Dover, Del. – State Auditor, R. Thomas Wagner, Jr., is pleased to report that MOT Charter School and Thomas A. Edison Charter School consistently got it right by establishing and following internal controls, which helped ensure compliance with rules and regulations. The same cannot be said for Delaware College Preparatory Academy (DCPA) and Kuumba Academy Charter School (KACS).

The DCPA Board President claimed she made an unrecorded related party loan to the school. As part of her response to the otherwise untraceable arrangement, she provided a letter dated August 2011 in which she approves her loan to the school. The lack of appropriate accounting and related party disclosure aside, she stated she was not aware of the “why and how’s of the [$11,252.87 in] transactions” for which she was reimbursed. The Board President’s reimbursements were highly questionable as legitimate business expenses given the nature of the transactions and the missing or poor quality supporting documentation. The Executive Director of DCPA also received $18,025.78 of which $11,740.87 (65%) lacked supporting documentation to justify the reimbursement. At one point DCPA’s Board President writes “…I am not following why DCPA needs to justify expenses incurred to run its business…”

Kuumba Academy Charter School (KACS) processed payments made in addition to the employees’ salaries for the same work already included in their job descriptions. This arrangement took place for the Head of School, the Assistant Head of School, and a custodian to provide payments for the same services they were employed to perform. In the case of the custodian, his contract was almost as much as his salary as a full-time employee. During the same period, a Managing Director of a CPA Firm held a contract to perform the “Financial Director” responsibilities for the School at a cost of $4,000.00 per month.

A copy of the complete report can be found at: Charter School PCard and Personal Reimbursements Inspection.

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

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.

Increases accountability for charter performance and builds on year of education improvements advocated by Governor Markell

Dover, DE – To significantly  update Delaware’s charter school laws for the first time since 1995, the Senate today passed legislation, advocated by Governor Jack Markell, to better support high-performing  charter schools while making it harder for low-performing ones to exist in Delaware. House Bill 165 includes measures to better support charters that effectively serve the state’s highest-need populations.  Today’s 17-4 vote came after House approval by a 31-9 margin on June 11.

Passage of these reforms follows the signing of two other major pieces of the Governor’s education agenda this month: House Bill 90 simplifies the school choice process, and Senate Bill 51 requires higher standards for the state’s teacher preparation programs and licensure. In addition, the Governor’s budget proposal would add $31 million in public education funding.

“Changing the status quo is never easy. I appreciate the hard work of the General Assembly to craft a bill that holds our charter schools accountable for their results, while ensuring we support those that improve opportunities for our students,” said Markell. “By better preparing our teachers, making the school choice system easier for families to navigate and improving our charter school system, we have made significant strides toward giving all of Delaware’s students the quality education they deserve.”

HB 165 raises the bar for starting a charter school, provides increased flexibility and support for high-performing charter schools, and sets and enforces consistent expectations. This legislation is the result of years of discussion among policymakers and leaders in the state’s education community.

“The changes in this bill build on the lessons we’ve learned since we started the charter school program in Delaware,” said Senator David Sokola, D-Newark, who guided the measure through the Senate. “This not only addresses some longstanding funding concerns but takes steps to build a stronger network of charter schools in Delaware.”

“After 18 years, this bill significantly moves us forward and does what is best for all children no matter where they go to school,” said Representative Earl Jaques (D-Glasgow).

With the Governor’s signature, the law will:

• Raise the bar for starting charter schools with a pre-screening process, applicant interviews, and additional opportunities to receive and use public input regarding the impact of new and expanded charter schools.
• Increase charter flexibility and support, with ten year terms for high-performing charters (while retaining a five-year midpoint review), clear allowance of conduit financing, equalized minor capital funding, and creation of a charter school performance fund for high-performing charters, particularly those looking to expand the number of high-need students they serve.
• Set and enforces consistent expectations for charter schools, with authorizer-charter agreements, required board member training, required provision of breakfast and lunch to eligible students, clear closure protocols and a renewal process aligned to the charter performance framework.
• Ensure orderly closures of failed charters, by requiring all charter schools to maintain enough cash to pay their bills through the end of each academic year and to establish and follow protocols for orderly closure.

“HB 165 addresses concerns that have surfaced over the 18 years since passage of the Charter School Law,” said Frederika Jenner, President of the Delaware State Education Association (DSEA). “During the debate, members of the General Assembly raised concerns that will be addressed by the Enrollment Preference Task Force established by HB 90. DSEA looks forward to participating in that effort with an eye toward ensuring that all Delaware students have a fair and equal chance to attend public schools regardless of whether their school of choice is a community public school or a charter public school.”

“We’d like to recognize Governor Markell, Representative Earl Jaques, Senator Dave Sokola and members of the General Assembly for their leadership in the passage of House Bill 165,” said Chuck Taylor, President of the Delaware Charter Schools Network. “The bill’s success demonstrates the positive impact of charter education in our state, as well as the willingness of all involved to further the advancement of Delaware’s public school children.”

“The State Board of Education has been working over the last two years on strengthening charter authorizer standards, practices, and procedures that will result in an educational portfolio that includes more high performing schools and less poorly performing schools in Delaware, “ said  Dr. Teri Quinn Gray, President, State Board of Education.  “ We are pleased that the General Assembly has passed HB165 and firmly believe that this is a much needed first step in further strengthening these authorizer practices.”

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