A couple of weeks ago, as the mystery regarding the City of Trenton’s missing tax millions deepened, I published a piece using the metaphor of a barking dog to explain my befuddlement at how this whole story had rolled out. Based on reporting in the local press, mostly by Cristina Rojas of the Trenton Times and with David Foster – in spite of zero information forthcoming from City Hall – a very unsettling picture was emerging. According to stories by Ms. Rojas, the City had received several notices of tax delinquencies and irregularities from the State of New Jersey throughout 2015, but had taken no action with its payroll vendor, Innovative Payroll Services (IPS), to investigate or resolve major issues. Beyond taking no action, the City had actually gone so far as to extend its contract with IPS last year, twice(!), once in June and once in December, shortly before the matter had gotten too big to ignore, something like $5 Million to $8 Million too big to ignore!!
I compared those frequent notices to the barking of a watchdog. When a watchdog barks in the night, you should listen and take care to see what’s going on. I wrote that on February 22. On that same date, seeing that City Hall was circling its wagons and refusing to give out any information, I filed an Open Public Records Acts (OPRA) request with the city, asking for any documents related to the matter.
This week, I received a block of documents in response to my OPRA request, including the delinquency notices I had asked for regarding the State, notices from the US Internal Revenue – which I had not asked for, figuring anything associated with the estimated $4 Million shorted to the IRS would have been considered embargoed during the course of the City’s civil law suit filed in Federal Court against IPS and its owner John Scholtz – and several email exchanges between the City and IPS throughout 2015.
This document release provides some needed information about this case, but it is very incomplete, despite one of the City’s lawyers telling me by phone yesterday that they have released everything I have asked for, as required by OPRA and no further. I find that extremely difficult to believe, for reasons I will get into below. In the meantime, I will describe some of these documents below. For your perusal, you can find all of the documents I received from the City this week at this link. Please be aware that these are not all arranged chronologically, which is the way I like to look at stories such as these. They are arranged with IRS-related materials first, with NJ State-related items next. There are many blank pages, due to the scanning process I was told. And there are page breaks during email exchanges that make the conversations hard to follow. Bear with all of that, though. Taken together, these docs start to unravel a very sordid tale.
I started this piece with a callback to my watchdog metaphor. A few weeks ago I wondered how the City and the Eric Jackson Administration could have ignored a barking watchdog for most of 2015, as this problem was building. I was wrong. After looking through these documents, I should characterize the warning signals that the City received throughout the year as a pack of werewolves howling at the moon outside the City’s bedroom window all night, every night, since April 24, 2015! The Administration either slept through that howling, or they heard it and put their pillow over their head for eight months. The result is, we are sitting here now, probably close to $5 Million poorer and none the wiser for the experience.
To help me make some sense of all the docs, I made a spreadsheet summarizing the documents, and arranged them by date. A note about my shorthand: the email exchanges I was given this week are all between Mary Henry (MH), an accountant with the City of Trenton, and Mary Tucker (MT), a Business Analyst with IPS. Copied on most all of the correspondence were John Scholtz, owner and then-president of IPS, and Janet Schoenhaar, the City’s Comptroller and Chief Financial Officer.
This is, by the way, the main thing that leads me to think I have been sent an incomplete set of records. Although my request was for correspondence, emails, faxes and so on to and from city employees and elected officials on the delinquencies and contract extensions, all I got were the Henry/Tucker exchanges. The City will have me, and the rest of the public, believe, that the only person in the City to write down anything about this matter was one Accountant in the Finance Department. How likely is that? Not fucking much.
Anyway, here’s a snapshot:
I wanted to lay out these documents to show their timing in relation to the two contract extensions the City granted to IPS in 2015. On February 22, I wrote that, based on what we knew from the press, by the time Council approved the June 18 extension, we should have known something was seriously wrong. These documents prove that without a doubt.
By June 18, the City was aware that there were delinquencies totaling around $300,000 for unpaid tax deposits from the first quarters of 2014 and 2015. In addition there was about $40,000 in interest and penalties dating to the tax years of 2011, 2012, 2013, and 2014. Here’s a look at one of the notices, the one from April 24 (page 43 of the document dump):
“Aaoooo, Werewolves of Trenton!!”
No one listened.
