Ongoing debate over district fraud in Tennessee shines positive light on education savings accounts

Between 2015 and early 2016, the U.S. Attorney’s office determined that a national insurance fraud scheme involving prescription drugs included Blue Cross/Blue Shield of Tennessee, the insurance administrator for the Hamilton County Department of Education.

Who knew a prescription cream could be so expensive?

Last fall, officials suspended three Tennessee public school employees while investigators reviewed the individuals’ involvement in an insurance fraud scheme that cost the school district some $800,000. The issue dates to around 2015, when two doctors began writing prescriptions for pain-relieving creams to be bought in bulk. Some of the claims were filled through the Hamilton County School district’s insurance plan.

The fraud in Hamilton County, the school district encompassing Chattanooga, has all the makings of a con: Kickbacks, third party-intermediaries in California, and crooked doctors. The movie script writes itself.

Auditors and other investigative offices regularly uncover such illicit activities in school districts around the country. With some $600 billion in federal, state, and local funds flowing to schools every year, district offices, especially, are vulnerable to a wide range of financial crimes, from embezzlement to common theft.

In the 1990s, large school systems such as Chicago and Los Angeles created offices of inspectors general to deal with the problems. Yet some of these offices say that the number of claims is more than they can investigate.

Chicago’s inspector says that the office cannot open enough cases, which “creates a substantial risk, that waste, fraud, and financial mismanagement, and employee misconduct go undetected.” The U.S. Department of Education’s Office of Inspector General (OIG) has written similar warnings in the agency’s regular reports to Congress. Chicago is home to one of the largest examples of theft in recent years, as former CPS Superintendent Barbara Byrd-Bennett was sentenced to four and a half years in prison for her role in manipulating district contracts totaling $23 million.

Periodically, districts without dedicated inspectors general consider adding such offices. For example, in 2016, the Broward County (Florida) School Board considered adding an inspector to the district. When board discussion turned to using the federal inspector general instead of creating a new office in the school district, a federal representative said he must “cherry-pick complaints to investigate because there are only five investigators to cover the entire state of Florida,” according to the Sun-Sentinel—echoing the complaints from Chicago and the federal OIG’s home office.

The boxes of pain-relieving cream in Tennessee and Chicago’s illegal contracts help to put claims of misspending among Tennessee’s education savings accounts (called “Individualized Education Plans”) in perspective. Tennessee’s accounts operate similar to Florida’s Gardiner Scholarships, and families of children with special needs can use the accounts to choose a school or customized set of learning services, including education therapy and personal tutors, for their student.

No amount of graft or misuse of resources meant for a child’s education is acceptable. But recurring claims in the media of “serious problems” with the accounts—most recently coming from the Daily Memphian, but Arizona media have made similar accusations—ignore the size and scope of fraud in school districts and lawmakers’ efforts to limit such problems in the savings accounts.

For example, the financial loss due to fraudulent prescriptions in the Chattanooga district described above is larger than all the money parents are suspected of misspending statewide in Arizona and Tennessee’s education savings accounts combined in 2018. Audits of Arizona’s accounts have found that the total amount of suspected misuse hovers around 1 percent or less of the total amount the account awards annually.

Meanwhile, Arizona policymakers have taken an innovative approach to education savings account oversight and contracted with a private firm to monitor individual transactions. As explained on redefinED last year, North Carolina officials have already outsourced management responsibilities for education savings accounts in their state. The new systems can confirm eligible savings account families and their intended purchases before processing a transaction, helping to limit intentional or unintentional misspending.

Now, Tennessee’s Department of Education is trying to do the same. Tennesseans should applaud state officials for upgrading these accounts at the first sign of trouble, as opposed to letting fraud fester for years as commonly happens in school districts. Remember, the prescription fraud in Chattanooga began in 2015. Parents and taxpayers should not have to wait five years for fraudulent use of a child’s education spending to be resolved.