In presenting the findings of her investigation into Epic Charter School’s financial management, State Auditor Cindy Byrd opened her remarks at a Thursday news conference with a clarification that her audit was “not an indictment of charter schools or the charter school model.”
But in her report, Byrd highlighted the ways in which current state laws, regulations and practices have failed to prevent the type of abuse she was accusing Epic of committing.
She also recommended a significant change to how charter schools operate, including the end of for-profit organizations managing charter schools.
“The Charter School Act has freed charter schools from some of the regulations created for traditional public schools and has provided a statutory shield that allows for some reduced financial accountability and less than full transparency,” the audit stated.
“The generous privileges granted to charter schools by the legislature are ripe for potential abuse.”
There are around 20 charter school systems in Oklahoma, most located in Oklahoma City or Tulsa, and many with a focus on serving low-income students.
“Brick and mortar” charter schools, which are managed much like a traditional school with a building and classroom teachers, operate with some anonymity, including the ability to set their own schedules and curriculum.
Virtual charter schools operate with significantly more flexibility, including with attendance, staffing and disbursement of funding.
Epic operates separate virtual and “blended” schools.
The state Department of Education oversees many aspects of a charter school’s finances, including compliance with federal programs, expenditure and revenue coding, and accreditation.
However, the state’s audit of Epic said the school’s financial reports are “accepted at face value by (the state Department of Education) without on-site followup,” even when the reports appeared questionable, such as when hundreds of teachers were listed with the same 60/40 percentage split between Epic’s virtual and blended schools.
“Again, oversight exists, but true accountability is lacking,” the audit stated.
The state Department of Education has penalized Epic in the past when it has spotted violations of state statute, including this year when the virtual school was penalized more than $530,000 for exceeding the state limit on administrative spending, a limit meant to keep the bulk of state education funding in the classroom.
But Byrd’s audit claimed state education officials failed to enforce other financial reporting violations, even when they were known.
In Fiscal Year 2016, the state auditor claims Epic officials intentionally misreported administrative costs in an apparent effort to avoid a possible $2.6 million penalty. State education officials questioned the practice but ultimately accepted Epic’s reporting.
The audit said the state Department of Education and Epic “share the responsibility for the breakdown of the process, which resulted in no penalty to (Epic) and no accountability for the reclassified administrative costs.”
State Superintendent Joy Hofmeister said a rule change passed by the state Board of Education earlier this year has remedied some of the problems with the administrative cost reports that the department was forced to accept in 2016.
But she said the department is still limited in many ways when it comes to holding charter schools accountable.
“The audit findings also point to clear limitations the Oklahoma State Department of Education has had for decades in terms of ensuring the full veracity of millions of data points and school-certified information submitted to the agency,” Hofmeister said in a statement to The Frontier.
“This is unacceptable and investments in modernization efforts must be a collective priority. We must do better, and we will do better.”
Gov. Kevin Stitt, who ordered the audit of Epic last year, said the “initial findings are concerning,” but also said he did not see it as an indictment on charter schools as a whole.
“I am grateful for Auditor Byrd’s extensive work on this report and agree that her findings are not representative of all public charter schools or alternative forms of education,” Stitt said in a Thursday statement.
Like the traditional school system, Oklahoma’s charter schools are diverse and operate under various agreements and procedures. Many are referred to as “mom and pop charters,” meaning they are locally controlled, rather than operated by a national organization.
Oklahoma’s charter schools also vary in academic performance with some ranking high on state assessments, while others struggle with low test scores.
Charter schools have been a topic of political debate for decades and Epic has consistently responded to allegations of financial mismanagement with claims they are under political attack.
In its initial response to the audit, Epic officials did not address its findings but instead accused Byrd of “attacking parents’ rights to choose” the school that is best for them.
“Once you cut through the theatrics of today’s announcement, the conclusion of the report calls for changes to the law; it does not assert that laws have been broken,” Epic said in a statement.
