Auditor General DePasquale Identifies Systemic Charter School Problems, $550,000 in Improper Lease Reimbursements

Auditor General DePasquale Identifies Systemic Charter School Problems, $550,000 in Improper Lease Reimbursements

March 14 2013

Auditor General DePasquale Identifies Systemic Charter School Problems, $550,000 in Improper Lease Reimbursements

Calls on Department of Education, PA Coalition of Public Charter Schools to Resolve Issues

SCRANTON (March 14, 2013) – Auditor General Eugene DePasquale today called on the Department of Education and charter schools across the state to fix systemic problems identified in audits of six charter schools that collected more than $550,000 in improper lease reimbursements.

“With school budgets strained again this year, it is important that every education dollar possible goes to classroom learning,” DePasquale said on the steps of the Lackawanna County Courthouse. “If the improper lease reimbursement problem is more widespread among the state’s 157 brick-and-mortar charter schools it could be siphoning millions of dollars away from other education priorities.”

The six charter school audits, and the amounts of improper lease reimbursements, announced today are:

School Lane Charter School, Bensalem, Bucks County, $60,248;

Fell Charter School, Carbondale, Lackawanna County, $94,266;

Roberto Clemente Charter School, Allentown, Lehigh County,$191,267;

Bear Creek Charter School, Bear Creek Township, Luzerne County, $106,332;

Keystone Charter School, Greenville, Mercer County, $85,375; and

Evergreen Charter School, Cresco, Monroe County, $20,360.

The audits revealed that the charter schools were improperly reimbursed a total of more than $550,000 over several years through the state Department of Education’s Charter School Lease Reimbursement program.

“Our audit found that these schools violated program parameters by filing for reimbursements for properties related to, or owned by, the charter schools,” DePasquale said. “Auditors also discovered other issues with the charter schools including lack of proper staff certification, failure to file proper tax forms, possible violations of ethics laws and errors, or other problems, with recordkeeping.

“When I was sworn in as auditor general earlier this year, I said my approach to audits would be to focus on making realistic recommendations and developing workable solutions to protect taxpayer funds and ensure the viability of government programs,” DePasquale said. “In that spirit, I called Gov. Corbett’s Chief of Staff Stephen Aichele, state Education Secretary Ron Tomalis, and Robert Fayfich, executive director of the Pennsylvania Coalition of Public Charter Schools, to inform them of the audits. I hope that we can work together on a comprehensive solution to the issues raised in the reports.”

The issue of questionable lease reimbursements by charter schools was first brought to light in 2010 when the Philadelphia controller’s office reviewed the oversight of charter schools in that county. Based partly on the findings of that review, the Department of the Auditor General revised its auditing procedures to examine charter school lease agreements.

“The charter school law was established to provide students and parents with publicly funded education alternatives,” DePasquale said. “The charter schools are funded by tuition payments from school districts and should be focused on providing the best possible education for students, not looking for additional revenue streams funded by taxpayers.

“I hope that by working more closely together, the Department of Education and the Pennsylvania Coalition of Public Charter Schools can develop a plan to head off similar improper lease reimbursements involving other charter schools in Pennsylvania so that we can ensure every dollar possible is going to classroom education.”

Attached is a summary of the audit findings for each school; full copies of the audit reports are online at:

www.PaAuditor.gov/audit-reports.

# # #

Summary of Charter School Audit Findings

March 14, 2013

Roberto Clemente Charter School, Lehigh County

Improperly received $191,267 in state lease reimbursements for the school years 2006-07 through 2009-10. The school is ineligible for those lease payments because the building is owned by the organization that founded the charter school and has a common officer in charge of both entities. This also represents a possible conflict of interest.

The charter school did not meet the 75 percent certification requirement for its professional staff during the 2009-10 school year; a principal was employed from August 2007 to present without professional certification required by the state Board of Education; and a special education teacher was not certified for the 2009-10 school year.

