A new report calls for several improvements in charter school practices to prevent potential financial fraud, including training for charter schools and their parent organizations on conflicts of interest and audits, greater scrutiny on outside organizations that have influence on charter schools and the creation of an inspector general for California’s education system.
It’s the second review so far this year to urge sweeping changes to a statewide charter school system that lacks consistent oversight and has been roiled by multiple fraud scandals, most notably the A3 case of 2019 where charter operators manipulated student attendance and other areas to bilk the state of $400 million.
Two months ago, a report from the Legislative Analyst’s Office recommended many changes to state laws and regulations to increase and improve charter oversight and auditing requirements, as well as changes to rules regarding so-called nonclassroom-based charter schools.
This newest report was spearheaded by California Charter Authorizing Professionals, a statewide group that supports authorizers of charter schools, which are privately run public schools. Every charter school is overseen by an authorizer, most often a school district, that approves its opening and is supposed to hold it accountable.
One of the report’s major recommendations is to establish a state inspector general to investigate and prosecute financial fraud in the entire public education system, from transitional kindergarten through community college.
It often falls to the state’s education fiscal auditing agency to investigate potential fraud — but the agency has no power to prosecute cases or even definitively say whether fraud occurred. Meanwhile, few county district attorneys have the capacity and expertise needed to prosecute cases like the one San Diego County pursued against A3.
Another key recommendation is to have the state department of education link its student enrollment data system with its school funding system, which pays schools based on student attendance data, so that the state knows how much it is paying for the education of each individual student. In multiple cases, charter schools have manipulated student attendance data in order to get more funding per student than each student is supposed to get within one school year.
The report also advised having authorizers review charter audits and relationships with outside controlling organizations for possible conflicts of interest and inappropriate levels of influence.
Charter back office providers should adopt an integrity policy, the report said, that includes fraud risk management and requires oversight of the providers’ reporting to their charter schools.
“Vendors can be very important players … it’s just important to have them on the same page too,” said Tom Hutton, the executive director of California Charter Authorizing Professionals and a member of the task force that produced the report.
The report said all school districts, charter schools, county offices of education and charter management organizations should post board information beyond what’s required in state law, including meeting agenda packets, meeting minutes, future board meeting dates and board contact information. Authorizers should check that charters are posting all board information.
And the state should create a process in law that requires county superintendents to investigate a charter school’s spending for possible fraud if requested by the school’s authorizer, the task force found.
The report also listed several fraud-prevention practices that charters, charter management organizations and authorizers should follow, including:
- Adopting a “robust” conflict of interest policy.
- Adopting a board policy on audits, including requirements that the board hire an auditor, not school staff.
- Taking training in conflicts of interest and fraud prevention responsibilities.
- Creating a third-party fraud reporting hotline and adopt guidelines about how to handle fraud reports.
Most of the report only suggests best practices for schools, and it does not call for state mandates on most of its recommendations.
Hutton said he thinks defining best practices would still be helpful, because it would raise the standard for schools. “Do you really want to be the one on the record as saying, ‘No, we don’t want to do these things that are considered widely accepted practices?’” he said.
The report calls for additional working groups to carry out the work it prescribes, including writing model documents for the suggested policies and offering training.
The work altogether would take about $150,000 to $250,000 to implement, the report estimates — “not a gargantuan investment, especially given what’s at stake when one of these things go awry,” Hutton said.
The task force that created the report began meeting in January 2023 and was made up of two dozen people including the San Diego A3 prosecutors, charter oversight directors from several county offices of education, education attorneys and representatives from California Charter Schools Association and the state’s education auditing agency.
The charter association said it is reviewing the report’s recommendations.
