A recent federal audit raised concerns about cozy relationships between charter school boards, charter school management companies, and other vendors they do business with.
The report, released late last month by the U.S. Department of Education, has gotten a good deal of attention for concluding those ties could pose a “risk” to federal programs that support charters.
Here’s a guide to what the audit found, what it might mean, and what could happen next.
What’s the Florida connection?
The report examined 33 charter schools in six states. It covered five Florida schools, all of them in Miami-Dade County.
The schools were not chosen at random, so it would be a mistake to say they reflect what’s going on with charter schools generally — in Florida or elsewhere. Auditors chose the schools based on news reports, tax filings and other public information.
Education Department records show the business dealings of charter management organizations, aka CMOs, have been on the inspector general’s audit agenda since the fall of 2011.
Also in the fall of 2011, the Miami Herald began publishing a hard-hitting expose on the business practices of South Florida charter schools. The federal report doesn’t name the schools, but there are clear parallels between the newspaper’s investigative reports and the concerns federal auditors raised. The Herald reported in 2014 that the feds were probing Miami-area charter schools run by Academica, one of the state’s largest charter school management companies, “as part of a broader examination of school management companies nationwide.”
The Herald reported the audit was expected to appear in the summer of 2014, but an audit fitting that description never showed up on the inspector general’s website.
A spokeswoman for the inspector general’s office did not confirm whether there was any overlap between the inquiry reported by the Herald and the audit released last week, but noted the issues covered by the new audit have been on the office’s radar for several years.
What did the audit find?
The federal audit covered five Florida schools run by three different management organizations.
In four of the schools, auditors found the nonprofit charter school boards leased buildings from charter management companies that ran their schools, or from other companies with personal and business ties to the charter organization.
In the two of the schools schools, they found:
The contract between the charter school and the CMO took away authority from the charter school’s board to hire and fire key charter school staff and gave this authority to the CMO. By delegating its operational authority, the charter school board could not be reasonably assured that Federal funds were properly managed and spent.
The inspector general also raised concerns that some charter school boards cede too much authority to management companies. Citing one Florida school, the report stated:
When charter school boards did not maintain sufficient authority over charter school operations, they may not have had assurance that schools implemented Federal programs in accordance with Federal requirements, and this could potentially put charter schools at risk of closing.
The report pointed to examples of charter school networks in Oregon and Minnesota that misused public money or squandered taxpayer funds after shutting down suddenly.
The question is: How much risk is there in Florida?
The audit noted the state Department of Education has conflict-of-interest safeguards in place for people who sit on charter school boards that receive federal Charter Schools Program grants. It also noted the state has purchasing rules designed to prevent self-dealing by charter school management organizations, and that the charter schools’ authorizer, the Miami-Dade County school district, seemed to be aware of the business practices in charters it oversaw.
However, the auditors warned existing safegaurds might not go far enough. For example, they wrote that some conflict-of-interest rules governing charter school boards don’t extend to key people who work for management companies and might be the ones actually deciding how schools spend their money. Auditors wrote the issues they documented suggest “internal control weaknesses” at certain charter schools.
What do charter school advocates say?
In a statement responding to the audit, the National Alliance for Public Charter Schools noted the report did not differentiate between CMOs, a term charter school insiders typically reserve for nonprofit networks like KIPP, and for-profit management companies, which are often called “educational management organizations” (EMOs) or “education service providers” (ESPs).
That matters because federal charter grants cannot flow directly to for-profit EMOs. Charter school grants typically have to be administered by nonprofit organizations, like charter school boards, or by government agencies like the Florida Department of Education. But nonprofits that receive charter school grants aren’t prohibited from hiring EMOs to help run their schools.
The national alliance recently proposed a new model law for states. It proposes new safeguards to prevent conflicts of interest in schools run by management companies.
“To this end, we look forward to working with Governors and state legislatures to add these provisions in their laws, as they would greatly enhance transparency at all levels,” the charter alliance said in its statement.
What’s next?
Federal auditors wrote that the federal Education Department “agreed that there may be increased risk to Federal programs by charter schools that are affiliated with certain management organizations.”
In response to the audit, the department agreed to form “a formal oversight group” of top federal education officials to “assess the risks to Department programs posed by charter school relationships with CMOs.”
In an email, charter alliance spokeswoman Vanessa Descalzi said the organization backs that approach.
“The National Alliance supports transparency in the stewardship of school funding, and we look forward to identifying solutions that lead to better oversight – rather than additional bureaucracy – and ensure that charter school students ultimately receive their equitable share of funding,” she said.
It’s not yet clear what changes could come as a result.
Florida lawmakers have occasionally introduced legislation requiring people who sit on charter school boards to be “independent of any management company” or forbidding “private enrichment” in charter school real estate transactions.
But they’ve shied away from blanket prohibitions, opting instead for changes like increased transparency.
In the wake of some high-profile charter school failures, state education officials have focused on beefing up charter authorizing at the district level. A look at charter schools that have shut down amid academic failure, theft or unscrupulous management suggests these problems may be just as likely to occur in mom-and-pop organizations as in charters that hire large management companies — and that stronger district oversight, coupled with recent changes in state law, could help reduce the risk.
It may also be worth noting that some of the largest, most high-profile management companies have generally avoided the sort of catastrophes that have created the biggest black eyes for Florida’s charter school movement in recent years.
