No sector — not local governments, school districts, court systems, public universities or hospitals — misspends tax dollars like charter schools in Ohio.
A Beacon Journal review of 4,263 audits released last year by State Auditor Dave Yost’s office indicates charter schools misspend public money nearly four times more often than any other type of taxpayer-funded agency.
Since 2001, state auditors have uncovered $27.3 million improperly spent by charter schools, many run by for-profit companies, enrolling thousands of children and producing academic results that rival the worst in the nation.
And the extent of the misspending could be far higher.
That’s because Yost and his predecessors, unable to audit all charter schools with limited staffing and overwhelmed by the dramatic growth in the schools, have farmed out most charter-school audits to private accounting firms.
Last year, these private firms found misspending in one of the 200 audits of charter schools they conducted, or half of 1 percent, while the state’s own police force of auditors found misspending in one of six audits, or 17 percent of the time.
“You don’t even have to understand audits to know that something is broken there,” said Kyle Serrette, director of Education at the Center for Popular Democracy.
The Center for Popular Democracy, based in Washington, D.C., is allied with teachers unions that generally oppose privatization in public education.
In a report released in April, the nonprofit watchdog detailed $200 million in waste, fraud and abuse in charter schools in Ohio and 14 other states.
Serrette said none of the 43 states with charter schools has created an accountability system designed to catch fraud. But Ohio has all of the telltale flaws, and more.
Because the money must first be spent, audits are conducted years after public funds go missing.
“[Financial] audits are historical. They’re not out in front of these things,” said Robert Hinkle, Ohio’s deputy state auditor.
And the audits, which note potential fraud but give no actionable opinion, aren’t designed to detect fraud. They merely check revenues against expenses, ensuring tax dollars going in match receipts and cash balances.
Often, though, the receipts are unavailable.
“You have a system in Ohio, and everywhere else, where every single year charter school operators are getting audited. And every single year, those audits come up clean. It’s because they are not set up to catch fraud waste and abuse,” Serrette said.
And finally, there has been a historical lack of political will to strengthen state law so auditors can delve more deeply into the private contracts that charter schools enter.
“Every year, state lawmakers fail to … take the evidence that [the media] is providing and change that into law that would improve the system,” Serrette said.
Of the 10 charter schools responsible for the most misspending, all but one closed. The money likely never will be retrieved.
What academic records remain of their last report cards show none scored higher than the lowest possible grade, though only two were shuttered by the state for poor academics. One voluntarily closed. The rest cited financial and contractual issues for closing.
Taxpayers high and dry
Ohio first employed private accounting firms to take over school audits about a decade ago as the number of charter schools swelled and budget cuts thinned the auditor’s staff.
Last year, private accountants audited 41 percent of the roughly 5,800 Ohio organizations that received taxpayer funds, and 54 percent of charter schools, according to Yost’s office.
While there were fewer than 400 charter schools among the 5,800, they accounted for 70 percent of all tax dollars found to be misspent, often intentionally and illegally, according to 14 years of audits reviewed by the Beacon Journal.
And the difference between state and private auditors was profound: For every $1 private auditors found to be misspent, state officials found $102 in their audits.
Most charter schools that misspent tax dollars folded for financial issues, and after six years of failure to make restitution, the state can no longer collect.
And so more than $25 million remains unpaid — and likely never will be.
The $27.3 million misspent since 2001 is only what the state knows about.
Charter school audits often cite “numerous” missing financial documents.
These documents — from receipts to contracts to bills — must be reviewed to ensure public funds are spent for a proper public use.
Last year, Yost declared financial records at five taxpayer-funded agencies too disorderly to audit; four were charter schools.
Originally, all charter schools were audited by the state.
“We had to do all of them in house,” Hinkle said. “It’s just been within probably the [Auditor Mary] Taylor administration that, if we had some community schools that through prior audits have been fairly clean — again the issue is resources in a time when we were downsizing the number of employees — we allowed some contracting of community school audits.”
Today, networks of charter schools managed by the same private companies — among them Akron-based White Hat Management and Summit Academy Management — are bundled together and bid out to be audited year after year by the same private accounting firm.
The contracts usually last five years — longer than some charter schools are open. By bundling schools that employ the same treasurer (sometimes hired by the management company), there is greater efficiency because books are more uniform.
“It just makes sense for economy of scale, for the pricing we can get from the firms and also for the interest that we can get from a number of firms. If I send out one 80-hour [audit] job, I may not get as much interest as if I send out 10 of those jobs and it’s an 800-hour job,” Hinkle said.
The state pays around $41 per hour. Last year, REA & Associates, an accounting firm headquartered in New Philadelphia, conducted 111 of the 373 charter school audits, including nearly every audit on schools managed by White Hat and Summit Academy, the state’s largest operators.
Auditor Yost has taken notice of the misspending in the charter school sector, which national researchers and industry groups rank low on academic performance and high on privatization.
Only Michigan and Texas have a greater portion of charter schools operated by private, for-profit companies, which are not compelled to disclose how they spend public money.
Sen. Peggy Lehner has proposed a bill that would require these private companies — which run most charter schools in Ohio — to give a more detailed account of how tax dollars are used. This heightened transparency in the auditing process was not included in charter school reform bills proposed earlier this year by the House and governor.
Yost worked with Lehner and a group of mostly charter-school advocates to draft the law change.
Meanwhile, the auditor is eyeing charter schools with what limited resources he has.
“We’ve already brought in a few of those audits,” Brittany Halpin, Yost’s spokesperson, said.
“[Yost] is considering bringing them all in,” she said.
Doug Livingston can be reached at 330-996-3792 or email@example.com.