IRS warns school district of $500,000 penalty

WINDHAM NORTHEAST SUPERVISORY UNION

BY SUSAN S MALLHEER Brattleboro Reformer

WESTMINSTER - Windham Northeast Supervisory Union Finance Director James Vezina was full of difficult financial news Monday night.

Vezina said the IRS is "penalizing" the union school district close to $500,000 over a health care insurance form that was - or wasn't - filed back in 2019.

Vezina, who said the school district is appealing the penalty and asking for a waiver, said the district did file the form, but according to the IRS a box on the form was not checked properly, so the agency didn't accept it.

"We've requested a waiver and we're still waiting for it to be resolved," Vezina said, noting that the penalty of $470,000 is districtwide.

If the penalty is upheld, he said, Bellows Falls Union High School's share of the supervisory union penalty would be 30.4 percent of the $470,000.

The problem grew larger because the school's finance office was shut down in March 2020 because of the pandemic, Vezina said, delaying a response and correction.

Vezina said he learned from the school district's accounting firm that there are four other Vermont school districts facing the same IRS health insurance penalties, and that he's pretty confident the problem will get resolved without a penalty being levied.

After the meeting, Superintendent Andrew Haas, who was not superintendent back in 2019, said the IRS form was sent in on time but that the IRS had no record of it.

"The IRS penalty was from December 2019. The (supervisory union) was required to send in a 1094-c form. My understanding is that this is a form that shows the federal government we (any employer with over 50 FTEs) provide or offer health insurance coverage," Haas wrote in an email to the Reformer on Tuesday.

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"Our records indicate that we sent this in on time. Apparently, the IRS does not have documentation of receipt. We have appealed. I do not know why the penalty is so large," he wrote in the email.

Vezina was emphatic to the school directors Monday night that the school's audit firm must complete the audit of the 2023-24 financial year by Sept. 30, 2024, in order for the school to prepare its budget for the next year.

Vezina said he has spoken with Ron Smith, the owner of RHR Smith of Maine, about the need for more timely audit information, and Smith told him he had recently hired close to two dozen additional employees.

BFUHS School Director David Clark of Westminster said that while Smith's firm currently audits most of the school districts in Vermont, calling it "a monopoly," it wasn't always the case, but that Smith had successfully underbid other audit firms doing business with Vermont school districts.

Clark said the supervisory union would have to put a stipulation in its audit contract specifying the Sept. 30, 2024 date, but he guessed Smith wouldn't sign it. In recent years, the audit wasn't available until much later in the year and well into the budget process.

Vezina, who came on board in May 2022 after a lengthy career in school finance in both Vermont and New Hampshire, has told school officials he wants to retire at the end of 2024.

In late 2019-early 2020, the supervisory union's finance office was in turmoil, as a multitude of payroll problems had emerged over teachers' paychecks, finances, and deductions, as well as their tax forms. After several stormy meetings with then-Superintendent Christopher Pratt and then-Finance Director Edie Clark, the problems were eventually resolved. The district's next finance director Flora Pagan quit in December 2021 after Haas, by then superintendent, had placed her on administrative leave for a variety of serious financial mismanagement issues uncovered in an audit.

Contact Susan Smallheer at [email protected].