State education officials, San Diego prosecutors and the state comptroller have issued new recommendations to improve charter school audits intended to help prevent fraud and abuse in California – the latest in a growing number of calls from experts for reform.
The report comes from a task force mandated by a San Diego judge in the A3 charter school fraud case, in which charter operators defrauded the state out of $400 million largely by manipulating attendance records and student financing. San Diego prosecutors who prosecuted the case said it exposed weaknesses in charter school laws and oversight exploited by A3 operators.
It’s been five years since the A3 indictment was filed, but state policymakers have yet to implement major changes to charter school laws and policies intended to prevent fraud .
There are now three state-level reports that altogether recommend numerous changes to state law and policy regarding charter schools and public schools in general. In addition to the one released last week, other reports were released by the Legislative Analyst’s Office and a statewide organization for charter school authorizers.
The latest set of recommendations came from a task force ordered by a judge in the A3 case a year ago and focused primarily on the annual financial audits that every school district and charter school must submit to the State. Several recommendations echo suggestions made by the Legislative Analyst’s Office six months ago, as well as changes proposed in previous charter school bills.
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“The recommendations will provide a critical roadmap to ensure trust, accountability, and transparency in the fiscal and audit functions and operations of our entire K-12 public school system,” wrote the State Comptroller Malia Cohen in a statement.
Audits are meant to be one of the primary ways to flag potentially questionable activities at a charter school. But A3 prosecutors said the requirements for these schools are limited and that A3 operators were able to manipulate the process by choosing an auditor who provided more favorable audits and even choosing their own audit samples of operating-related data schools.
The task force was led by Cohen’s office, which is responsible for reviewing annual audits of California’s elementary and secondary schools. The task force was also led by key individuals from the A3 case, including Prosecutor Leon Schorr and Investigator David Iorillo of the San Diego County District Attorney’s Office, as well as the court’s successor to the A3 case.
Members included representatives from groups representing charter schools and school districts, as well as the head of the state’s school auditing agency, the superintendent of San Diego Unified charter schools, and members of California Charter Authorizing Professionals.
Myrna Castrejón, president of the California Charter Schools Association, called the report’s recommendations “a good starting point” and said her group looked forward to further discussion about how to implement them.
Auditor Qualifications
According to the report, just 22 firms conduct 93 percent of all audits of school districts and charter schools in California. This represents less than 0.01% of all licensed auditing firms in the state. So even if just one firm performs poorly, it could have serious consequences for the reliability of school audits, the report says.
And the bar is low to become a state-certified school auditor. A firm does not need to demonstrate qualifications in educational auditing to be listed as a school auditor in the state accounting board directory. It only needs to be in good standing with the state board and not have conducted audits in a way that violates the state education code.
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The state accounting board does not have specific regulatory rules for school auditors. Although there are state requirements that would prompt the State Comptroller’s Office to conduct quality control reviews of school district audits, there are no such requirements that would trigger quality reviews of school districts. charter audits.
The task force therefore recommended several new requirements, including at least 24 hours of audit school-specific training in order to obtain state accreditation. Companies already licensed would also have to complete 24 hours of training every two years, the task force said.
The task force recommends amending state law to require quality reviews by the state comptroller of newly licensed school auditors or who have not conducted an audit in at least three years, and all others on a cyclical basis. The task force also says state law should be amended to include provisions that a company would have to lose its license to conduct school audits.
Change of audit firm, late audits
Agencies charged with overseeing charter schools do not need to be alerted when a charter school changes auditing firms.
This is important because auditor changes may occur for a potentially concerning reason, whether because the auditor detected problems or risky practices or because the auditor was not doing a good job.
School districts and charter schools must submit their audited financial reports to the state comptroller by December 15 each year. State law says county education offices must take action when a district is behind schedule, but charter authorities are not required to do anything.
Thus, the task force recommends that school auditors be required to notify charter authorities, county and state educational agencies, and the state comptroller whenever a school changes auditors and when the school audit will be late, and why.
What should an audit contain?
Finally, the task force also recommended new requirements regarding what should be included in charter school audits.
He focused in particular on disclosing ties between a charter school and “related parties.” This includes, for example, a school that is a member of a network managed by the same charter management organization, as well as links between a charter school and its providers.
Significant amounts of public funding from charter schools are often transferred between related parties in the form of loans or payments for services, but few details of how these parties spend this public funding are publicly available because they say they do not not be subject to public transparency laws.
“These related business relationships, while legal, may pose a higher risk of potential fraudulent or wasteful expenditures,” the task force wrote.
The task force said charter school audits should include several additional details about the charter’s organizational structure, including board members and management, those in its charter management organization, loans and shared employees within the charter network, the school’s five highest-paid employees. and its 25 highest paid suppliers.
The task force also said there should be additional guidelines on how samples are selected for review. For example, auditors should select the samples, not the school, and the samples should be larger.
The group said there should be samples from every school that is part of a charter network, and there should be attendance accounting samples for each calendar track — some charters enroll students in multiple simultaneous calendar tracks that start and end at different times of the year. a tactic that A3 operators manipulated to collect more ridership money from the state than expected.
Audits should also include sample testing to see whether student attendance was properly recorded and an accounting of charter school attendance claimed, by month and by calendar track.
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