Board demands charter schools pay back $11.2 million over audit findings

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    Oklahoma City, OK (Tulsa World) — The Oklahoma State Board of Education on Monday voted unanimously to demand back $11.2 million in taxpayer funding from Epic Charter Schools based on an investigative audit that identified chronically excessive administrative overhead costs and inaccurate cost accounting.

Brenda Holt, audit manager for the special investigative unit of the State Auditor and Inspector’s Office, detailed the new state audit findings for the board.

“Oversight as a whole was weak. There was very little verification of the underlying documentation from Epic,” Holt told the board. “The information was taken at face value.”

The state Board of Education zeroed in on three findings in its Monday vote:

• Underreported administrative payroll costs the past six fiscal years totaling $8.9 million, of which Epic was already penalized about $530,000.

• A 2016 episode first red-flagged by accountants at the Oklahoma State Department of Education that showed Epic “inaccurately reclassified administrative costs,” thus avoiding a $2.6 million penalty for exceeding Oklahoma’s limit on administrative costs.

• And the discovery that $203,000 in Oklahoma taxpayer dollars was paid to Epic’s charter school in California.

On Tuesday, the Statewide Virtual Charter School Board is meeting and, according to the posted agenda, could vote to terminate its sponsorship contract with Epic.

Holt began her presentation by setting the record straight on two issues she said have been commonly mischaracterized in public discourse since the release of the state audit report a couple of weeks ago.

She said Gov. Kevin Stitt’s charge to State Auditor and Inspector Cindy Byrd included the task of reviewing annual audits on Epic from the previous three years, but it did not limit the scope of the forensic audit as a whole to any such time period.

In all, $125.2 million of the $458 million allocated to Epic Charter Schools for educating students the past six years was found to have ended up in the coffers of Epic Youth Services, a for-profit charter school management company that has reportedly made millionaires of school co-founders Ben Harris and David Chaney.

“We ask for annual appropriations totaling approximately $3 billion and $125 million works out to about 4.1%,” said state board member Kurt Bollenbach, of Kingfisher. “Are you saying I do not have access to or oversight of 4.1% of the funds that come through this department?“

Holt responded: “Yes.”

Holt described how Epic and its affiliates armed themselves with lawyers to make the state auditors’ task of interviewing school personnel and scrutinizing records particularly difficult.

So difficult in fact that 63% of the funds turned over to EYS — nearly $80 million budgeted for students’ learning needs — remains out of reach of the State Auditor’s Office and outside public scrutiny.

Nearly $46 million was collected by EYS as compensation for its contract to operate Epic’s two Oklahoma charter schools.

The state auditor is continuing to pursue public records for student learning spending at Epic in court and a trial has been set in the case for December.

Holt also told the state Board of Education that none of the findings or statements in the state audit report are intended or should be interpreted as criticism about “the validity” of charter schools or parent school choice.

She said the job of the forensic auditors is to scrutinize the fiscal management and use of public monies by Epic school operators.

Byrd’s office found that Epic exceeded the state’s 5% state cap on administrative overhead costs intended to ensure public schools direct most resources on students “year after year.”

The state auditor’s report cites “questionable classification and reporting of administrative costs” between FY 2017 and FY 2019 totaling $16.6 million for Epic One-on-One, a statewide virtual charter school, and $6.7 million for Epic Blended Learning Centers, which offer students in Tulsa and Oklahoma counties a blend of at-home and classroom-based studies.

And a $530,000 penalty imposed by the state school board in February, while significant, represented a fraction of what the state auditor said she has documented proof that Epic actually owes for those underreported administrative payroll costs the past six fiscal years: $8.9 million.

Board member Carlisha Williams Bradley, of Tulsa, told her fellow board members how she had first-hand knowledge and experience with the required reporting of public school expenses because of her past work with a national charter school management company and in running a local charter school in Oklahoma.She said she was “very much taken aback” to learn how Epic’s state reporting was being conducted behind the scenes.

“There were a lot of glaring errors,” she said. “This is not normal. This is not OK. And I do think it requires action by this board and by this body to say this is not acceptable, and it is our responsibility by law to do something here in this setting.”

After Monday’s special board meeting, Epic Superintendent Bart Banfield released this written statement: “It’s no secret we dispute some of the (state auditor and inspector’s) material findings and have requested through an open records request its work papers to review their calculations so we can go beyond our initial audit response to exercise our due process and debunk these calculations.

“Epic is not perfect. No school is. But the dedication of Epic’s 2,100 employees working here to get things right and improve our processes is. We know more than 60,000 students and their families are counting on us to work with the state Department of Education to resolve issues and we will not let them down.”

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