Take a look at this notice, a Penalty $20.077.36 (Page 57) from the IRS for “Failure to make a proper federal tax deposit” applied to its First Quarter 2015 tax deposit. Although the IRS notice is dated June 22, a handwritten notation indicates it was “e-mailed 6/16/15,” presumably to IPS, since there is an email message (Page 63) from Mary Henry to Mary Tucker stating – matter-of-factly, as all of the email exchanges are between City Hall and IPS – “We got a couple more notices from the State and the IRS. Thank you very much.”
These messages illustrated above were two of six statements or invoices or failure to report notices received before the contract extension of June 18. None of them mattered. Nothing was done. Not one person other than Mary Henry, if you believe the City’s Law Department, wrote any kind of note or document on the topic.
“Aaoooo, Werewolves of Trenton!!”
By the time of the next – and final – IPS contract extension on December 17, there were no fewer than ten more letters, bills and statements from the State and the IRS. The one received from the State’s Division of Taxation on December 2 was simply too blatant and definitive to ignore. In fact, since we know that the City actually started its damage control effort in December, this may have been the document that got their asses in gear. Even if it had, though, that did not stop the City from approving a contract extension on 12/17. We still have no idea why.
The December 2 statement (Page 95) shows just how bad IPS had gotten with their management of Trenton’s accounts. This document shows that during the third quarter of 2015 – the months of July, August and September – the City had eight bi-weekly payroll periods, for a total amount of taxes due of $1,023,096.74. IPS made only five payments totaling $586,877.02. The balance missing was $436,219.72, plus $11,725.58.
Big problem! But look also at the timing of those payments that were made, and you will see a company struggling with its cash flow:
- The payment due to the state on July 8 was actually made on July 30, 22 days late.
- The payment due on July 22 was made on August 25, 34 days late.
- A payment due on July 29 was made on August 28, 30 days late.
- Payment due on August 5 was made on September 2, 28 days late.
- And the payment due on August 19 was made on October 7, 49 days late.
- After that, payments due on September 2, September 16, and September 30 were never made.
Remember, that all of the funds needed to make all of these tax payments – on time! – had been fronted to IPS by the City. Every time. There was absolutely no reason that any of the payments should have been late by a day let alone 28 to 49 days late. Someone should have known that something was seriously, criminally, wrong.
I won’t print any of the emails here, but you can find them, again, at this link. All I will say about those is that I am amazed – and not in a good way – at the consistent banal, calm, ho-hum unexcited tone of all of them, both on the City side and the IPS side. Most every note from Mary Henry says something along the lines of “Hey, we got another notice from the State and/or the IRS.” The reply is a variation on “OK, we’ll look into it. Have a great day!” There are also curious unexplained references dropped in occasionally, such as an email note by Mary Henry mentioning an unresolved payroll matter from 2012 involving $174,000.
How far back does this IPS mess really go? As of today, we don’t know.
And that’s it for the emails. No rising sense of urgency, no detailed questions or requests for explanations, until the very end of December when the matter has become impossible to ignore. No expansion of the email distribution list to include a greater number of responsible parties in the City. Only Mary Henry wrote anything to IPS, only Janet Schoenhaar was copied. For her part, Ms. Schoenhaar never seemed to respond or intervene in the IPS relationship. As the Comptroller and CFO for the City, she certainly owes an explanation for her role in this matter.
That is, as far as the City of Trenton has chosen to reveal, up to today. This cannot be the end of the paper trail, even though the Jackson Administration is, as has been its MO all during this story, stonewalling any further information release.
As I said in my previous post on February 26, this matter is now in the Courts. IPS has owned up to its responsibility in the matter, and is willing to make restitution – to the probably very limited ability that it can. We are now in the post-IPS period.
We should be hearing how the City is changing its systems, its policies, and – if necessary – its personnel to make sure this doesn’t happen again. The City has changed its payroll vendors, and that’s a big start.
But, as this OPRA document release conclusively shows, the City received multiple. critical, and outright explosive notices throughout 2015 that It. Simply. Ignored.
We have seen nothing come out of City Hall to indicate that ANYTHING is going on to address a system that clearly and repeatedly broke.
If nothing is changing, that means the werewolves are still howling, and still No One Pays Attention.
Who and what will they eat next??