Boston school officials funneled hundreds of thousands of dollars in taxpayer money to a nonprofit foundation, essentially creating a slush fund to pay for holiday parties, first-class plane tickets, and even moving expenses for a departing employee, according to an investigation by a city watchdog agency.
The Boston Finance Commission said revenue generated by such activities as renting out school facilities, leasing school buses, and selling off old equipment — money that should have gone into city coffers to run the schools — was instead deposited in Boston Educational Development Foundation accounts.
Once the money was in the foundation accounts, there were few restrictions, allowing the money to be spent on, for example, dinner tabs at Legal Sea Foods restaurants and the Park Plaza. The investigation examined some but not all of the foundation’s numerous accounts going as far back as 2008 and through 2012. The findings will be released Tuesday.
“The citizens of Boston entrust agents of the city to manage their resources honestly and prudently,” Matthew Cahill, the Boston Finance Commission’s executive director, said in a letter to Mayor Martin J. Walsh that was provided to the Globe. “This investigation has raised serious concerns regarding how taxpayer assets have been managed.”
In an interview, Cahill, whose group is an independent watchdog agency established by the Legislature, said the movement of public dollars into the foundation and the subsequent spending was not necessarily illegal, but “it’s a questionable practice.”
He called for an independent audit of all spending at the foundation. As of June 2013, the foundation had $13.4 million in funds and assets, according to its most recent federal tax form posted on the website of the state attorney general’s office.
Interim Superintendent John McDonough, who served as the foundation’s treasurer for many years, said the school system and the foundation have taken steps to tighten financial controls so money is spent more suitably. Most significantly, he said, the school system stopped depositing city-generated revenue into foundation accounts in 2012 and instead established separate city “revolving funds” for the money.
The foundation also has changed its leadership structure. For instance, the superintendent no longer serves as the fund’s president. Nelson Flores, a Boston school parent, is now the president.
“Clearly, I do not believe we should use public funds for expenditures that are not related to a public purpose,” McDonough said. Such a practice is never acceptable, he said. “We ultimately have a responsibility to spend every dollar wisely and efficiently for the benefit of our students and families.”
But the investigation also raised questions about the revolving funds, calling for even tighter policies and procedures.
Some of the questionable expenditures from the investigation include:
■ $13,776 in moving expenses to the school system’s chief academic officer in May 2009 after she resigned and returned to California. Boston school officials said former superintendent Carol R. Johnson authorized the expense.
■ $1,572 for airfare and two nights of lodging for a job applicant over a weekend in August 2012 at the W hotel, at $266 per night. School officials said the applicant needed to interview on the weekend because she could not miss work.
■ $1,100 for a first-class plane ticket for former New York City schools chancellor Rudolph Crew in September 2011. Crew flew from California to Boston to meet with school officials, even though the Finance Commission had rejected a contract that would have paid him $1,500 a day. School officials said Crew did not work under the contract while in Boston.
■ $2,000 for “Creative Palate by Damian” to cater a holiday party in December 2011. School officials declined to comment on the expenditure but said in general catering is reserved for staff training and other all-day activities.
Kate Norton, a Walsh spokeswoman, said the mayor looks forward to reviewing the findings with the commission.
“From Day One, Mayor Walsh has always been on board with a full, comprehensive audit of Boston Public Schools, and this is exactly the type of information that needs to be examined and evaluated,” Norton said in a statement. “We know that a lot has changed within BPS since 2012, and, under the leadership of Superintendent McDonough, we’ve strengthened oversight in some of these areas, but it’s clear that we have more to work on.”
Boston school officials established the foundation in 1984 to raise money from private sources to improve the educational opportunities for students and their families. According to its most recent federal tax form, filed six months ago, the foundation had $13.4 million in funds and assets in June 2013.
The foundation plays a pivotal role in paying for before- and after-school programming at many schools and for the expansion of the arts. Nearly every school in the system has its own foundation account that it controls — saving the schools from having to run individual foundations. Various departments within the central offices also have their own accounts within the fund.
The Finance Commission flagged a number of restaurant and catering expenses from the “chief operating officer account,” which was also the account that received $264,000 generated by renting out school buses between 2009 and 2012.
The commission said the deposits of reimbursements from leasing school buses was “particularly troubling.” It said money should be used to offset transportation costs, which represents about 10 percent of the school system’s budget.
This fall, officials eliminated buses for most eighth-graders as a cost-cutting measure.
Samuel Tyler, president of the Boston Municipal Research Bureau, a watchdog organization funded by businesses and nonprofits, said he had not seen the commission’s findings. But he said the city’s revolving funds created for money generated by renting out the school system’s assets or selling off computers warrant review.
“There is not enough public information on what the sources of money are and how it is spent,” Tyler said, noting the bureau just issued a report a week ago raising questions about the transparency of revolving funds. “There’s not enough public accountability.”