The Mt. Diablo School District — already slapped with an $833,000 bill from the Internal revenue Service related to payroll taxes and penalties from 2006 — is now facing a full audit.

The IRS notified the district in November that government auditors would review financial records from 2006 and 2007 and take over the payroll tax probe, said Richard Nicoll, assistant superintendent for administrative services.

"We had been working with other IRS staff and now we're working with the auditor who's here today," he said Friday. "She told us the audit was unrelated to the penalty letters that were issued to the district. But, since she's here, then she's going to handle our request for resolution (of that)."

District representatives and IRS officials plan to meet three days a month through November.

"Our records indicate that we paid all the taxes in a timely manner," Nicoll said. "It was just a question of the manner in which they were paid. It appears to us that the forms were simply not filled out correctly."

Board President Gary Eberhart, who has criticized the district's past accounting practices, said he is confident that Nicoll has put its finances on track since taking over the payroll department last year.

"It doesn't surprise me that we're being audited, given the amount of times that we've been late or inaccurate in doing some our IRS reporting," Eberhart said. "This is why it's important to be accurate and turn things in on time."


Nicoll acknowledged that the district had made late payments, but said everything has been done properly since the first quarter of 2008, when he took over. The $833,000 bill is related to a disputed late payment, he said.

"In our case if we're one second late, it's about a $50,000 penalty," he said.

An independent audit of the district's 2007-08 financial statements revealed problems in tracking cash, capital investments and staff time spent on federally funded programs. The district has relied on an internal auditor to monitor and help remedy some of these deficiencies.

But due to state funding reductions, the school board voted 3-2 on Tuesday to eliminate the internal auditor's position next year. Eberhart and trustee Paul Strange voted no.

"It concerns me that we've had inaccuracies in our fiscal reporting," Eberhart said. "It's unfortunate that these things weren't being taken care of like they should have been."

Theresa Harrington covers the Mt. Diablo school district. Reach her at 925-945-4764 or

More information:
A schedule of the Mt. Diablo school district's 2007-08 annual audit report findings and questioned costs is at Click on Board of Education and select item 10.9 on the Agenda for Current Meeting. The complete audit is available at 925-682-8000.