This story was produced in partnership with the Oklahoma nonprofit newsroom Oklahoma Watch.

The state of Oklahoma filed a lawsuit Friday seeking to recoup money from a contractor it hired to distribute emergency federal education funds during the COVID-19 pandemic.

The lawsuit names the state’s Office of Management and Enterprise Services as well as the state’s Office of Educational Quality and Accountability as plaintiffs against the former vendor, Florida-based Kleo Inc., the parent company of ClassWallet.

Oklahoma officials hired ClassWallet in August 2020 to distribute $17.3 million in federal Governor’s Emergency Educational Relief funds.

ClassWallet managed two aid programs for Oklahoma: The Stay in School grant, which provided up to $6,500 in tuition assistance to parents of private school students affected by the pandemic, and Bridge the Gap Digital Wallet, which provided $1,500 grants to low-income families to buy educational materials.

For its services, Oklahoma paid ClassWallet a $650,000 cut of the federal educational relief money.

A joint investigation by Oklahoma Watch and The Frontier in May found that hundreds of thousands of dollars from the Bridge the Gap program went toward non-educational items such as smartphones, televisions, video game consoles, Christmas trees and barbeque grills, among other items.

As the program kicked off, parents had questions about whether there were restrictions on what they could buy. Secretary of Education Ryan Walters, a Republican candidate for state superintendent of public instruction, gave a representative from ClassWallet blanket approval for any items on ClassWallet’s online platform, emails obtained by the news outlets revealed.

A watchdog agency recommended the U.S. Department of Education claw back at least $650,000 in misspent funds and require Oklahoma to review an additional $5.5 million in purchases, according to a federal audit report released July 18. Auditors also found the state failed to follow federal guidelines for four of Gov. Kevin Stitt’s five educational relief programs.  

Records obtained by The Frontier and Oklahoma Watch show that state officials, including the governor’s office, Office of Management and Enterprise Services and the state Attorney General’s Office were aware of problems with the programs and that federal investigators had been examining how they were administered since early 2021.

The records also show that Walters, executive director of the nonprofit organization Every Kid Counts Oklahoma, was instrumental in helping ClassWallet secure a no-bid contract with the state even before he was appointed as Secretary of Education in September 2020. ClassWallet operates similar programs in other states.

The state claimed in the lawsuit that ClassWallet failed to preserve records verifying student eligibility for the Stay in School grant program and did not follow guidelines for allowed purchases in the Bridge the Gap program or submit required monitoring reports to the U.S. Department of Education.

The state is seeking more than $150,000 on claims of breach of contract and fraud, and is asking the court to rule that the company was legally responsible to monitor and submit reports on how the money was spent.

The question of who was responsible for tracking the money has been a point of contention between ClassWallet and the state. Federal auditors and ClassWallet claim the company was only a contractor or vendor, while the Office of Educational Quality and Accountability was a subrecipient for the relief money. The Stitt administration sent the money to the Office of Educational Quality and Accountability, which then cut ClassWallet a check.

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