LA Times - March 23, 2015, by Zahira Torres - California lawmakers must strengthen financial oversight of charter schools to stem cases of fraud and mismanagement that have already cost taxpayers $81 million, according to a new report from several advocacy groups.

The report by the Center for Popular Democracy, the Alliance of Californians for Community Empowerment Institute and Public Advocates Inc., said state and local leaders rely too heavily on self-reporting through whistleblowers or audits paid for by charter school operators. Local leaders also lack the staff and training to monitor charter schools and identify fraud, according to the report.

But the California Charter Schools Assn. offered a swift rebuke of the report in a two-page statement that said the authors offered dated examples of fraud and did little to prove that systemic problems exist.

The report pointed to cases that revealed $81 million in misused funds at charter schools over the last two decades, but said those do not reflect the true cost to taxpayers because weak financial controls allow fraud and mismanagement to go undetected.

Last year, the Los Angeles County Board of Education revoked the charter for Wisdom Academy of Young Scientists after auditors found that administrators funneled $2.6 million to the former director, her family and close associates.

“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," the report said. "Without reform, California stands to lose millions of dollars as a result of charter school fraud, waste and mismanagement.”

The report said more focus must be placed on the state's 1,000-plus charter schools which received $3 billion in public funding last year.

Charter schools are publicly-funded but privately managed.

The California Charter Schools Assn. released a two-page statement Tuesday questioning the accuracy of the report and the authors' intentions. The group said it agreed that public dollars should be used appropriately, but argued that the report offered few examples of fraud.

In those cases, charter schools closed or made large-scale changes that helped prevent fraud in the future, according to the association.

"While we don't presume to understand the motives behind this report, we do know that California is a state where the charter school sector, authorizers and legislators have come together to put into place real solutions," the group said in the statement.

Recommendations in the report include mandating audits that would be specifically geared toward preventing fraud; requiring charter schools to set up internal risk management programs that would conduct annual fraud risk assessments; ranking charter audits by level of fraud risk and denying requests for new charter schools that do not commit to fraud controls.  

The report did not study oversight policies or make recommendations for traditional public schools.

"To assume that there is greater risk at charter schools than school districts, particularly in light of all the real time oversight on financial reports, is simply unfounded," the charter school association said in its statement.

Kyle Serrette, director of education at the Center for Popular Democracy, said many public school systems employ internal auditors and have developed policies to help prevent fraud. But he said public schools should face the same scrutiny.

“There is no proactive system to monitor for fraud, waste and abuse,” Serrette said about the charter schools studied in the report. “California set up a system that prosecutes fraud rather than prevents it.”

He added, "We want to be able to detect the sheep from the sheep in wolves' clothing.”

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