Report: How charter schools, authorizers can prevent fraud

A new report calls for several improvements in charter school practices to prevent possible financial fraud, including training of charter schools and their parent organizations on conflicts of interest and audits, greater oversight of organizations external influences that influence charter schools and the creation of an inspector. general of the Californian education system.

It’s the second review so far this year that calls for sweeping changes to a statewide charter school system that lacks consistent oversight and has been rocked by multiple fraud scandals, including the 2019 A3 case where charter operators manipulated student attendance and other areas to defraud the school. $400 million state.

Two months ago, a report from the Legislative Analyst’s Office recommended numerous changes to state laws and regulations to increase and improve charter oversight and auditing requirements, as well as rule changes regarding so-called non-classroom charter schools.

This latest report was led by California Charter Authorizing Professionals, a statewide group that supports authorizers of charter schools, which are privately owned public schools. Each charter school is overseen by an authority, most often a school district, which approves its opening and is supposed to hold it accountable.

One of the report’s key recommendations is to create a state inspector general to investigate and prosecute financial fraud throughout the public education system, from transitional kindergarten to community colleges.

It is often the responsibility of the state education financial oversight agency to investigate potential fraud – but the agency does not have the authority to prosecute cases or even say definitively whether fraud has occurred . Meanwhile, few county prosecutors have the capacity and expertise to pursue cases like the one San Diego County brought against A3.

Another key recommendation is that the state Department of Education link its student enrollment data system to its school finance system, which pays schools based on student attendance data, so that the state knows how much it pays for the education of each student. In many cases, charter schools have manipulated student attendance data in order to obtain more funding per student than each student is supposed to receive in a school year.

The report also advises authorizing bodies to review charter audits and relationships with external oversight organizations for potential conflicts of interest and inappropriate levels of influence.

Charter back-office providers should adopt an integrity policy, the report says, that includes fraud risk management and requires monitoring of providers’ reporting to their charter schools.

“Providers can be very important stakeholders…it’s just important that they’re on the same page as well,” said Tom Hutton, executive director of California Charter Authorizing Professionals and a member of the working group that produced the report.

The report says all school districts, charter schools, county offices of education and charter management organizations should release board information beyond what is required by law of the state, including meeting agendas, meeting minutes, future board meeting dates, and board contact information. Authorizers should verify that charters display all board information.

And the state should create a legal process that requires county superintendents to investigate a charter school’s spending for possible fraud if the school authorizer requests it, the task force found.

The report also lists several fraud prevention practices that charters, charter management organizations, and authorizers should follow, including:

  • Adopt a “robust” conflicts of interest policy.
  • Adopt a school board policy on audits, including requirements that the school board hire an auditor and not school personnel.
  • Complete training on conflicts of interest and fraud prevention responsibilities.
  • Create a third-party fraud reporting hotline and adopt guidelines on how to handle fraud reports.

Most of the report only suggests best practices for schools and does not seek a state mandate for most of its recommendations.

Hutton said he believed defining best practices would always be useful because it would raise the standard of schools. “Do you really want to be the one to say on the record, ‘No, we don’t want to do these things that are considered widely accepted practices,'” he said.

The report calls for the creation of additional working groups to carry out the work it mandates, including drafting model documents for suggested policies and providing training.

In total, implementing the work would require between $150,000 and $250,000, the report estimates – “it’s not a gargantuan investment, especially considering what’s at stake when one of these things goes wrong” , Hutton said.

The task force that created the report began meeting in January 2023 and was made up of two dozen people, including San Diego’s A3 attorneys, charter oversight directors from several county education offices, education attorneys and representatives from the California Charter Schools Association and state education. audit agency.

The chartered association said it was reviewing the report’s recommendations.

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