Campaign News

Executive Summary

In 1992, California became the second state in the nation to pass legislation authorizing the creation of charter schools. Since the law’s passage, which originally authorized 100 charter schools, the number of charter schools in California has grown rapidly. Today, California is home to the largest number of charter schools in the country, with over 1100 schools providing instruction to over half a million students. In the 2013-14 school year, California charter schools received more than $3 billion in public funding.

Download the full report here.

Despite the tremendous investment of public dollars and the size of its charter school population, California has failed to implement a system that proactively monitors charters for fraud, waste and mismanagement. While charter schools are subject to significant reporting requirements and monitoring by oversight bodies, including chartering entities, county superintendents and the State Controller, no oversight body regularly conducts audits.

In 2006, California took a step in the right direction by amending the Charter Schools Act to permit county superintendents who suspect fraud or mismanagement at charter schools to request an “extraordinary audit” from the Financial Crisis and Management Assistance Team (FCMAT), a state agency charged with helping local educational agencies fulfill their financial and management responsibilities. Although FCMAT only conducts an audit when requested to do so, its findings reveal internal control deficiencies and various forms of mismanagement ranging in severity and form—from inappropriate self-dealing by charter school staff to the spending of thousands of public dollars without documentation. Even after 2006, charter schools in California continue to operate year in and year out without regulator-level audits that are designed specifically to determine whether the public dollars funding these privately managed schools are being spent properly. This lack of appropriate government audits is a problem, especially given the findings of FCMAT’s audits.

The number of instances of serious fraud uncovered by whistleblowers and the FCMAT suggests that the fraud problem is likely not isolated to the charter operators that have been caught. In fact, California’s charter oversight system’s deficiencies suggest that the $81,400,000 in fraud, waste and abuse by charter operators that has been uncovered to date is likely just the tip of the iceberg. Based on conservative estimates, California stands to lose more than $100 million to charter school fraud in 2015. The vast majority of this fraud perpetrated by charter officials will go undetected because California lacks the oversight necessary to identify the fraud. In this report we describe three fundamental flaws with California’s oversight of charter schools:

Oversight depends heavily on self-reporting by charter schools or by whistleblowers. California’s oversight agencies rely almost entirely on audits paid for by charter operators and complaints from whistleblowers. Both methods are important to uncover fraud; however,neither is a systematic approach to fraud detection, nor are they effective in fraud prevention. General auditing techniques alone do not uncover fraud. The audits commissioned by the charter schools use general auditing techniques rather than techniques specifically designedto detect and uncover fraud. The current processes may expose inaccuracies or inefficiencies; however, without audits targeted at uncovering financial fraud, state and local agencies willrarely be able to detect fraud without a whistleblower. Oversight bodies lack adequate staffing to detect and eliminate fraud. In California, the vast majority of charter schools are authorized by local school districts that lack adequate staffing to monitor charter schools and ferret out fraud. Staff members who are responsible for oversight often juggle competing obligations that make it difficult to focus on oversight and identify signs of potential fraud and abuse.

To address these serious deficiencies in California’s system, we recommend the following reforms:

Mandate Audits Designed to Detect and Prevent Fraud

Charter schools should be required to institute an internal fraud risk management program, including an annual fraud risk assessment. Charter schools should be required to commission an annual audit of internal controls over financial reporting that is integrated with the audit of financial statements charter schools currently commission. These integrated audits should require auditors to provide an opinion on the quality of internal controls and financial statements. Oversight agencies, such as the State Comptroller’s Office and Fiscal Crisis and Management Assistance Team (FCMAT), a state agency, should conduct audits on charter schools once every three years. Auditing teams should include members certified in Financial Forensics trained to detect fraud.

Increase Transparency & Accountability

Oversight agencies should create a system to categorize and rank charter audits by level of fraud risk they pose to facilitate public engagement. Oversight agencies should post the findings of their annual internal assessments of fraud risk on their websites. Oversight agencies should determine what steps charter school nonprofit governing boards and executives have taken to guard against fraud over the past 10 years and issue a report to the public detailing theirs findings and recommendations. Charter school authorizers should take fraud risk assessments into account when evaluating whether to renew a school’s charter. Until the state implements the oversight mechanisms described above, authorizers should only approve new charters that commit to the fraud controls recommended above.

Given the rapid and continuing expansion of the charter school industry and the tremendous investment of public dollars, California must act now to reform its oversight system. Without reform, California stands to lose millions of dollars as a result of charter school fraud, waste, and mismanagement.

Download the full report here.

