GPS Fraud, Waste & Abuse Report #10: More Tax Evasion Schemes

Gilbert Public Schools has been spending like the district has money to burn, after voters approved a tax override and a new bond issue. Beyond the blatant failure to protect public funds that you would expect from a Governing Board of elected officials, GPS has engaged in financial schemes large and small that run afoul of federal and state tax laws. The end result is that GPS and individual employees who profited from these schemes are at risk of back taxes, penalties, interest and other expenses that occur when the IRS goes after scofflaws. GPS employees, you’re the one left holding the bag when you don’t report taxable income from the fringe benefits you receive

Private citizens know that you must meet the requirements for tax deductions and expense write offs. GPS spent more than a million dollars on the software they seem to override in order to perpetuate some of these financial games. Any wonder why GPS can’t figure out how to pay employees properly? It might be because the folks in the Finance Office are *protecting* those who direct the payroll and tax scams described in these Fraud, Waste and Abuse Reports.

Many GPS tax evasion schemes revolve around questionable payments to consultants and apparently illegal gifts of public funds to *special* employees. Some of these schemes are meant to look like simple *mistakes* … making it really, really suspicious that superintendent Christina Kishimoto’s current contract says can’t be fired for *mistakes in judgment.*  So what we have to do here is show that the mistakes are actually well-thought out schemes that have been perpetrated over a long, long time for the specific purpose of enriching certain special someones at taxpayer expense. Westie’s up to the challenge!

It appears that GPS does not report to the IRS such things as working condition fringe benefits–that is, property and services provided to an employee so that the employee can perform his or her job. For example, it’s impossible to track donations and expenditures for GPS events such as the GPS Education Technology Summer Institutes of 2015 and 2016. Christina Kishimoto’s May 15, 2015 board brief indicates there was $60,000 in donations for the 2015 GPS event. Some donated funds were used for meals, gift bags and snacks for attendees, who were GPS employees whether they were on the clock or off. Sixty thousand dollars buys a lot of meals, gifts and snacks! But what’s $60 grand, when GPS has what’s essentially seven-figure slush funds from a tax override and bond issue?

The question of whether or not the things that GPS deems to be *de minimis fringe benefits* (and therefore not taxable) is complicated. Free lunches are provided to the same employees regularly, justified by the fact that GPS inserted a provision into employment contracts that meets Arizona Attorney General guidelines to avoid gifts of public funds to employees a few years ago. The result was that GPS has created an entirely new fringe benefit that mostly accrues to top level administrators: free lunches at virtually every meeting they attend. GPS vouchers show district maintenance and operations funds (taxpayer money) and district donation funds have been spent on catered meals for staff and lavish events, which have cost thousands upon thousands of dollars. In fact, it appears that just about every staff meeting or administrative training session is catered. Every monthly policy committee meeting of the GPS board, as a Committee of the Whole, is catered using taxpayer funds. Similar to the GPS travel junkets, these free meals tend to accrue to the same employees time and again.

In general, the IRS does not consider meals that are furnished regularly to a select group of employees to be *de minimis.* GPS staunchly defends these taxpayer funded meals as “morale” expenditures. To say otherwise would run afoul of the Arizona Constitution prohibition of gifts of public funds that GPS addressed through the provision inserted into employment contracts for limited permission for expenditures authorized by Attorney General Opinion I10-003. But it will get GPS in trouble with the IRS, who expects a business connection, at a minimum, while GPS is jumping through hoops to avoid violating the Arizona Constitution’s gifts of public funds prohibitions. Then there are the taxpayers, who are mightily p*$$ed at spending a hundred thousand dollars each year on free lunches for the highest paid admins and their buddies on the governing board.

GPS seems to believe there is only a rule limiting the cost of each meal provided to employees under this burgeoning program to “foster good working relations.” As a result, some administrators hold routine staff meetings in restaurants on some occasions and have meetings catered on campus by restaurants on other occasions. Some administrators take employees to restaurants for small group meetings; other times employees purchase refreshments using GPS vouchers. The superintendent and governing board routinely have their meetings catered by GPS Food Services.

