T-R FILE PHOTO - Marshalltown Schools administrators say they’ve fixed the issue that led to over $600,000 in IRS penalties because of untimely payroll tax deposit payments.

The IRS charged Marshalltown Schools more than $602,900 in penalties after a district employee failed to process payroll tax deposits in a timely manner for more than one year.

Former district payroll tax specialist Allison Meyer neglected to pay the deposits in a timely manner, according to district records, nor did she inform business office staff of the late payments.

Meyer was allowed to resign in lieu of termination in June. Meyer’s personnel file and notification of public record from the district included a signature from district Director of Business Operations Paulette Newbold dated Oct. 15, around the time the T-R inquired about the IRS penalties.

The late payments occurred April 2017 through June 2018. As a large employer, the district is required to make payroll tax deposits the following day after payroll and they were being made late.

“I followed instruction as it was given to me,” Meyer said in a statement to the T-R. “I was audited during my time with the district and did not have any issues reported to me.”

However, Marshalltown Superintendent Theron Schutte said during the time the payments were being made late, she was the only person getting notifications from the IRS regarding the payments.

“At the time we discovered this, we had an estimate of what the penalties were going to be, so that number was put on the table and she chose to resign,” Newbold said.

She said Meyer has not filed for unemployment benefits through the school.

Newbold said the payments and fines were paid immediately to the IRS to avoid further penalties. The school board was also informed immediately of the issue with the payments, district board president Bea Niblock said.

The school board approved the penalty payments to the IRS in two installments during the Sept. 4 and Oct. 1 meetings. The penalties were paid out of the district’s $65 million general fund.

The district has started pursuing a waiver on the penalties from the IRS. Schutte said the goal is to have the penalties reimbursed to the district. Newbold said the request for a waiver was received by the IRS about a week ago. An approval or denial of the waiver could take up to 60 days from when the IRS received it before a decision is made. If the waiver is denied, the district will appeal the decision.

Newbold discovered the late payments in June when she was looking at district bank statements. She said she noticed something wrong with the date of a federal tax deposit and discovered that the tax deposit had not been made timely since early 2017.

Former district finance director Brian Bartz was in charge of the office for most of the period the late payments were being made. He took a new job at Marion Independent School District and left Marshalltown on March 30. The move had been approved at the Jan. 16 board meeting before the late payments were discovered.

Bartz confirmed with the T-R that he had been unaware of the late payments when he was at Marshalltown Schools. He declined to comment further.

Schutte said Meyer’s fellow business office employees and administrators were unaware of the late payments because no other employees were getting IRS notifications on the payroll tax deposits.

“There was one person who wasn’t performing a critical duty within her role,” he said. “That person is supervised by other people within the finance department and, unfortunately, they too were not aware because we evidently had not taken the appropriate steps to make sure that they would be notified if something was wrong.”

The officials said the business office has since ensured that multiple employees, including Newbold, receive such IRS notifications.

Schutte said the high IRS fines, if not reimbursed, could have long-term implications for the district. He said no budget adjustments have been made thus far.

“We’ll be working more on making adjustments for the coming year and the years following that based on enrollment and the low state supplemental aid,” he said.

During this year’s legislative session, before the late payment issue was discovered, Schutte said the state funding increase to school districts was not adequate to keep up with schools’ needs.

The mishap means some positions in the school district will be left vacant until officials find out whether the fees can be waived, Schutte said.

He said it’s unknown exactly how the IRS fines could impact students at the district.

“We will continue to work on projecting what the future holds and what we need to do to adjust the budget in order to make sure that we stay in a healthy fiscal position,” Schutte said.

On July 16, the school board approved a motion for the State of Iowa Auditor’s Office to do a special report on the late deposit payments, as well as perform the district’s financial audit for the 2017-18 fiscal year.

Schutte said the district’s contracted auditing firm, Nolte, Cornman and Johnson P.C. of Newton, agreed to step aside while the state conducts the audit.

He said he was disappointed the late payment reporting issue was not found in the district’s previous financial audit.

“The general feeling of the board as well as myself was that things were in good order within the finance department,” Schutte said. “That obviously wasn’t the case.”