The $353,000 IRS Penalty – 8 Management Failures

This is a follow up to the March 27, 2026, Management Letter from the city’s external auditor concerning the fiscal year ended June 30, 2025. I posted the memo on my blog page a couple nights ago. I wanted to make a few additional observations about the reported $353,000 IRS penalty noted in the letter, as follows:

A penalty of that nature, and in that amount, for a municipality, is not common.

Management Failure No.1: Neither the Management Letter nor the ordinance explains exactly what happened to incur such a penalty except that it is related to late federal tax withholding in 2023.

Management Failure No.2: Not a single member of city council asked any questions about the penalty, at least not publicly. This is not surprising despite the fact that it is city council’s job to exercise oversight of the administration.

Management Failure No. 3: The Management Letter refers to an “adjudication.” No records concerning the adjudication have been made public even though it involved mismanagement that cost the taxpayers $353,000.

Management Failure No. 4: The city’s Internal Audit Manager issued an audit report on September 28, 2026 titled, “Federal Income Tax Withholding Remittance Audit.” It says that the field work was carried out in July and August. There is not a single reference in the report to the IRS penalty even though a problem with “withholding taxes,” is reportedly the issue at hand with the penalty. There is not even a footnote about it in the report.

Management Failure No.5: It is not clear whether the September 2026 audit findings relate to the IRS penalty or are additional findings about problems with federal tax withholdings. According to the Management Letter dated March 27, 2026, the city had already fixed the problems with the federal tax withholding matter. That was 6 months before the September audit results. So, it creates a very confusing situation for the public trying to understand the IRS penalty.

Management Failure No. 6: At some point, given the number of management failures, especially the ones concerning transparency, there is, at least, an appearance that the government is not being forthcoming.

Management Failure No.7: Consider this – the transmittal memo for the Ordinance, reported that there is a non-personnel need for the potential $400,000 IRS penalty. But it also reported that the cost would be offset by “personnel savings” in three divisions in the Department of Finance. Does that mean that one or more employees lost their jobs? Who knows? If there were personnel actions or threatened personnel actions associated with the tax withholding matter, that would be even more significant than the $353,000.Without greater transparency, the public is just left to speculate about what is truly going on with the city’s Department of Finance.

Management Failure No. 8: What does this say about the Internal Audit Committee, whose members are appointed by the Mayor? How could the Committee, for example, agree with a complete lack of any information in the September audit report about the tax penalty matter. To what extent did the Internal Audit Committee review the report and conduct their due diligence. Did the Committee make any reommendations or even comments on the report?

Sometimes cover-ups occur in plain site.