The Hill - October 2, 2014, Rachel Laforest & Keven Whelan -James Cheeseman and his mother, Constance, have lived in their Rosedale, New York home for the past five years. Like many Americans, they struggled during the recent economic downturn and have been trying to get a modification on their mortgage.

The bank that held their mortgage JPMorgan Chase, agreed to provide borrowers like them relief under a multi-billion dollar settlement with the Justice Department last year. But the Cheesemans' mortgage was insured by the Federal Housing Administration (FHA), part of the U.S. Department of Housing and Urban Development (HUD). And before they could work out a deal with Chase, the bank had the FHA sell their loan to a new investor as part of a program, called the Distressed Asset Stabilization Program or DASP.

The program is supposed to have a dual purpose. First, the federal agency hopes to be able to use the funds received by DASP to right the balance sheet of the Federal Housing Authority’s mortgage insurance program. Second, the program is intended to “encourage public/private partnership to stabilize neighborhoods and home values in critical markets.”

According to HUD’s own data and reports, DASP is meeting the first objective and failing miserably at the second. Almost all loans sold through the DASP program went to for-profit firms and only a tiny handful (around 3 percent) of families whose loans were sold ended up with deals that kept them in their homes.

For homeowners like the Cheesemans, that failure has real-life consequences. When HUD, through DASP, sold their mortgage to another servicer, the Cheesemans lost their protections under the FHA program mandating an effort to modify the mortgage. Their new servicer, BSI Financial, was under no requirement to consider a mortgage modification.  BSI doesn’t even participate in HAMP, a post-bailout program for major banks that facilitates loan modifications to keep families in their homes.  The result? The Cheesemans and thousands of other homeowners throughout the country are at serious risk of losing their home.

A recent report, Vulture Capital Hits Home: How HUD is Helping Wall Street and Hurting Our Communities, published by the Right to the City Alliance and Center for Popular Democracy cited serious problems with DASP. First, the current structure of most DASP auctions considers only the highest bid without weighting the bidder’s track record of good outcomes for homeowners and communities. Secondly, the groups found that the current outcome requirements and reporting structure fail to hold purchasers accountable. Third, the current pre-sale certification phase does not ensure that the FHA modification process has been followed.

Organizations called “Community Development Financial Institutions” with a track record of helping consumers stay in their homes stand ready to be a part of an improved version of this program. If a reformed DASP program incentivized it, investors with a social purpose could also make money by negotiating win-win, sustainable mortgage modifications with homeowners.

But community-friendly organizations can’t even get to the table with the auction overheated by well-heeled Wall Street firms and private equity “vulture capital” firms.

When the highest bidder places profits first, homeowners and neighborhoods come last. The result: more and more American homeowners losing their homes to unnecessary foreclosures and more and more corporate landlords leasing homes at rates few of these former homeowners, let alone anyone else, can afford.

All of this is the consequence of a program developed and managed by HUD, a federal agency with a stated mission to advance affordable housing and sustainable communities.

This week, HUD plans to sell off another 15,000 American homes to Wall Street investors. These are 15,000 families, 15,000 neighbors and 15,000 futures. Many if not all of these homeowners will lose their share of the American dream as a result of these auctions.

HUD can and should halt this week’s sale and must implement the necessary reforms that have been proposed by a range of community and advocacy groups.

As we consider the results of the economic collapse and what has been called by some a recovery, it is important to note once again that many neighborhoods, especially in communities of color, haven’t bounced back.

Too often our government has put the interests of Wall Street above the needs of struggling families. HUD can do better by fixing the “Distressed Assets” program now.

Laforest is executive director of the Right To The City Alliance, based in New York City.  Whelan is National Campaign director of the Home Defenders League. He lives in Minneapolis.

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Phil Lehman was officially sworn in to fill his longtime friend Paul Luebke’ seat last month, but his term as a state representative will only last a month or so.

Lehman, a a longtime consumer advocate in the state attorney general’s office who retired three years ago, was appointed to the seat the night before the Nov. 8 election and plans to step down in January.

“I don’t think there was enough time to do all the vetting process and consulting with the political groups to find somebody younger than I was to be in this for the long haul,” said Lehman, 70.

Luebke, 70, a Democrat who represented Durham for 25 years in the state House, died in late October. He had been diagnosed with lymphoma in 2015 and received treatment, but suffered a sudden return of the cancer.

Luebke, who was running for re-election to a 14th term, remained on the ballot for the general election

According to elected officials, a subset of the Durham County Democratic Party Executive Committee that included precinct chairs and vice chairs and elected officials in House District 30, initially planned to fill the seat after the election. That changed after concerns were raised about procedure and possible future complications.

