Poor management allowed low-level IRS employees to single out Tea Party and other conservative groups seeking tax-exempt status for extra review, and the agency continues to drag its heels on fixing things, according to an inspector general's report obtained Tuesday by NBC News.

The IRS said in its formal response that it had satisfactorily answered all of the complaints in the audit by the Treasury Department's inspector general for tax administration. But Acting Deputy Inspector General Michael McKenney made it clear in a cover letter accompanying the document that "we do not consider the concerns in this report to be resolved," noting that the IRS objected to two of his office's nine recommendations calling for clearer regulations, stricter processes and better documentation of what the IRS is doing and why.

President Barack Obama said in a statement Tuesday evening that the report's findings were "intolerable and inexcusable." He said he had ordered Treasury Secretary Jack Lew "to make sure that each of the Inspector General's recommendations are implemented quickly."

The audit blamed confusion by IRS administrators for the inappropriate reviews, which Attorney General Eric Holder said Tuesday would be focus of a federal criminal investigation.

The report found that mismanagement led the IRS to ask some groups for unnecessary information — in some cases, it asked groups to list the names and address of future donors — and delayed processing of some groups' requests, some for more than three years.

The average delay was 13 months, it said.

Two IRS offices — the Washington headquarters of its Exempt Organizations unit, which is responsible for processing applications for tax-exempt status, and an office in Cincinnati called the Determinations Unit — come in for the brunt of the blame in the 48-page report, parts of which are redacted.

The audit found that in June 2011, the Cincinnati office distributed an expanded "Be On the Look Out" list of criteria for identifying potential political cases. The so-called BOLO list identified four reasons for officers to give an application special attention:

• "Tea Party," "Patriots" or "9/12 Project" is referenced in the case file
• Issues include government spending, government debt or taxes
• Education of the public by advocacy/lobbying to "make America a better place to live"
• Statements in the case file criticize how the country is being run

"The criteria developed by the Determinations Unit gives the appearance that the IRS is not impartial in conducting its mission," the audit concluded. "The criteria focused narrowly on the names and policy positions of organizations instead of tax-exempt laws and Treasury Regulations."

In its response, the IRS acknowledged "the mistakes outlined in the report," saying they were caused by "the lack of a set process for working the increase in advocacy cases and insufficient sensitivity to the implications of some of the decisions made."

Related: As applications swell, IRS nonprofit division overloaded, understaffed

The agency blamed low-level "front line career employees" acting out of what it said was "a desire for efficiency and not out of any political or partisan viewpoint."

It also claimed that some of the political groups were at fault because their applications were "vague as to the activities the applicants planned to conduct."

Groups seeking 501(c)(4) tax-exempt status can advocate for particular general political positions, but their primary purpose must be "social welfare," and they are barred from intervening in political campaigns.

"A number of applications indicated that the organization did not plan to conduct political campaign activity," the IRS said. But elsewhere in their applications, they "described activities that in fact appeared to be such activities," it said.

Many of the groups "did not understand what activities would constitute political campaign intervention," it said, even as it noted in the same document that "there are no bright-line tests" for what constitutes such activity.

"As the report discusses, these issues have been resolved," the IRS declared.

But the audit disagreed, saying: "Although the IRS has taken some action, it will need to do more so that the public has reasonable assurance that applications are processed without unreasonable delay in a fair and impartial manner in the future."

In a statement late Tuesday, the IRS contended that it didn't act out of any political bias, saying the cases singled out for review in the Cincinnati office since 2010 "included organizations of all political views."

The audit didn't specifically address allegations that Acting IRS Commissioner Steven Miller misled Congress because he knew about the inappropriate procedures but kept quiet for months before they were made public.

In a speech on the Senate floor, John Cornyn of Texas, the Republican whip, thundered that Miller "should resign today" if it is established that he "willfully misled Congress when inquiries were made earlier about this sort of scandalous political activity."

Sen. Orrin Hatch, R-Utah, said that regardless of whether it acted out of political bias, the IRS had made a mess of things.

"This was either one of the greatest cases of incompetence that I've ever seen or it was the IRS willfully not telling Congress the truth," he said.

