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A Close Look at Charter School Financial Accountability

June 05, 2009 By John Fitzgerald, Education Policy Fellow
On Tuesday, Minnesota 2020 released a report titled Checking in on Charter Schools: An Examination of Charter School Finances. Feedback from opponents was swift, but they can't dispute the data.

Here's a rundown of the report: A check of 2007 charter school audits found that 83 percent of Minnesota's 145 charter schools had at least one financial irregularity and 51 percent of those with problems had the same problems identified on their 2008 audits. Additionally, 29 percent did not comply with open meeting laws and 55 percent had limited control of the school's funds.

This is important because charter schools receive $10,500 per student from the state, meaning the state invests hundreds of millions of dollars in charter schools each year. Without proper oversight, the chance of financial mismanagement is great.

While this year's Legislature passed laws tightening some of the regulations regarding the relationship between charter schools and their sponsors, even greater financial accountability is needed. We recommend the state reconsider renewing charters with the schools that cannot successfully pass a financial audit or provide board meeting minutes. We also suggest that the state hold sponsor organizations financially accountable for the fiscal health of their sponsored charter schools and require sponsoring organizations to pay for any discrepancies found in a charter school's audit. Financial training must be mandatory for all charter school directors.

The issue is transparency. We found that 121 of 145 charter schools had financial problems. We also found that almost no one knew that so many charters faced these financial problems.

Many schools failed an audit finding called "limited segregation of duties," a requirement that more than one person be responsible for the school's finances. Some charters have said their staffs are too small to comply with this finding. However, limited segregation of duties is a basic accounting principal that serves as an important financial check of taxpayer finances. Maintaining segregation of duties is difficult but not impossible.

Some questioned why we didn't focus on traditional public schools. The answer is simple: School boards at traditional schools are elected by the public. Boards at charter schools are elected by the parents of students in the charter schools - much the same way that college fraternities elect their leadership. If a taxpayer doesn't like the way money is being spent at a traditional public school, he can help elect new board members. If a taxpayer doesn't like the way a charter school is spending state funds, there is little recourse.

Similarly, the requirements to run a traditional school district are very high. Being a superintendent requires a license, which requires years of experience as a teacher and administrator and years of education-specific university coursework. There are no educational or licensing requirements to be a charter school director; some schools may take care to hire a qualified director, some may not.

Some wondered why we didn't separate severe findings (called material deficiencies) from less severe findings (called significant deficiencies). We didn't separate them because significant deficiencies can become material deficiencies, and when they do, the taxpayer loses. Significant deficiencies are like a benign melanoma - checking it early can help avoid disastrous problems later. We determined both levels were important enough to note in each school's tally.

One reader complained that small findings shouldn't have been reported. "An audit violation could be as simple as not having two signatures on a check," he wrote. "Over time the findings become fewer and fewer and a system is developed to ensure fiscal stability and financial accountability can be measured."

To test his assertion, I took a look at two schools featured in the report, Duluth Public Charter Schools and Aurora Charter School (the writer's email address was from a charter school, but not from either of these). In 2000, Duluth had five audit infractions, six in 2001, five in 2002, five in 2003, 11 in 2007 and five in 2008. Aurora had one in 2000, two in 2001, seven in 2002, five in 2003, 10 in 2007 and four in 2008. These records hardly show that findings become "fewer and fewer" and provide "fiscal stability."

This report did two things: It brought numbers to light that indicate a problem with the way taxpayer dollars are being spent, and it suggested ways to fix the problem. Charter schools have been in existence since the first eight were chartered in 1992. To be discussing in 2009 about whether it is OK to have a large number of financial irregularities is not satisfactory. This report calls for greater financial accountability of charter schools. No matter your opinion about charter schools, all Minnesotans agree that accountability for spending public funds is non-negotiable.

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