Dover, Del. – State Auditor, R. Thomas Wagner, Jr., regrettably reports on another charter school’s major fiscal mismanagement which went undetected for several years.

As part of this inspection, we looked at the State’s operation and oversight of charter schools that would allow such practices to continue. Several factors combined to create a perfect storm of poor internal controls, which allowed the former school principal to (1) purchase personal items worth $127,866 using AOD funds, (2) pay legal fees for lawsuits alleging sexual harassment, (3) reimburse employees for purchases in violation of State policy (e.g. alcohol purchases), and (4) reward teachers with stipends and bonuses without adequate justification, board approval or equitable distribution. There is also an additional $129,458 that could not be validated as either a school or personal purchase. It is likely that these practices go back further than our investigation; however, the older the occurrence the more time it takes to investigate and the more unlikely we are to get answers about exactly what was purchased.

A major concern is the hands-off approach taken by oversight parties including the board of directors, DOE, the independent auditors, Innovative Schools, the Charter School Accountability Committee (CSAC), and Division of Accounting (DOA). This report outlines questionable activity and an operating environment that allowed widespread mismanagement. Until August 2014, nothing in the Statewide process or the ongoing financial audit drew attention to the mismanagement at AOD. In fact, the CPA firm auditors, contracted by AOD, reported clean opinions (Unqualified Opinions) with no findings on internal controls during Fiscal Years 2012 and 2013 for both the financial statement and single audits. Also of concern is that the financial statement auditors cited compliance with Generally Accepted Government Auditing Standards (GAGAS), which require more stringent procedures due to the public accountability of entities receiving government funding (GAGAS Section 4.47).

In addition, the Board was not adequately trained or adequately involved in day-to-day operations.  During this time, neither AOD personnel or the Board had knowledge of its complete failure to evaluate risk and develop an internal controls environment that would help protect the School against fraud, waste, and abuse. This left a culture that put one person in almost complete control of all aspects of the School’s operations and a culture where no one dare report such matters including the firm contracted to do the financial audit.

In general terms, all Charter Schools should utilize the Committee of Sponsoring Organizations (COSO) internal Control Framework as a guide to developing strong internal controls that support good fiscal operations that helps to deter fraud, waste, and abuse.  Further, the process used to establish and train Charter School Boards should be reviewed and revised to ensure appropriate oversight.

An additional concern impacting charter schools and school districts throughout the State is that many in the State take the position that “local funds” may be used as the school deems appropriate. The report includes instruction in which the Department of Education, Division of Accounting, and Office of Management and Budget reflect this view. The term “local funds” describes how the funds are collected yet local funds are still a part of state operations, particularly when School Districts are a part of primary government. There is no reason these funds should be exempt from the same rigors that are applied to other funds in the State.

A copy of the complete report can be found at: Academy of Dover Inspection.

For more information, please contact Kathleen A. Davies, CPA-PA, CISA, CGFM, CGAP, Chief Administrative Auditor, at 302-857-3919 or kathleen.davies@delaware.gov.

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