proper accounting practices. For example, all payments to BPS staff now must go through our district payroll, and debit cards associated with these accounts will not be allowed.
- The City of Boston solicited expert input on the interpretation of state guidance and to help redesign BPS policies and practices.
- We undertook an extensive survey of all schools and their student activity accounts.
- All student activity accounts are now required to be held through a City of Boston Tax ID number at Citizens Bank, creating one master account, so that all funds can be monitored by the BPS and City finance offices. The City Treasurer has also worked with Citizens Bank to ensure all relevant accounts were identified.
- All schools are moving their student activity accounts into a centralized system overseen by the BPS Finance Office (PeopleSoft system). We are migrating schools over the course of the year. The new system ensures all employees are paid through BPS payroll and that funds are expended consistent with all other BPS procurement activity, allowing tighter controls from the BPS and City finance teams. The new system allows every deposit and expenditure to be tracked and linked to specific activities online.
We appreciate the IRS auditors for bringing this issue to our attention. The IRS’s formal recommendations related to BPS can be viewed online by clicking here.
Tommy Chang, Ed.D.