Response to Report "Risking Public Money: California Charter School Fraud"

March 24, 2015

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This report does nothing to point to an issue in CA's fraud prevention, detection and resolution. It refers to examples that are not only dated but that were resolved in a way to prevent further financial issues from arising, since the schools closed or made management systemic changes. These are in fact all examples (see list below of examples from report and their current status) of the charter school system working how it's supposed to. In a charter sector the size of California's surfacing so little, and making estimates based on global assumptions calls into the question the credibility of the report and the organizations that published it. This is not the first time that CCSA has had to respond to a report by this organization that was simply inaccurate.

While we don't presume to understand the motives behind this report we do know that California is a state where the charter school sector, authorizers and legislators have come together to put into place real solutions. It is unfortunate that we continue to have similar distractions for a sector that the report itself suggests is demonstrating to be responsible users of precious public funds in addition to serving a half a million public school students well.

  • We agree that inappropriate use of public dollars intended for public school students should be prevented.
  • We believe that the system that CA has very carefully and thoughtfully implemented does just that.
  • For a report of this nature to have found so few and very old examples in a charter school sector the size of CA's sector suggests that CA's fraud detection and resolution system is working.
  • This report is not only based on old examples many of which resulted in real solutions and indeed changes in CA's laws, but it also does not accurately report on how financial reports and audits are conducted, reviewed and reported in the state, including the extensive oversight already in place by multiple agencies for charter schools.
    • For example, the report cites a 2002 BSA report which is over 13 years old and does not acknowledge that the next year the law changed creating specific greater authorizer responsibilities. In other words, the issue identified by that report was resolved.
    • The current regulatory funding determination process for nonclassroom-based charter schools was specifically enacted to address these issues identified in the CATO and Sierra Summit examples. In other words, the issue identified by those examples was resolved.
    • Some of the reports cited and suggested to be "audits" were not in fact audits (e.g., the LAUSD OIG conducted a "financial review" of Magnolia as part of the LAUSD's oversight function and the report references findings from a state audit that has not yet been issued).
  • To assume that there is a greater risk at charter schools than school districts, particularly in light of all the real time oversight on financial reports, is simply unfounded.
  • And the report's estimate of charter fraud by simply applying a 5% assumption of fraud based on some "global assumptions" without any specific analysis, simply calls the whole report into question. Frankly a similar percentage could easily be applied to school districts and indeed the organizations that released the report and have the same level of credibility.
  • The fraud-prevention mechanisms work exactly the same for traditional public schools as for charters - neither the safeguards nor the outcomes are unique to charters - why charters are being singled out here belies a different motivation than more accurately representing the challenges of fraud prevention in the public school SECTOR.
  • One can only conclude that the absence of accurate information, more recent examples, the inclusion of how the system actually works, and the involvement of charters and organizations such as CCSA working on charter related issues in the report preparation and publication was intended for a purpose other than actually solving anything.

Details on Financial Reporting for California Charter Schools:

  • The report not only provides no evidence of a systemic issue, it does not do justice to the system already in place and that is actually more rigorous for charter schools than for other LEAs in the state (e.g., school districts).
    • For example, charter schools already provide real time financials (e.g., quarterly financial reporting to authorizers and county offices of education, independently conducted audits, etc.)
    • Furthermore, financial information is already required of charter public schools and must be made available under federal tax filings (Form 990) annual reports, which are available online, and can be obtained directly from any nonprofit public benefit corporation, and in annual independent financial audits required by state law.
    • Every charter school in California is also required to have an annual independent audit, which must be submitted to the charter school authorizer in addition to annual budgets and financial statements. This requirement, while clear in California law, is not always required in other states.
  • The system in place in CA for charter audits for example is essentially the same process used for all LEA's (e.g., school districts). These audits are completed per the audit guide by independent auditors. There is no state agency auditing LEA's and to assume that there is a greater risk at charter schools than school districts, particularly in light of all the real time oversight on financial reports, is simply unfounded.
  • The majority of the examples cited in this report are old, from schools that have since closed, and reflect old laws that were updated to provide even greater protection.

Schools Listed as Examples in the Report and their Current Status:

  • California Charter Academy- Closed in 2004; legal action taken
  • Ivy Academia Charter School - school open, Board restructured, legal action taken
  • LA Academy - report cites "fake charter schools invented" and legal action taken
  • Center for Excellence in Education - Closed in 2004
  • American Indian Public Charter II - school open after school and authorizer resolved issues (CCSA took a public position that schools should close)
  • Cato School of Reason - Revoked 1997
  • Magnolia Charter Schools - all issues addressed by school and authorizer, renewed recently by LAUSD, following OIG investigation and referral to state auditor (results expected in April 2015).
  • Wisdom Academy of Young Scientists - Revoked 2014
  • El Portal Leadership- Academia Calmecac - Closed in 2009
  • Westwood Charter School - school is still open, restructured
  • Oak Hills Academy - Revoked in 2007
  • Albor Charter School - Closed in 2006
  • Sierra Summit Academy - Revoked 2001
  • Challenge Charter School - Closed 2009
  • Children's Conversation Academy* - Closed 2005

*Please note this is a misprint in the report, we believe the school they are referring to is the Children's Conservation Academy.