Byrd’s audit does call for law changes, including a reference to a California law that prohibits charter schools from being operated by a for-profit organization or entering into a subcontract for management services with a for-profit organization, which is how Epic operates.
At least one other Oklahoma virtual charter school, E-School Virtual Charter Academy, uses a private company to manage many of its expenses, including paying its superintendent and assistant superintendent.
“Other states have already determined for-profit charter management organizations do not benefit taxpayers,” Byrd’s audit said. “Oklahoma should consider the same.”
However, the audit does accuse Epic of violating numerous statutes and requirements, including conducting financial transactions without board approval and violating a prohibition on using state dollars to support an out of state school, which it did in attempting to launch a school in California.
State lawmakers have discussed funding and oversight rules for virtual charter schools before, including during an interim study last year when state House members questioned whether virtual schools should receive the same amount of funding as traditional schools, which have greater costs.
This year’s legislative session, which was cut short because of the pandemic, saw dozens of bills filed that proposed changes to the way virtual charter schools are allowed to operate and how oversight is conducted.
Hofmeister said her department has pushed legislators to provide the state Board of Education with subpoena power to better review school financial records.
“While the OSDE is not an investigative entity like the State Auditor or Oklahoma State Bureau of Investigation, power of subpoena could compel the production of records by public schools and third parties that hold their records and data to complete internal validation of data and/or submissions by districts amid short timelines imposed in state and federal law,” Hofmeister said in a statement to The Frontier.
“This same subpoena power is a commonsense measure afforded to many other state agencies in Oklahoma.”
The Epic audit may inspire some proposed legislation next year but it remains to be seen what the Legislature’s appetite will be for making significant changes to the way virtual charter schools operate, especially as enrollment continues to grow and Epic officials have spent years contributing to political campaigns and building clout within the state Capitol.
Republicans, who control the Legislature, are traditionally supportive of various school choice policies. But charter schools, especially Epic, have drawn intense criticism across the political spectrum.
Many rural superintendents from Republican strongholds, where Stitt also had his strongest support in his 2018 election, have been critical of Epic and the impact to local school systems.
“It’s hard to see teachers and kids do without and funding cut while millionaires steal taxpayer dollars,” Mike Martin, superintendent of Pauls Valley schools, tweeted in response to the Epic audit.
Since 2015, Epic was allocated $458 million in tax dollars, with $125.2 million funneled to a private company owned by Ben Harris and David Chaney, according to the audit.
But lawmakers could also feel pressure from a growing number of parents who see virtual charters as a needed alternative to traditional public schools. Epic’s enrollment now tops 60,000, according to the school, which accounts for nearly one out of every 10 Oklahoma public school students.
While Byrd recommended potential law changes, she also said charter school sponsors need to do a better job of conducting the oversight they have been tasked with.
Epic’s blended school is sponsored by Rose State College, which has received $3.5 million in fees as the school’s sponsor.
When the state auditor asked Rose State College about its oversight of Epic, the college responded that it performs a simple review of the annual audits Epic sends without any additional questions.
“Epic sends their audited financial statements to the College every year. As their audited statements have been fairly clean, we have requested no follow up review of transactions or documentation,” Rose State wrote to the state auditor’s office.
The Rose State administrator listed on the contract with Epic is married to an Epic administrator. Both Epic and Rose State have denied there is a conflict of interest.
“There has to be greater financial oversight, be it statutorily mandated or through the willingness of the sponsor to ask the hard questions,” the audit stated.
The State Virtual Charter School Board provides oversight of Epic’s virtual school, and the state auditor stated the board had recently increased its oversight by hiring a compliance officer and had entered into a contract with the State Auditor’s Office to perform a risk-based performance audit.
Byrd’s audit of Epic ended with an acknowledgement that accounting for charter school expenditures is a national challenge, quoting from an Internal Revenue Service report that said the primary concern regarding charter schools is “determining if they operate for exclusively charitable and/or educational purposes and don’t operate for the benefit of private management companies and service providers.”
