National Public Radio used federal and state withholding taxes to finance day-to-day operations at the station, financial auditors have told the public radio corporation's board.
One source said close to $1 million worth of withholding taxes were used for operations, although apparently much of that has since been paid to the government.
Internal Revenue Service regulations require that companies set aside funds withheld from paychecks for income taxes and Social Security payments, making periodic payments to the government and filing returns at the end of each quarter.
The alleged use of such funds for operations rather than setting them aside for taxes was the most serious deficiency cited by auditors Coopers & Lybrand, the accounting firm that reviewed the public corporation's financial management at the request of NPR's board.
The auditors' report, a copy of which was obtained by The Washington Post, also described NPR's financial management system as out of control, with multiple accounting systems developed as "self defense" against an incomplete central accounting system. At least $85,000 in unsupported charges were made by the staff on company American Express cards in a seven-month period ending this April, the audit says.
All in all, the report portrays sloppy handling of funds by NPR, which raised operating money by appeals to corporations, foundations and listeners.
The report does not include a final estimate of NPR's total budget deficit, which is believed to be several million dollars. The deficit has forced NPR to lay off about 30 percent of its staff and slash its fiscal 1984 budget 26 percent below the initial 1983 budget figure.
NPR officials, who were in meetings all day yesterday in preparation for release of the audit today, were not available for comment.
But former NPR president Frank Mankiewicz, who resigned recently amid growing controversy over NPR's financial situation, said he understood that about $100,000 was owed to the IRS. "All but $100,000 had been paid, and that is due at the end of July," said Mankiewicz, who has publicly acknowledged responsibility for many of the network's financial problems.
"I always took the position that taxes were the thing you had to pay first. I always assumed it was being paid first," he said. According to the report, Mankiewicz owes NPR $9,000 for a salary advance in 1981.
Mankiewicz said late last night that he started paying back the salary advance last January and that he has been paying $400 a month in deductions from his paycheck since that time.
"That means I've paid about $2,000 and I will pay the rest before I leave at the end of the month."
An IRS spokeswoman would not comment on whether the agency is investigating NPR, but NPR officials reportedly have told the IRS of the irregularities.
The penalties for improperly handling tax withholding range from a 5 percent penalty for failure to make timely periodic deposits to the federal government to penalties of up to 25 percent on overdue quarterly payments or when a quarterly return has not been filed. The government also can assess 11 percent interest on any payments not made on time.
An IRS spokeswoman said that, if a corporate executive is found to have mishandled the funds deliberately, the official could be personally liable for the taxes and penalties owed.
The IRS spokeswoman said that, in cases where payments were overdue, the IRS usually arranges delayed-payment plans, but in extreme cases will seize a company's assets in lieu of payment. She said that seizure "is the last thing that we do. It's what is done when there is no other way to collect the tax."
Some of the deficiencies identified by the audit included:
* Forty bills amounting to $320,000 were not sent out as they should have been in November 1982. As late as March 1983, the financially strapped corporation still had not sent out the bills.
* NPR had two systems for reporting travel expenses, but the two different accounts were often unreconciled. Nor was there any system for determining who should be issued company charge cards. The chief financial officer's secretary, who is also cash manager for NPR, was issued an American Express card, which the report said was used for lunches with bankers.
* Purchasing procedures were inadequate and also seldom observed.
Neither Arthur M. Roberts, chief financial officer, nor Ronald Bornstein, the acting chief operating officer for NPR, could be reached for comment.