Auditor General DePasquale Says Audit of Aspira Inc. Charter Schools Another Example of Why PA Needs Charter School Reform
Urges new Philadelphia school board to re-evaluate authorization, management of all charter schools
Auditor General DePasquale Says Audit of Aspira Inc. Charter Schools Another Example of Why PA Needs Charter School Reform
Urges new Philadelphia school board to re-evaluate authorization, management of all charter schools
PHILADELPHIA (May 23, 2018) – Auditor General Eugene DePasquale today said a recent audit of five Aspira Inc. -managed charter schools in Philadelphia shows a private non-profit management company had nearly total control of the charter schools’ finances and operations with little to no involvement from the public charter schools themselves.
“First and foremost, the audit of Aspira Inc. charter schools once again sadly illustrates the desperate need to change Pennsylvania’s charter school law, which is the worst in the nation,” DePasquale said, noting that charter schools receive public education funding but are not subject to accountability and transparency standards.
“I know parents want options for the public education of their children, and they must be quality options,” he said. “And we need to be able to conduct full and thorough audits.
“In the case of Aspira Inc. the total control of finances and lack of accountability can best be described as the fox guarding the hen house,” he said. “When management companies operate with little to no oversight, the potential is escalated for fraud, waste, and abuse of the public funds intended for students in the schools they manage. At no time, should administrators or other staff employed by the private management company approve their own company’s invoices and transactions.
“All for-profit and non-profit charter school management companies should be subject to the state’s Right-to-Know Law to provide another level of transparency and accountability that my team found sorely lacking at Aspira Inc.”
The 100-page audit report covered July 2013 through June 2016, and included eight findings and 24 recommendations for improvement. The review covered Aspira Inc. -managed schools in Philadelphia:
- Antonia Pantoja Charter School,
- Aspira Bilingual Cyber Charter School,
- Eugenio Maria de Hostos Charter School,
- John B. Stetson Charter School, and
- Olney Charter High School.
Fox: Meet Hen House
Over the three-year review period, Aspira Inc. managed $150 million in public school revenues with little to no oversight.
“My audit found the five charter school boards provided weak to non-existent oversight of contracts, did not solicit bids, and did not properly approve or monitor budgets,” DePasquale said. “What’s more, in 2015 and 2016, other than the management agreements with Aspira Inc., no vendor contracts were approved by the boards in open and public meetings.”
He said none of the charter schools had a CEO or business manager employed by them to handle, or at a minimum monitor, their financial and operational issues.
“Aspira Inc. is clearly calling all the financial shots at all five charter schools, without any input or oversight from the schools themselves,” DePasquale said. “This is not how charter schools are supposed to function under the current Charter School Law.”
The audit found the charter school boards also were nearly identical in composition, held one meeting for all five schools, and lacked independence from Aspira Inc. and each other. Required financial disclosure forms were not filed for most board members and senior administrators, and those filed were not timely.
Auditors also found vague management services agreements that did not require accountability of Aspira Inc., allowing the management company to control revenues and expenditures for all five charter schools, including payments to itself for fees, costs, and expenses that Aspira Inc. charged for management services.
The charter schools’ collective financial position dropped between fiscal years 2014 to 2016, from a positive $7.7 million to a negative $419,000.
At the same time the fees, costs, and expenses charged by Aspira Inc. to the schools for management services spiked. In just one year, payments for management services increased from $7.2 million to $12.9 million from 2015 to 2016.
“What’s more, because the superintendent and all senior administrators were employees of Aspira Inc. and not the charter schools, they were not bound by the Charter School Law, were not considered public officials, and were therefore, able to circumvent the charter law and other statutes, including those relating to ethics and transparency, and governing school officials and their activities,” DePasquale said.
Numerous charges to the schools’ accounts, including intercompany transactions, lacked supporting documentation to verify whether charges were valid, appropriate, and accurate.
