The Oklahoma Department of Education faces the first audit in its history after a funding scandal involving the state’s largest charter school operator.
Gov. Kevin Stitt last week ordered the department-wide audit after a previous audit of Epic charter schools cited abuse of funds, including the use of public funds and credits to start a charter school in California.
In Oklahoma, each school district issues its own debt.
The investigation comes after lawmakers approved more than $ 3 billion in education funding in the current fiscal year.
“As we make record investments in our public education system, students and parents deserve to know that their schools are spending their tax dollars appropriately and according to the law,” Stitt said.
A group of 22 lawmakers, citing a “dereliction of duty” in the Epic case, also called for the State Department of Education’s audit.
“While the State Auditor is correct in believing that the State Department of Education has repeatedly neglected its responsibility to ensure compliance with OCAS [Oklahoma Cost Accounting System] and other reports required, it begs the question whether this dereliction of duty was limited only to Epic charter schools or permeates our entire public education system, ”the lawmakers wrote. “If SDE [State Department of Education] has in fact systematically breached its regulatory obligations, it could lead to the discovery of hundreds of millions of dollars of embezzled funds. “
State Auditor Cindy Byrd said: “It is clear that the founders of Epic were able to take millions of dollars by manipulating the administrative costs of schools reported to OSDE. [Oklahoma State Department of Education]. “
Byrd said many wondered if the same issue with Epic was happening in other public school districts, prompting SDE’s audit.
“This type of audit has never been conducted in the history of Oklahoma and, possibly, the nation,” Byrd said.
In Stitt’s call for the audit, Education Secretary Ryan Walters said he supported “the commitment to protect taxpayer resources and provide transparency for parents for the first time.”
However, State Superintendent of Public Education Joy Hofmeister called the audit “yet another attack on Oklahoma’s public education system.”
“At a time when we have called for serious audits that potentially involve criminal activity, and when 541 school districts struggle to find normality during a pandemic, the governor’s attack on public education could not be a worst time for students, families, teachers and taxpayers.
According to the Oklahoman news site, two state officials with connections to Epic have left the five-member state council that regulates virtual education programs.
Mathew Hamrick and Phyllis Shepherd have resigned from the Oklahoma Statewide Virtual Charter School Board without notifying the agency of their intention to leave, the Oklahoman said. Shepherd spoke of health concerns while Hamrick said his family responsibilities led to his resignation.
Officials weren’t aware of the resignations until they asked if the two planned to attend a board meeting on September 14, the Oklahoman said. This meeting has been canceled.
With a reported enrollment of 60,000 students, Epic Charter Schools is said to be Oklahoma’s largest school system. One of the allegations under investigation is that the operator used “ghost students” to increase enrollment and funding.
Epic said it is looking to increase transparency but has resisted email requests. Oklahoma Watch, a public interest group leading the investigations into Epic, solicited emails from school officials under the state’s Open Records Act. Epic has charged a fee of up to $ 40,000 for copying the emails. On behalf of Oklahoma Watch, the Journalists’ Committee for Press Freedom filed a lawsuit to obtain the records.
Epic has been the subject of investigations and investigations by law enforcement agencies including the FBI and the Oklahoma State Bureau of Investigation for several years.
In May, a state grand jury released a 25-page report, claiming the system operated by Epic was “ripe for fraud.”
“We hope that this interim report will sound the alarm before additional public funds are diverted under cover of secrecy by a private for-profit company; and greater accountability, transparency and oversight of public funds is ensured, ”the grand jurors wrote.
The grand jury questioned the school’s relationship with Epic Youth Services, the for-profit management company owned by the school’s co-founders David Chaney and Ben Harris. The school board did not consider any other management company a “system ripe for fraud,” according to the grand jury report.
Epic Youth Services took 10% of the schools’ revenue in the form of management fees, which stood at $ 46 million between fiscal 2015 and 2020.
“The public has not been served by the incestuous relationship between for-profit provider, EYS, and the Community Strategies board,” the grand jury wrote. The arrangement allowed a company to generate “substantial personal profits at the expense of Oklahoma students.” Jurors called the profit motive particularly offensive during a pandemic.
In Oklahoma, Epic operates Epic One-on-One, a statewide fully virtual school, and Epic Blended. Together, the schools have approximately 53,000 students, more than any school district in the state.
The grand jury is investigating whether millions of dollars in public funds have been improperly spent based on the findings of the state auditor and inspector, who released part one of the report on October 1.
In April, the Oklahoma Department of Education imposed $ 10 million in penalties for violating a virtual charter school transparency law passed in 2019. Schools also faced $ 11.2 million. dollars in reimbursement requests.
Details of the violations were contained in two letters sent to Epic One-on-One and Epic Blended.
In his report, Byrd wrote that EYS had restricted the auditor’s access to records, “and transparency for public accountability purposes is non-existent.”
At a meeting in 2015, Harris and Chaney informed the board of directors that Epic had secured a charter for a school in California and that Epic schools in Oklahoma and California would begin sharing administrative costs. ” by saving the money of the two schools “.
“There was no evidence in the Community Strategies board minutes that any of these activities had been approved by the board prior to this meeting,” Byrd’s report said.
In August 2015, One-on-One’s financial resources were pledged to raise $ 500,000 in capital for the first-year funding of Epic-California, Byrd reported.
“We found no evidence that the board of directors approved pledging the capital of One-on-One to support the financial underwriting of a California charter school,” the report said. “Further, the Oklahoma Constitution prohibits the pledging of state credit to any individual, business, or corporation.”
“Laws do not allow funds allocated to one school district to be used to provide support to other school districts or to out-of-state school districts,” the auditor noted. “The act also reflects the intention of the legislature is that public funds allocated and paid to one school district be used by each school on its own behalf, not on behalf of another school district in Oklahoma, and certainly not on behalf of any other school district in Oklahoma. on behalf of a charter school in the State of California. “
In the 2021 session, Oklahoma charter schools applied for permission to issue bonds, but the bill died in committee.
The legislature passed Senate Bill 229, which created the Redbud School Funding Act. The new law uses medical marijuana taxes and the Common Public School Building Equalization Fund to provide annual per student building funds to public charter schools.