In its statement, the IRS said it never intended to hide the issue. Instead, it said, it waited to say anything until it could see the audit "and we reviewed their findings."

In what was described as a "tough meeting" Tuesday, Senate Finance Committee Chairman Max Baucus, D-Mont., told Miller that "he is in for some serious questioning" from the committee, sources in the meeting told NBC News' Kelly O'Donnell.

The Finance Committee is expected to convene a hearing into the controversy, although one hasn't yet been scheduled. Baucus told Miller on Tuesday that the committee would accept nothing less than his "complete cooperation and transparency," one of the sources said.

Lisa Myers, Kelly O'Donnell and Richard Gardella of NBC News contributed to this report. Follow M. Alex Johnson on Twitter and Facebook.

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This story was originally published on Tue May 14, 2013 9:04 PM EDT

JACKSON, Miss. -- When state officials here tried last year to recruit a for-profit company to manage schools in rural Tate County, the community outcry was swift. Concerned residents spoke out in the media, argued their case to lawmakers and circulated a petition against the “privatization” of Tate County Schools.

Patricia Johnson, whose son attends a public high school in the county, described the proposal as “crazy.” For-profit companies, she said, shouldn’t be “getting paid” to run things when parents are having to buy copy paper for teachers in cash-strapped schools.

At first glance, Mississippi would seem an unlikely source of resistance to school privatization. But this year, a coalition of lawmakers and community groups is fighting vigorously against the prospect of for-profit companies opening up charter schools.

“I think people have been astounded that anyone can make money off of public education,” said Nancy Loome, executive director of The Parents’ Campaign, which lobbies for public education in Mississippi. “Our schools struggle to make it on the resources they are provided. If (for-profit management is) trying to make a profit and pay shareholders, they aren’t going to be investing very much in educating children.”

This fierce resistance in Mississippi is but the latest example of waning interest in for-profit school managers across the country. Charter schools of all types continue to spread rapidly. But schools managed by for-profit companies make up a smaller share than they did just a few years ago.

In Mississippi, the debate comes as lawmakers are poised to approve a major expansion of charter schools later this month. At the same time, renewed attention to the state’s lagging test scores and overall woeful performance in education is fueling debate about alternative ways of running schools.

Rick Hess, a scholar at the conservative American Enterprise Institute, said states should at least consider the potential benefits of for-profits. “I think it’s crazy to discriminate against companies because they want to pay taxes,” he said. “The bemoaning of for-profits is one reason we wind up with a system that has enormous difficulty trimming costs, and growth of even successful schools moves at a snail’s pace.”

Charter schools can be divided into two broad groups: ones that are freestanding and ones that are part of larger networks or chains. In 2007, about half of all network or chain charter schools were managed by for-profit companies. Just three years later, that figure had dropped to about 37 percent, according to the most recent data from the National Alliance for Public Charter Schools.

Some states, including New York, have banned for-profit companies from running charter schools. In other cases, companies such as EdisonLearning, which used to focus primarily on managing schools, have shifted away from management after struggling to turn a profit or raise enough investment capital.

The number of for-profit companies has declined modestly, and the number of schools they operate has hit a plateau, said Gary Miron, a professor of education at Western Michigan University who studies charter schools. (At the same time, some of the schools’ enrollment continues to increase, Miron said, and the number of virtual schools is exploding.)

Education leaders say there are two main reasons for the increased wariness toward for-profit operators: philosophical objections to mixing public education and profit, particularly in low-income communities, and mounting skepticism over their record in some cities and states.

“The biases are deeply ingrained, especially in low-income neighborhoods where the notion of profit-making is not welcome and there’s this sense that competition and markets have not benefited these communities,” said Nina Rees, president of the National Alliance for Public Charter Schools.

Rees said there is nothing inherently wrong with for-profit operators. She pointed to the National Heritage Academies, based in Michigan, which she said has managed to expand relatively successfully; the network now operates about 75 schools in states including Michigan, Ohio and North Carolina, according to its website. Meanwhile, a number of nonprofit operators have performed abysmally. 

“The bottom line ought to be quality,” Rees said.

