Board Considers Contract with Internal Auditors to Analyze Payroll Withholding Process

In their effort to unpack the process that resulted in the Scarsdale School District’s trouble with the IRS, the Board of Education met with accountants Don Hoffmann and Richard Coffey from Cullen & Danowski, LLP to review their proposed agreement to conduct an audit of the district’s recording and payment of payroll withholdings.

The firm submitted a proposal to do the audit for the period January 1, 2020 to April 30, 2022, and the proposal can be viewed on the district website here:

The auditors will take a look at the district’s internal process and controls for payroll tax processing by interviewing district staff to determine how things are usually done and then test this process for all payrolls processed since January 2020. They will audit the aggregate amounts withheld and remitted to third parties by looking at the recorded amounts in the general ledger and the amounts paid per bank statements. Some of the third parties who receive the withheld funds are retirement funds, health insurers, social security as well as the state and federal revenue services. According to the accountants, the errors made in Scarsdale were identified in a bank reconciliation.

As part of the audit the firm will document the existing process and “identify opportunities for improvement,” and will “discuss findings with the District administration and develop recommendations to further improve the procedures related to the recording and payment of payroll withholdings.”

The proposed fee ranged from $7,000 to $12,000 and they would begin the work in May with the goal of completing it by June 30, 2022.

In a discussion with the board, the auditors explained that there are about a dozen internal areas to audit, and they usually pick one per year. The last time an audit of payroll processing was done was 2014.

Board member Jessica Resnick-Ault asked if the audit would include a review of remittances to the IRS and she was told this was not included. The board subsequently decided they would like to add a review of IRS remittances to the audit and also require the firm to provide check-ins during the two month process. Board member Ron Schulhof asked the firm to provide a copy of a similar report they have done for another district and they agreed to do so.

At the end of the discussion, the Board said they would discuss the agreement and decide no later than their next meeting on May 9 if they would move ahead. Board Vice President Amber Yusuf said this would allow time for the board to consider anything else they want to add to the agreement and to also receive comment from the community.

Discussing the matter during public comments, Mayra Kirkendall-Rodriguez said, “It’s been one month since the board said they found out about the payroll problem. Not one of my questions has been answered. It has taken three weeks to hire an investigator and also three weeks to hire your own internal auditors to review this. They are not independent because they have already worked with the administration.”

“What are the payables and receivables and where are the documents to support the hope that the money will come back? Where are the records from your auditors? How will the penalties affect how this district can educate our kids? You are asking us to accept this school budget on faith. Frankly there is less mystery in the holy trinity than there is in this district. It is very troubling that Brock’s contract (the investigator) is so redacted that we have to guess what it is about. I will continue to ask – who, what, why and where.”

Bob Berg attempted to speak remotely from an airport in Doha, Qatar. Before he was cut off he said, “I want to argue against hiring Cullen and Danowski to do the audit since they missed the boat during the relevant period. Why would you hire the firm to do an investigation since they were responsible for looking out……”

Anthony J. BrockBoard President Karen Ceske also announced that a new section titled “IRS Matter” has been added to the home page of the district website. You can see it here.

Posted in this new section is the agreement with attorney Anthony J. Brock to conduct an investigation of the IRS filings and tax lien and to determine “why the Board of Education was not informed of this information until March 2022.”

A second item on the contract for the investigation was redacted from the posted copy of the agreement.

All services will be billed at the hourly rate of $205 per hour.