County Office Fiscal Oversight Workshop October 25, 2006

1. County Office Fiscal Oversight WorkshopOctober 25, 2006 Charter School Fiscal Oversight Wendy Benkert, Ed.D., Assistant Superintendent, Business Orange County Department of Education Gary Thomas, Ed. D., Deputy Superintendent San Bernardino County Office Superintendent of Schools Marta Reyes, Director, Charter Schools California Department of Education

2. Extraordinary Audit Experiences

3. Extraordinary Audit ExperiencesSimilarities Between California Charter Academy Audit and Opportunities for Learning/Opportunities For Youth Audit Both • Pattern of conflict of interest • Inappropriate claiming of State funds California Charter Academy also shows: • Lack of fiscal oversight • Unauthorized transfer of funds

4. California CharterAcademy

5. California Charter AcademyPattern of Conflict of Interest • Created a private management company, a for profit company, to provide administrative services to charter schools • CEO served as executive officer of all 4 charter schools as well as CEO of private management company allowing CEO to direct millions of charter school dollars to benefit his corporation, family and friends • Created a joint power authority for employee benefits with CEO of charter schools also CEO of joint power authority

6. California Charter AcademyPattern of Conflict of Interest • Charter school funds were used to pay extremely high salaries for few measurable services • Seven board members served in incompatible offices by concurrently serving on more than one charter board • Two charter board members received funding from the charter school for programs they administered

7. California Charter AcademyPattern of Conflict of Interest • Three charter board members accepted political campaign contributions from the private management company while serving on the board • One charter board member received a contract from three of the charter schools while sitting on the board of a fourth charter school • While serving on the charter board, one charter board member sold her family business to the chief executive of the charter school and private management company

8. California Charter AcademyLack of Fiscal Oversight • Charter school boards did not exercise adequate oversight over charter funds and executive officer of the charter school • Charter boards did not review and approve all expenditures

9. California Charter AcademyInappropriate Claiming of State Funds • Operated sites outside the boundaries of authorizing district, inappropriately claiming millions in state funds • Operated schools that were likely private school conversions, inappropriately claiming millions in state funds

10. California Charter AcademyUnauthorized Transfer of Funds • Transferred private management company employees to charter school payroll without justification • Directed charter school funds to subsidiary companies • No functional separation between the finances of the charter school and the private management company which resulted in improper transfers of funds. • Unauthorized transfers of charter school funds to private management company

11. Opportunities for Learning/Opportunities for Youth(OFL/OFY)

12. OFL/OFY Charter SchoolsPattern of Conflict of Interest • Created a private management company, a for-profit company to provide administrative services to charter schools • CEO of the non-profit charter schools serves as president or vice president of each of the charter schools and CEO of the private management company allowing CEO to direct millions of charter school dollars to benefit his corporation and family

13. OFL/OFY Charter SchoolsPattern of Conflict of Interest • Additional corporations were created to provide services on a fee basis beyond charter school management • All the charter schools and related entities are interconnected by the CEO’s family members; several of the same corporate officers, directors and staff; and the goods and services they sell to and purchase from one another

14. OFL/OFY Charter SchoolsPattern of Conflict of Interest • Charter school funds were used to pay extremely high salaries • Family members and other key individuals hold multiple positions concurrently • Donated nearly $11 million of charter school funds to create an organization called Pathways in Education

15. OFL/OFY Charter SchoolsInappropriate Claiming of State Funds • Incorrect coding on independent study funding determination forms resulted in overstatement of certificated staff expenses which caused over claiming of state funds • Charter school pupil-to-teacher ratio methodology is in violation of state law according to CDE legal opinion • Over claimed ADA based on not meeting independent study regulations

16. Audit Option AB 139

17. Audit Option AB 139 • EC 1241.5(b) permits the County Superintendent to audit the expenditures and internal controls of school districts in his or her county if he or she has reason to believe that fraud, misappropriation of funds, or other illegal fiscal practices have occurred that merit examination.