Advocacy groups find a role
But in Tate County, where nearly two-thirds of public-school students live in poverty, the specter of for-profit management has been greeted mostly with skepticism.

“When you draw off funding … it can cause some great concern. It’s basically taking money we don’t have,” said Steve Hale, a Democratic state senator from the county who fielded residents’ concerns about for-profits last year. (Mississippi has only fully funded its K-12 system twice in the last decade.)

In the end, bids from management companies came in two and three times higher than what the state wanted to spend on Tate County’s schools. All were declined, and the state continues to oversee the Tate district through an appointed “conservator” -- a public employee.

But Hale’s concerns haven’t gone away, and two charter-school bills are circulating. One would allow for-profits; the other would ban them. For-profit education providers K-12 Inc., Connections Education and E2020 spent $250,000 on Mississippi lobbyists in 2011 and 2012, with more spending expected this year. That doesn’t include money from numerous advocacy groups (such as the Black Alliance for Educational Options and the Mississippi Center for Public Policy) that have a track record of promoting school choice, including vouchers and charters.

In some cases, advocacy groups are funded directly by for-profits. K-12 Inc. and E2020 contributed to Republican former Florida Gov. Jeb Bush’s Foundation for Excellence in Education, a group that over the past year has worked to craft education policy with Mississippi lawmakers and the Mississippi Department of Education.

Proponents say for-profit management of schools could actually save money. Republican John L. Moore, chairman of the House Education Committee in Mississippi, said privatization has led to cost savings in other governmental sectors.

“We have a system in place within our prison system where for-profit institutions actually have to do it for 10 percent less than the government is doing it,” Moore said.

But in a sign of just how controversial the issue has become, even Moore has compromised on for-profit charter-school managers -- voting in favor of an amendment offered this session to forbid them.

Lessons from Louisiana
Nationally, for-profit school management companies -- as with charter schools more broadly -- have a mixed track record, but limited evidence suggests they perform worse, on average, than their nonprofit counterparts.

One 2012 study from the National Education Policy Center found that nonprofit school operators outperformed for-profits on at least one measure: 48 percent of schools operated by for-profits met minimal expectations for academic growth, compared with 56 percent of those managed by nonprofits. But even Miron, a co-author of the study, said the growth targets (officially known as making “adequate yearly progress”) are a “crude” basis for comparison since they capture only part of a school’s relative success or failure.

New Orleans has become a prime example of how for-profit charter operators’ reach and influence have waned. Eighty percent of the city’s public-school students attend charter schools, the highest proportion in the country.

When public schools in the city reopened during the two years after Hurricane Katrina, for-profit companies were hired to manage five new charters. As of this school year, however, all of the for-profits managers had left the city. Some were fired or left in disgrace.

“Their track record in Louisiana is at best mediocre, and that’s probably being kind,” said Leslie Jacobs, a former state board of education member and charter-school advocate in New Orleans.

Jacobs said that the companies, which usually ask for between 10 and 15 percent of a school’s revenue, struggle to turn a profit while also offering a quality education program with limited funding. In New Orleans, average teacher salaries have gone up considerably since Katrina, adding to schools’ costs.

The for-profits themselves disagree. Michael Serpe of EdisonLearning, one of the largest for-profits in the country, said that requiring management fees while demanding quality isn’t problematic.

“Your bottom line is frankly the outcome and performance of the children in the school,” Serpe said.

The fees could be an even bigger issue in Mississippi, where per-pupil spending is lower than in Louisiana.

But the greatest weakness of for-profits has been a failure to understand local needs, said Matt Candler, the founder of 4.0 Schools, a nonprofit group that works to address a broad array of educational challenges in New Orleans.

“The behaviors of a few for-profits suggested that they were more interested in getting contracts than serving a community,” he said. Candler added that some for-profit companies, including the Michigan-based Leona Group, applied to manage several charter schools right after Katrina. “To even suggest you can take over seven schools in the wake of a disaster so large without anyone on the ground … sends a message about gaining market share over understanding your customer,” he said.

Leona ultimately took the reins at two charter schools. One closed down in 2009, and the board of directors at the second severed relations with the company.

