The school board will review the auditor’s report on the tax matter

The school board will review the auditor’s report on the tax matter

Errors were made in the payment of payroll deductions for the Scarsdale School District in 2020 and 2021 that caused upheaval in school management and a loss of confidence in district management. These errors resulted in the imposition of penalties, fees, and interest against the district, which led to a $1.7 million lien against the schools. The issue was hid from the Board of Education and eventually Superintendent Thomas Hagerman resigned in May 2022. The district hired attorneys to appeal to the IRS, and after months of appeals the lien was lifted and the majority of the funds have been recovered.

To remedy the situation and prevent it from happening again, on Monday, June 6, the Scarsdale Board of Education agreed to engage new auditors, Nawrocki Smith, to review internal controls and make recommendations to prevent errors at the future. The auditors released their findings and recommendations in September 2022 and this report will be the subject of a special meeting of the School Board on Tuesday, October 11, 2022. At this meeting, the auditors will present their report.

The report was included on the board’s agenda and view online here:

The company investigated the errors made and found the following:

“We analyzed federal and state payroll deductions from January 2020 through April 2022 and confirmed the three (3) clerical errors that resulted in the IRS notices of a federal tax lien filing against the District . Based on our analysis, we noted that two (2) clerical errors involved selecting the incorrect quarters and one (1) error involved entering the incorrect amount into the online EFTPS system.

In the executive summary of the report, they list their observations and make recommendations for improving processes in the future. They point out the limitations of guidelines, monitoring, reporting, and bringing districts closer together and suggest ways to improve all of these processes.

Here is what they say:

Based on the work performed, we have made the following observations regarding the District’s internal controls over payroll deductions:

-The business office has not developed documented guidelines regarding source deductions.

-There is limited monitoring of withholding tax calculations prior to payment processing.

-There is limited monitoring of withholding tax amounts reported between the SMARTS financial application and Schedule B of Form 941.

-The business office uses multiple Excel spreadsheets which leads to duplicate data entry processes and increases the risk of data entry errors.

-The District Treasurer’s electronic signature is accessible to the Payroll Clerk and Accounts Payable Clerk.

-District payroll bank accounts have checks outstanding for unclaimed payroll deductions since 2016.

Areas where we recommend process improvement include:

-Develop documented guidelines regarding payroll deductions.

– Establish a process for reviewing and reconciling withholding taxes reported in the SMARTS application, EFTPS and Form 941 before processing or submitting payments to the IRS.

-Explore the full capabilities of the existing financial application, SMARTS, to implement a process in which withholding taxes are accurately calculated, tracked, and reported to the IRS.

– Consider having the Claims Auditor perform a thorough and deliberate audit of online ACH payments and wire transfers related to withholding taxes.

-Limit check printing and signing authority to the District Treasurer, as this position is not responsible for preparing accounts payable or payroll checks in the financial application system.

– Exercise due diligence by contacting legitimate parties before old unclaimed payroll deduction funds are written off the district’s balance sheet.

District Treasurer Jeff Martin retired in September and Lisa Zareski, formerly of Mahopac Schools, took his place. She will no doubt be responsible for implementing some of these procedural changes if the board votes to adopt the report at the October 11, 2022 meeting.

About Charles D. Goolsby

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