“For example, for the three-year period reviewed, Aspira Inc. billed the charter schools nearly $400,000 in travel charges, in many cases without documentation or descriptions of the purpose of travel,” DePasquale said. “Because of sloppy recordkeeping, and the fact that the management company is not subject to the state’s Right-to-Know Law, no one knows whether these travel expenses were justified.”
Auditors noted one component of the management fees, called direct services, included allocations for salaries and benefits of more than 100 Aspira Inc. employees. Since these allocations were not sufficiently documented and monitored by the schools, there is no way to verify if the schools received the services they paid Aspira Inc. employees to perform.
“Because all senior administrators were employees of Aspira Inc. and because of the poor accounting records maintained by Aspira Inc. on behalf of the schools, there was no way to verify whether the schools directly or indirectly paid for contract buyouts or other types of settlements with Aspira Inc. employees.”
Additional $210,000 payment to former administrator
In a review of Antonio Pantoja Charter School’s accounting records, auditors found a previously undisclosed $210,000 lump sum payment to a former administrator — shortly after Aspira Inc. settled a sexual harassment lawsuit with the same former administrator for $350,000. The additional payment could not be explained by charter school officials other than to say that the school’s insurance company paid for the lump sum payment.
In 2016, a new, less transparent structure was put in place where all senior administrators beyond principals were employees of Aspira Inc. instead of the charter schools. That structural change and Aspira Inc.’s poor record-keeping practices made it impossible for auditors to determine whether additional public funds are being used to pay senior administrators or other employees of the management company to settle lawsuits.
Charter schools prop up management company finances
As of June 30, 2016, Aspira Inc. and its subsidiaries owed more than $17 million in long-term debt, and with most past due and in forbearance, and more than $14 million of that debt secured with pledged collateral of the charter schools, putting their own revenues and net assets at risk, if Aspira Inc. defaulted.
“To make matters worse, there were no records of the charter school boards authorizing the charter schools to pledge their collateral — public school resources — to secure the debt of Aspira Inc.,” DePasquale said.
Aspira Inc.’s debt was largely mortgage debt on school buildings leased by the charter schools from Aspira Inc. companies. While most of the lease costs paid by the schools were based on Aspira Inc.’s debt service, the management company was not required to use the lease payments to pay down its debt.
Other findings
- In the three-year period ending June 30, 2016, 37 percent of the executive sessions of the charter school boards were announced publicly; however, several of the topics may not have been allowable topics for executive sessions under the Sunshine Act. Examples of the announced topics, which should be discussed in public, include “academic conditions,” “governance,” “financials,” “bylaws,” “new business,” and “planning for the 2015-16 school year.”
- The charter schools’ audited annual financial statements contained numerous errors, omissions, and inconsistencies, including overstating the general fund balance, failure to disclose payments to Aspira Inc. for management services, and failure to disclose third-party leases and loan guarantees.
Next steps
“With a new Philadelphia School Board poised to take over from the School Reform Commission, now is the ideal time for the new board members to take a close look at how Aspira and other charter schools are authorized and managed in the City of Philadelphia,” DePasquale said. “Continuing the status quo is simply not an option.”
DePasquale said three of the Aspira charter schools are operating under expired charters, and two more have authorizations that expire in June.
In its response to the audit, included in the report, Aspira Inc. disagrees with the majority of our findings, but agreed to implement 22 of the 24 recommendations for improvement.
“I once again urge the General Assembly in Harrisburg to step up to the plate and do what’s correct and necessary: fix the worst Charter School Law in the nation.”
DePasquale issued a special report entitled “Pennsylvania Charter Schools Accountability and Transparency: Time for a Tune-Up” in 2014 with recommendations to improve accountability, effectiveness, and transparency of charter schools.
At the time he released the report, he said: “Many outstanding charter schools in the state are doing amazing things for children and offering new ways to learn. However, it’s clear that the original intention of the charter school law has not been fulfilled. We owe it to students, parents and taxpayers to re-group and make some fundamental changes to improve oversight and accountability of charter schools in Pennsylvania.”
The Aspira Inc. -Managed Charter Schools audit report is available online at: www.PaAuditor.gov.