Charter advocates like Candler and Jacobs say it’s not necessary to outlaw for-profit operators as long as there is a rigorous charter authorization process and they can be fired quickly if they perform poorly. In Louisiana, for-profit companies cannot win charter contracts on their own; a nonprofit board gets the contract and then hires the company as a manager. That would probably be the case in Mississippi as well if the for-profit provision goes through. And many charter critics view the debate over for-profit vs. nonprofit as relatively meaningless since they believe all charter schools represent privatization of what should be a government-run enterprise.

If Mississippi decides to allow for-profits to manage charters, Miron said, he’ll worry that the state will attract only the weakest companies because of its low per-pupil spending.

“The bottom-feeders will go into any state,” he said. “They don’t have any problem with compromising their model because of limited funding.”

This story, "New skepticism of for-profit companies managing public schools," was produced by The Hechinger Report, a nonprofit, nonpartisan education-news outlet based at Teachers College, Columbia University, and the Southern Education Desk, a consortium of public media stations reporting on education issues in the South. Read the Southern Education Desk's version of this story here.

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“Environmentalists punish companies without protecting people” is the headline of a column that appeared on the website of the American Action Forum a year ago.

The group has called for increased domestic production of oil, coal and natural gas. Officials there have criticized President Barack Obama’s “eagerness to speed our progression to a low-carbon economy” and argued that the administration is “regulating coal out of existence.”

The American Action Forum is also connected with a nonprofit and a super PAC that have spent millions of dollars on ads backing anti-regulation Republican candidates since 2010.

So why did the Energy Foundation, a San Francisco-based organization that funds the Sierra Club, the National Resources Defense Council, the Environmental Defense Fund and Earthjustice give the conservative nonprofit a six-figure donation last year?

Records obtained by the Center for Public Integrity show that the Energy Foundation, touted as the “leading funder of projects that address climate change,” awarded the American Action Forum a $125,000 grant in 2011 for “high-level outreach and communications around carbon policy.”

Jenny Coyle, a spokeswoman for the Energy Foundation, says her organization is “proud to fund a wide variety of organizations whether they are viewed as progressive or conservative.”

“Clean energy is not a partisan issue,” Coyle continued. “We believe that all demographics and groups will see the benefits of a prosperous and healthy clean energy economy.”

Officials at the American Action Forum declined to comment about the grant.

Center for Public Integrity: Donation tough to figure 

According to records filed with the Internal Revenue Service, the Energy Foundation doled out more than $97 million in grants in 2010 to projects aimed at the adoption of stronger fuel efficiency standards for vehicles, the promotion of renewable energy technologies and the retirement of existing coal-fired power plants, among others.

Against that backdrop, the American Action Forum stands out as an unlikely beneficiary.

The group is not known as an environmental advocate. One of its projects tracks coal plants in the U.S. that are likely to close down under the Obama administration’s new “regulatory burdens.”

American Action Forum’s president is Douglas Holtz-Eakin, who headed the Congressional Budget Office under President George W. Bush, served as top adviser to 2008 GOP presidential nominee John McCain and has had stints as a visiting fellow at the conservative Heritage Foundation and the American Enterprise Institute. Its board includes former Nixon operative Fred Malek, former GOP Sen. Norm Coleman of Minnesota, former GOP Gov. Tom Ridge of Pennsylvania and former GOP Gov. Jeb Bush of Florida.

Craig Holman, a lobbyist for the consumer group Public Citizen — which has also received grants from the Energy Foundation — says the American Action Forum “is not dedicated to clean energy.”

He says the group favors deregulation and ending federal subsidies for renewable energy technologies that would tilt the playing field toward “established, traditional dirty sources of energy.”

Catrina Rorke, the director of energy policy at the American Action Forum, argues that federal subsidies “are not the best tool to integrate new fuels into the market.”

“We don’t want to preferentially support one kind of energy over another,” Rorke said.

Organized under section 501(c)(3) of the U.S. tax code, American Action Forum is focused on policy research and is affiliated with the American Action Network, which engages in advocacy as a “social welfare” group organized under section 501(c)(4) of the Internal Revenue Code.