Think of all the meals that GPS top level administrators gobble down … they want you, the taxpayer to believe that they’re using money that doesn’t come from your taxes, like donations. But public funds include all money that GPS holds. There’s a difference, again, between IRS rules and the Arizona Constitution prohibition on gifts of public funds, but GPS generally manages to violate one when admins try to *fix* the other. It’s a mess, and it most likely will be very expensive to taxpayers when accountability comes knocking. But GPS coffers are full with a tax override and a bond issue, so what’s the problem?

Apparently, GPS has used a number of subterfuges to provide meals to employees without reporting them to the IRS. A small, but inappropriate gift of public funds and unreported income was the practice of giving free lunches to select employees in GPS high schools that GPS abruptly terminated during the summer of 2016. The email below shows GPS admins are fully aware their schemes are prohibited by the IRS:

GPS does not report clothing as income to the employees who receive those items, nor does GPS withhold or remit taxes on those taxable fringe benefits. GPS policy simply identifies which funds can be used for shirt purchases in Policy DKC-R. Photos of staff (including Christina Kishimoto) wearing polo shirts sporting the GPS logo at conferences and other events, show that GPS does not meet IRS requirements for making a clothing a non-taxable fringe benefit. A good explanation of taxable fringe benefits for a school district can be reviewed here. GPS admins know what they’re doing. But why would they risk angering the IRS over the hundreds of tee shirts the district buys for employees each year, seemingly for any old event? Hey, GPS teachers, if you were important, you would be getting free polo shirts instead.

A related scheme to give GPS employees gifts of public funds comes through buying gift cards at various stores.  Entries appear for three gift cards from Fry’s grocery store lumped in with expenses annotated as staff appreciation, retirement and parent meetings in Vouchers 5222-5253 June 2015. The same scheme was used at Basha’s grocery store to buy seventy gift cards for teacher appreciation and two gift cards for retirements. At Sam’s Club, public funds were used to buy twenty eight gift cards for an undocumented purpose; gift cards for “admin appreciation” were purchased from Fry’s. Public funds also paid $3,350.00 for teacher appreciation gifts and $2,080.00 for gift cards for teachers. A gift card was folded into purchases for student organizations candy and dance gifts purchased at Target; eight gift cards for $100.00 were purchased at Basha’s for $847.60.

The IRS is adamant that when the employer knows of *gifts* to employees, the employer must withhold, remit and report taxes on those payments. Although others may have paid for these gifts to teachers and administrators, GPS was well aware of that unreported income to employees and responsible for all applicable payroll taxes and withholding, because GPS bank accounts were used to pay the vouchers. Yes, we all know the dots connect to the Gilbert Education Foundation, and we’ll reveal plenty of evidence about the hinkiness of that slush fund operation in future FW&A reports.

GPS also solicits gifts to be raffled to employees attending GPS sponsored events, such as the 2017 Employee Benefit Fair. For that event advertised by email to all GPS employees, the GPS Talent Office bragged they would distribute gifts valued over $10,000.00 to the subset of all GPS employees who attended this event. Whether or not this raffle complies with Arizona gambling statutes is a related and serious issue that GPS routinely ignores in conjunction with the uncounted and largely unregulated fundraisers that proliferate across the schools … including for PTSOs, booster clubs, student organizations and teacher appreciation events. Oopsie! New board members, this is happening  on your watch! BTW, a favorite *gift* to GPS employees is their own personal Chromebook. Guess how those are bought…

The Fine Print: Westie’s Fraud, Waste & Abuse Reports chronicle deliberate misuse of authority and public funds, abuse of authority, gifts of public funds and intentional violations of Arizona statutes and administrative rules by Gilbert Public Schools top-level administrators at the behest of superintendent Christina Kishimoto. Word of warning to those who might consider the business-as-usual tricks employed by GPS admins in the past: it won’t help to lose files, forge signatures or *create documentation* after the fact. Everything in the FW&A Reports has already been reported to state and federal elected officials and enforcement agencies.

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