Members of the Board of Trustees and the school principal/CEO either failed to file their Statement of Financial Interests or had continued errors in the filings.

Failed to have in file a current memorandum of understanding with local law enforcement.

School Lane Charter School, Bucks County

Improperly received $60,248 in state lease reimbursements for the school years 2006-07 through 2008-09. The school is ineligible for those lease payments because the building is owned by the School Lane Foundation created by the charter school. This also represents a possible conflict of interest.

A current memorandum of agreement with one police department was not reviewed and updated in a timely manner.

Charter school should improve controls over remote access to its computers. In particular, controls should be strengthened over outside vendor access to their student accounting applications.

Two noncertified staff were providing core content instruction and did not meet the “highly qualified teacher” requirements as of the end of the 2005-2006 school year. 

Evergreen Community Charter School, Monroe County

The charter school improperly received $20,360 in state lease reimbursements for the school years 2006-07, 2007-08 and 2008-09 because the building was owned by the Evergreen Community School, a related entity. This also represents a possible conflict of interest.

The charter school did not comply with the 75 percent certified staff requirement for the period of July 1, 2006 to June 30, 2010. The charter school’s principal was not properly certified during the same time period.

The charter school failed to file their IRS Form 990 Return for Organizations Exempt from Income Tax.

The charter school failed to obtain and retain required documentation and clearances for two school bus drivers.

Keystone Education Center Charter School, Mercer County

The charter school improperly received $85,375 in state lease reimbursements for the school years 2008-09 and 2009-10 because the lease agreement between the charter school and a for-profit entity that the charter school’s executive director founded and simultaneously holds the position of president. This also represents a possible conflict of interest.

The charter school failed to include special education student information in its annual report for the 2008-09, 2009-10 and 2010-11 school years.

During the 2009-10 school year, the compensation for professional employees was not approved by the board of trustees.

The charter school lacks sufficient internal controls over its student record data. 

Fell Charter School, Lackawanna County

Between July 1, 2006 and June 30, 2009, the charter school improperly received $94,266 in state lease reimbursements for three buildings that were ineligible for those payments because they were modular classrooms. Furthermore, the modular units were leased from a related party to the school’s management company.

The charter school failed to file their Return of Organization Exempt from Income Tax, Internal Revenue Service Form 990, for calendar years ending December 31, 2009, 2008, and 2007.

Retirement wages may have been overstated in reports submitted to the Public School Employees’ Retirement System for the 2007-08 and 2006-07 school years (see page 16).

For the period Sept. 25, 2007 through June 30, 2010, a principal was employed during the 2009-10 school year without professional certification as required by the State Board of Education.

In August 2002, the charter school entered into a non-cancelable escalating lease agreement with a related party to the school’s management company. On June 30, 2003, and June 30, 2004, the charter school signed promissory notes to borrow $672,803 and $475,278, respectively from its management company for start-up costs. These agreements, as well as the related expenses, created a conflict of interest and possible ethics violations.

Charter school personnel should improve controls over remote access to its computers. In particular, controls should be strengthened over outside vendor access to their student accounting applications.

Bear Creek Community Charter School, Luzerne County

Between May 2008 and June 2010, the charter school improperly received $106,332 in state lease reimbursements for two buildings that were ineligible for those payments because they were previously owned by the charter school and now owned by a related party, and one of the two buildings includes three attached modular classrooms.

In April 2008, the charter school’s board approved a resolution to transfer properties owned by the charter school to the Bear Creek Foundation. In May 2008, the charter school and the foundation entered into a lease agreement for these same properties. This is a potential ethics violation.

The charter school failed to file their IRS Form 990 Return of Organization Exempt from Income Tax, for calendar years ending December 31, 2009, 2008, and 2007.

Our audit found a special education coordinator was employed during the 2008-09 school year without the proper professional certification required by the State Board of Education.

The charter school personnel should improve controls over remote access to its computers. In particular, controls should be strengthened over outside vendor access to their student accounting applications.