“The recommendation was made by the state Democratic Party that we didn’t want to go through the election cycle without having somebody appointed to serve in his place on the ballot,” said Sen. Floyd McKissick, a Durham Democrat who said he preferred taking that route from the beginning.

The subset of the Durham committee met Nov. 7 and voted to appoint Lehman to the seat as a place holder to fill the existing term and the start of the new term.

At least four candidates want the seat when Lehman steps down.

▪ Danielle Adams, 32, is an eight-year member of the Durham County Soil & Water Conservation District Board of Supervisors who was recently re-elected. She is the southern coordinator for Local Progress, an arm of the national nonprofit Center for Popular Democracy. It encourages progressive policy making at the local level.

Adams wants to bring a strong, pragmatic, progressive voice that represents young people, women and people of color.

“I don’t think my voice has been reflected, and I think part of my desire comes in wanting to see that change and being that change not only for myself but for the many others like me,” she said.

▪ Shelia Huggins, 49, is a private attorney who worked for the city for eight years, most recently as a senior administration manager with the Department of Economic and Workforce Development. Huggins said she has focused on supporting entrepreneurship by serving on the N.C. Central University School of Business Board of Visitors and Alamance Community College Small Business Center Board of Advisers.

Huggins wants to improve the economic vitality of the state.

“I would really like to see us build a business climate that is supportive of people who are trying to build businesses and people who already have business in the state of North Carolina,” she said.

▪ Marcia Morey, 61, Durham County’s chief district judge, has served on the bench for nearly 18 years. She was a driving force behind the county’s misdemeanor diversion program, which was the first in the state after it was established in 2014 to give 16- and 17-year-olds charged with certain misdemeanors a second chance. The program was later expanded to18- to 21-year-olds and has been a model for other counties across the state

Morey said she is up for a new challenge to help make better policies and laws.

“I think after 18 years in the courts, you see many issues that would come before the General Assembly,” Morey said. “It has given me a lot of awareness and experience to kind of know how to look at laws, and how they are interpreted, and the impact they have on people’s lives.”

▪ Sherri Zann Rosenthal, 59, is a senior assistant city of Durham attorney. She worked as a contract attorney for the city for six years before becoming an assistant city attorney in 1995. Rosenthal served as president of the Durham-Orange Women Attorneys and created a committee on child sexual trafficking in Durham. The committee’s advocacy lead to the creation of the Durham County Task Force Against Child Sexual Exploitation, which is providing prevention training in schools and promoting the gathering of information of cases that come through the Durham County Department of Social Services.

Rosenthal said public policy has always been her core interest.

“I think that at the state level we have really gotten away from fact-based public policy, and we have gotten very polarized. It is very important that we join together so that we solve real problem,” she said.

By Virginia Bridges

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Huffington Post - December 22, 2014, by Ana Garcia-Ashley - It was heartening to see Missouri's Attorney General finally take action by suing at least 13 municipalities due to their excessive court fees last week.

As the ACLU and the NAACP target the Ferguson Florissant school district to get more diverse representation on their school board, which is heavily white, we see progress on that front as well.

Gamaliel affiliate MCU and its allies are working to get County Executive-elect Steve Stenger to hold a county-wide summit of law enforcement officials and local mayors to promote community policing and an end to racial profiling and excessive court fees. So far, Stenger has agreed in principle to the summit, but a date has not been secured.

We believe it is essential to take a long hard look at what works in the long term in communities of color. In our more than 20 years of organizing, we have found that nothing works better than jobs at getting people off the street and putting money into low-income neighborhoods.

We must put in place criminal justice reforms, but we must put equal attention toward creating more and better jobs as a key long term solution. For that, we must continue our advocacy and organizing efforts.

What we found in our new study, "Jobs and More Jobs" was that in 2012 and 2013, among our 43 affiliates and across 16 states, the Gamaliel network won public policy campaign victories worth more than $13 billion, creating more than 450,000 jobs and generating more than a $17 billion increase in the gross domestic product. The victories ranged from transit access to criminal justice and even included food justice wins. The key takeaway of Jobs and More Jobs is this: organizing creates jobs.

Organizing creates the public space in which real people come together around a shared set of values to build powerful coalitions that improve the civil, social and economic conditions of their communities and it develops leaders who effectively wage and sustain long-term campaigns around the issues they face.

All community organizers have a similar impact -- not just Gamaliel. We urge our colleagues to assess their own impact. Center for Popular Democracy, DART, Casa de Maryland and others could post similar results.

In the end, we know what works post-Ferguson - jobs. We also know how to get there -- organizing. As Margaret Mead said; "Never believe that a few caring people can't change the world. For, indeed, that's all who ever have."

The 25 page study, called "Jobs and More Jobs," is available for download.

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