Metro

Walsh orders independent audit of student activity accounts

Mayor Martin J. Walsh on Thursday called for the audit after an IRS examination of more than a dozen accounts revealed sloppy bookkeeping.
Jessica Rinaldi/Globe Staff/File 2016
Mayor Martin J. Walsh on Thursday called for the audit after an IRS examination of more than a dozen accounts revealed sloppy bookkeeping.

Mayor Martin J. Walsh on Thursday ordered an independent audit of the student activity accounts throughout the city’s school system after an IRS review found sloppy bookkeeping, missing receipts, and stipends being paid under the table at a dozen schools, an embarrassing revelation that has raised questions about fiscal oversight.

Walsh said he is “anticipating there will be some problems in our schools” that will be uncovered by the review.

“I’m confident we will receive the information we need to correct these issues and to achieve complete transparency and to continue to earn the trust of the public that we serve,” Walsh said at a late afternoon press conference at City Hall as Superintendent Tommy Chang stood at his side.

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Walsh said his audit will go further than the IRS probe, which examined accounts at only 16 schools, and will instead review every account across the school system. One of the biggest initial tasks will be determining how many accounts actually exist.

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Walsh said officials do not know how many of the system’s 125 schools have student activity accounts, although he estimated that more than three-quarters of them probably do. He also said officials do not know how much money is in the accounts, but estimated the amounts likely vary widely.

“In some schools, these accounts are small,” Walsh said. “They don’t have the support other schools have in raising large sums of money. We are not talking about millions of dollars. We are talking tens of thousands.”

Student activity accounts are only supposed to be used on items that enhances a student’s education outside the classroom, such as field trips and student clubs. State and federal rules stress the money is for students, and not adults or the institutions. Money generated for the accounts comes from fund-raisers, unsolicited donations, or proceeds from student events, such as proms.

The mayor’s announcement comes as a growing number of watchdogs have been calling for independent audits of the student activity accounts after The Globe first broke the news about the IRS findings on Monday.

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A day after that report, the city revealed the IRS also found problems in how the city was deducting Medicare withholdings and other taxes for some groups of employees and overtaxing some employees who are not US citizens. Those findings indicated the problems were broader than just the school activity accounts.

The findings resulted in nearly $1 million worth of penalties from the IRS, most of it to cover taxes owed by the city to the federal government. The school system’s portion of the penalty amounted to $30,000.

Samuel Tyler, president of the Boston Municipal Research Bureau, a watchdog funded by businesses and nonprofits, said he does not think Walsh’s audit goes far enough.

Walsh downplayed the problems the IRS found with the payroll deductions. He said that the problems were largely due to errors in the ways the affected employees were coded for tax deductions and that they have been corrected.

For much of the 15-minute press conference, Walsh focused his remarks on the student activity accounts, which he said were created in the 1990s and had never been audited prior to the IRS review. The IRS dug into the accounts as part of a routine audit the agency conducts of businesses and government agencies chosen at random, Walsh said.

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It remains unclear why the school system was not scrutinizing spending from those accounts. State guidelines say systems as large as Boston should conduct internal audits of a representative sampling every year, while those accounts exceeding $25,000 should be audited by an outside firm every three years.

The system’s own policies also require principals to file annual reports every June detailing revenue and expenditures, including receipts.

But the IRS audit raises questions about whether principals were filing those reports. The IRS found many schools threw out their accounts’ receipts — the Sarah Greenwood K-8 was unable to provide any receipts for more than $19,000 in spending in 2014 — and it found employees were paid stipends off the books with the money.

The audit also found schools using money from the student activity accounts inappropriately, such as paying for test proctors and a coordinator of Advanced Placement classes.

Chang, who has known about the findings since at least June, has taken criticism for his handling of their public release. The School Committee learned of the findings only last week after a reporter began raising questions.

Walsh also criticized Chang this week for not telling him about the findings sooner, saying he found out about them last week too, even though the city issued a check to the IRS on Nov. 7 to pay off the penalties.

Walsh explained that he did not know the city paid the penalties on Nov. 7, because the amount was small when considering the city spends $8 million a day paying bills. The mayor also said he still supports Chang, although he would not let him speak during the press conference. He did give him permission to talk to reporters afterward.

“We are really focused on making sure these things don’t happen again,” said Chang, who took over as superintendent in 2015, a year after the period the IRS examined. “It’s our job to make sure we look under the hood at everything.”

Chang has already taken steps to address some of the IRS findings.

For instance, he ordered principals in June to stop paying employees directly from the student activity accounts, and later provided training to them.

Paul Craney, spokesman for the Massachusetts Fiscal Alliance, a right-leaning statewide organization, questioned why Walsh did not ask state Auditor Suzanne Bump to examine the student activity accounts.

The alliance asked Bump to conduct such a review Tuesday, but Bump’s office told the Globe that it can only do those reviews at the request of a government agency.

Walsh previously dismissed the alliance’s request to Bump, saying that someone should audit the alliance’s finances.

Instead, the mayor has tapped Ernst & Young, which is already working under a $600,000 contract with the city. Walsh said the city is negotiating an additional clause to that contract to include auditing the student accounts.

James Vaznis can be reached at james.vaznis@globe.com. Follow him on Twitter @globevaznis.