18. Audit Option AB 139 • The review shall be focused on the alleged fraud, misappropriation of funds or other illegal fiscal practices • Shall be conducted in a timely and efficient manner

19. Audit Option AB 139 • With 45 days of the completion of the audit/examination, the county superintendent shall report his or her findings and recommendations at a regularly scheduled school district board meeting • The governing board will notify the county superintendent of its proposed actions on the county superintendent’s recommendations no later than 15 calendar days after receipt of the report

20. Audit Option AB 139 • Upon review of the school district governing board report, the county superintendent, at his or her discretion, and consistent with law, may disapprove an order for payment of funds consistent with E.C. section 42638

21. Audit Option AB 139 E.C. 42638 • (a) If the order is disapproved by the county superintendent of schools, it shall be returned to the governing board of the school district, except as otherwise provided in this code for the registration of warrants, with a statement of his or her reasons for disapproving the order • (b) If the county superintendent determines that there is evidence that fraud or misappropriation of funds has occurred, the county superintendent shall notify the governing board of the school district, the State Controller, the Superintendent of Public Instruction, and the local district attorney

22. SB 430 • SB 430 (E.C. 1241.5 (c)) now allows the county superintendent to conduct an AB 139 audit in a charter school. • The county superintendent shall report the findings and recommendations to the governing board of the charter school at a regularly scheduled meeting, and provide a copy of the information to the chartering authority of the charter school within 45 days of completing the review, audit, or examination. The governing board of the charter school shall, no later than 15 calendar days after receipt of the report, notify the county superintendent and its chartering authority of its proposed response to the recommendations.

23. SB 430 • E.C. 42128.8 ( c) (1) The Superintendent may request the unit (FCMAT) to provide the assistance described in subdivision (b) of Section 1624, Section 1630, Section 33132, subdivision (b) of Section 42127.3, subdivision ( c) of Section 42127.6, Section 42127.9, and subdivision (a) of Section 42238.2, and to review the fiscal and administrative condition of any county office of education, school district, or charter school.

24. SB 430 • E.C. 42127.8 (d) In addition to the functions described in subdivision ( c), FCMAT can also provide many training opportunities. • SB 430 also extends FCMAT services to the California Community Colleges.

25. Senate Bill 740 Non-classroom-based school oversight

26. Senate Bill 740: Non-classroom based school oversight • Two examples given earlier were non-classroom-based schools. SB 740 was passed by the legislature in 2001 to: • put in place a process to review financial expenditures of non-classroom-based/ independent study schools, and • To assure that schools were not profiteering.

27. Established the Advisory Commission on Charter Schools (ACCS) to the State Board of Education • Recommend to the SBE funding determination levels for all non-classroom-based/independent study charter schools (includes home study, home school, virtual, and/or any school that does NOT meet on the school site under the direction of an employee of the charter school for a minimum of 80% of the instructional time (annual instructional minutes);

28. Established the Advisory Commission on Charter Schools (ACCS) to the State Board of Education • Hear appeals to the SBE from locally denied charter schools, recommend action to the SBE; • Review and recommend action, when necessary, on charter school regulation and policy.

29. Senate Bill 740 Established Criteria • For the review of non-classroom based/independent study schools to assure that • Originally 80% of all revenue was spent on instruction-related expenses, and • 50% of state revenues was spent on credentialed teacher salaries. • The default for funding was 95% in 2001, moved to 80% in 2002, to 70% in 2003 and to zero in 2004 and beyond (unless there was reason/ evidence to go higher or “lower.”)

30. CURRENT SB 740 Regulations Approved December, 2005 • Maintained the 80% requirement for instruction-related expenditures and reduced the certificated expenditures to 40%, more closely aligned to traditional school expenditures • Created a statewide average for pupil-to-teacher ratio of 25:1 • Credited facility usage for instruction related services to become a part of the basic formula for funding determination recommendation,

31. CURRENT SB 740 Regulations Approved December, 2005 • Allowed contracted staff (hired by the charter school) and providing direct instruction to students to be included in certificated costs; • Narrowed the credentialed staff to be ONLY those who are providing direct instruction to students – eliminated certificated administration and others to be included; • Moved funding determinations time lines to support “forward funding” for charter schools.

32. Balancing Oversight and Autonomy • Starting off RIGHT! • Clear Expectations: Students First! • Meeting the Intent of the Charter Statute • Autonomy for Accountability • Creating a partnership • CDE/SBE Models: • Model Charter School Application • Model Oversight Agreement: Memorandum of Understanding

33. Model CDE/SBE MOU • Transparency – “Working with the End in Mind;” • Clarity of Expectations – NO Surprises; • Interventions – Clarity; • Site Visitations – Measuring Processes: • National Association of Charter School Authorizers • Cambridge Education – site inspection • Annual Evaluations: Renewal.

34. Model CDE/SBE MOU • 4 Major Areas of Focus • Governance and Organizational Management • Educational Performance • Fiscal Operations • Fulfilling the Charter Terms • Attachments: • Student Achievement Plan • Pre-opening Checklist • Documentation Review • SBE Oversight Evaluation Form • School Closure Procedures

35. Questions