California State Controller Malia M. Cohen announced new recommendations aimed at preventing and detecting charter school fraud Thursday.
The report and 20 recommendations within it were compiled by a task force which was convened by court order in the wake of the fraud committed by A3 charter schools. The San Diego-area charter school network raked in $400 million from the state between 2015 and 2019 in what turned out to be the largest fraud scheme perpetrated by a charter school in the state’s history.
Cohen was appointed as head of the task force and worked closely with San Diego District Attorney Summer Stephan, who prosecuted the A3 case, and the California Charter Schools Association.
“The primary goal ... is to prevent fraud from happening,” said Stephan. “Because once fraud happens, you have to have a DA’s office that can devote essentially this many resources to the case and then really to be successful enough to recover the money, which doesn’t usually happen.”
The 20 recommendations for detecting charter school fraud
The recommendations seek to improve the annual charter audit process that they are required to undergo each year and are focused in four areas.
Five of the 20 recommendations surround bolstered accountability measures and training requirements for (certified public accountant) CPA firms that offer school-specific auditing services. They say that these firms and staff conducting school audits must complete 24 hours of training about school fraud risks, sampling techniques and a K-12 audit guide before becoming authorized to perform such audits.
Proposed revisions to the state Education Code would include additional circumstances in which a CPA can be removed from the State Controller’s directory service, which lists all firms authorized to perform school audits. If a firm fails to meet the new training requirements or is found to have significant quality control review deficiencies, they could be kicked off the directory.
Changes to the K-12 audit guide are made in another set of recommendations, providing more clarity and requirements about how CPAs conduct their audits.
The third set of recommendations makes it more apparent when a charter school fires their annual auditor or when their audit report is late. CPAs would be required to notify the charter authorizing authority, the county office of education, the state Department of Education and the Controller’s Office of these types of changes.
Under the last set of recommendations, charters would be held to an increased level of accountability in the annual audit process. Charters must disclose more information related to related parties, such as charter management organizations, and about the schools’ highest paid employees and vendors.
Charter management organizations, which can be nonprofit or for-profit, have come under fire nationwide for drawing public money to be used for private purposes.
The task force’s report came shortly after the local controversy with St. Hope Public Schools in Sacramento and the troubling audit report released during their charter renewal process concluded , but Cohen made it clear that the task force was specifically reacting to only the fraud that took place in San Diego, not any other speculation of wrongdoing at other schools in the state. She said the goal in creating the recommendations was to take a statewide approach to charter accountability.
“It was the charter school that brought us here, but these rules, these generally accepted accounting principles, are guardrails to help ensure that this does not continue to happen,” Cohen said. “So it is our goal to strengthen the reporting rules, the requirements and and also put some additional layers of oversight, i.e., through members of the Legislature, in place so that everyone is on alert, so that this does not continue to happen.”
Task force members emphasized that these recommendations are meant to apply to not just charter schools, but public and private schools so that all schools are “held to the highest level of integrity, accountability, fiscal compliance and transparency.”
“By doing so, we ensure that the students receive the educational resources and opportunities that were intended for them, so that we can support them to become successful people,” Cohen said.
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