The groups are also linked to a super PAC called the Congressional Leadership Fund.

All three organizations share office space and personnel, with Coleman and Malek playing leadership roles in each.

Malek founded both the American Action Network, where he is still a board member, and the American Action Forum, where he serves as chairman of the board. He also is a board member of the Congressional Leadership Fund.

Coleman, meanwhile, is a board member of the American Action Forum and is the chairman of both the American Action Network and the Congressional Leadership Fund.

Veteran GOP operative Brian Walsh — who served as the National Republican Congressional Committee’s political director during the 2010 election cycle — is the president of both the American Action Network and Congressional Leadership Fund, which have run a plethora of attack ads against Democrats.

Records filed with the Federal Election Commission show that during the 2010 election cycle alone, American Action Network reported spending more than $18 million on political advertisements — more than any other “social welfare” nonprofit, according to the Center for Responsive Politics.

In this fall’s hotly contested race in Minnesota’s 8th District, it has attacked Democrat Rick Nolan for siding with the Environmental Protection Agency against a mining company. Nolan’s campaign has said the former congressman will support the mining industry “without rolling back environmental and safety regulations for workers."

Similarly, in the highly competitive race in Ohio’s 16th District, the Congressional Leadership Fund has spent more than $1 million on ads blasting Democratic Rep. Betty Sutton. Among the reasons given to oppose Sutton in November? Her vote during the 111th Congress in support of the so-called “cap-and-trade” legislation, which sought to establish both a cap on carbon emissions and a requirement that large utilities in each state increase the percentage of electricity they produce from renewable sources.

Donors to the Congressional Leadership Fund include Alpha Natural Resources, one of the country’s leading producers of coal, which made a $5,000 donation from its corporate treasury in April.

According to the Center for Responsive Politics, the Congressional Leadership Fund has also received contributions from the political action committees connected to the Nuclear Energy Institute, the Edison Electric Institute, energy conglomerate Koch Industries, oil refining giant Valero Energy and Exelon, which is the largest nuclear power plant operator in the U.S. and last year was awarded a $646 million loan guarantee by the Department of Energy for one of its solar generation subsidiaries.

Super donors Sheldon Adelson, the billionaire casino owner from Nevada, and Bob Perry, the millionaire home builder from Texas, have both given generously to the Congressional Leadership Fund.

Neither American Action Forum nor American Action Network is required to publicly disclose donor information.

A review of IRS filings by the Center for Responsive Politics, however, found that donors to the American Action Network include the Republican Jewish Coalition, the American Natural Gas Alliance and Crossroads GPS, the nonprofit sister organization of conservative super PAC juggernaut American Crossroads.

The Center for Public Integrity is a nonprofit independent Investigative news outlet. 

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This has been a summer of oppressive weather, political infighting and tragic violence, but it's also been a summer -- perhaps surprisingly, given the heated news -- for generous tips.

In July, Aaron Collins, a 30-year-old from Kentucky left a dying wish to his family: He wanted them to leave a waitress a $500 tip. Before he died on July 7, he told relatives that he had wanted to eat pizza and leave a big tip but didn’t have the money, according to the Lexington Herald-Leader.

The family left that generous tip and has started giving $500 tips once a week in honor of Aaron. Money for the tips come from donations to an online nonprofit set up by the family.

Now, unrelated to the Collins’ tip mission, is the story of Kristen Ruggiero, a waitress from Cranston, R.I. who received $458 on a $42 check. Ruggiero has been a waitress at Uncle Tony’s Pizza and Pasta restaurant for 15 years.

"I thought it was a mistake," Ruggiero told the Providence Journal. These were new customers, she told the Journal, who had ordered one large pizza, a Marc Anthony hot sub sandwich, a large salad and a pitcher of beer.

A month later, the couple returned to the restaurant – and Ruggiero approached, ready to return the money in case they had left the five $100 bills by mistake.

But the man at the table assured her that it wasn’t a mistake and that she deserved the money.

Video of Seth Collins, Aaron Collins’ brother, giving $500 to a server in New York: