Let’s look back at the MN2020 report from a couple of weeks back. The reports main allegations were that there is an epidemic of bad accounting; writer John Fitzgerald concluded that, because of this wave of fiscal malfeasance, Minnesota needed to end the Charter School experiment.
Let’s back up a bit.
Minnesota has 339 public school districts, serving over 800,000 K-12 students.
In contrast, there are (as of 2008) 143 charter schools in Minnesota, serving 28,034 students.
Want to see who does good accounting?
Go to this website. It’s the MN Department of Education page displaying its annual “School Finance Award” winners.
Now, check out the 2009 awards [WARNING: PDF File]. Of the just shy of 120 winners, at least 32 – over a quarter – are charter schools.
Are there surprises on the list?
But of course.
Let’s recap: In John Fitzgerald’s original report, his marquee claim was:
- 83 percent [of charters] were found to have at least one financial irregularity in their audit – five years earlier, that figure was 73 percent;
- 51 percent of those schools with problems identified on their 2007 financial audits had the same problems identified on their 2008 audits, according to the MDE;
- 29 percent did not respond to a request for board minutes – five years earlier, that figure was 33 percent;
- 55 percent were found to have “limited segregation of duties,” a requirement that ensures no single charter school official has control of the school’s funds;
- 26 percent didn’t have proper collateral for deposit insurance, a requirement that ensures the charter school can pay its bills.
In Part IV of this series, we took a high-level look at what the rules say these allegations mean.
But more importantly, we need to look at what these charges actually mean in terms of individual charges against individual schools.
A business manager for a Saint Paul area charter school talked with me about the allegations against his school. The school has reputation for academic excellence – and, more importantly, for turning around kids who’ve had a hard time in the traditional public schools. Based in Saint Paul, it draws students from Forest Lake, Prior Lake and Hastings (and remember – charter parents have to provide transportation themselves). But the MN2020 report tagged his school with four “violations”; Limited Segregation of Duties, Collateral Insurance, reporting of electronic deposits, and Cash Disbursements.
Regarding the Limited Segregation of Duties – which tripped up the majority of charter schools – the manager said “nobody wants to be accused of this – we did our best to deal with this”; it was a matter, in his school’s case, it was a simple matter of him, rather than someone else, having access to the school’s blank checks. “But this was fixed before the 2008 audit”, the manager notes – as, indeed, were all of his school’s “violations”. He added “This trips up a lot of small organizations”.
Eugene Piccolo of the Minnesota Association of Charter Schools confirms this: “Every accountant will tell you that all small non-profits have trouble with this”. Piccolo noted that not only to charter schools have trouble with this, but so does every other small-non-profit, as well as smaller public schools, and many small units of government.
As to the lack of collateral – in other words, insurance to cover bank deposits above the FDIC-insured limit, which at the time of the audit was $100,000 – the manager notes “it was an issue in 2008; we received more money than we spent. It was immediately brought to our board’s attention. But we were over the limit for a total of about twenty days. The board decided it wsn’t worth getting insurance for a very brief overage”.
Don Vance – a former Army Sergeant-Major – is the director of the General John Vessey Charter School, on the far south end of Saint Paul’s West Side. Vessey’s program is based on the Junior ROTC program, and draws students from as far afield as Taylors Falls, Forest Lake, and even Monticello, on the far northwest corner of the metro area. The school had 22 seniors graduate (from among 30 seniors) two weeks ago; among students that started at the school in Grade 9, 100% graduated on time – a little over double the graduation rate at the Saint Paul Public Schools.
Vessey was tagged for collateral insurance. “We had an issue with too much money in our account. We moved the extra money into a different account!”.
Vance points out that his school – like all of the schools I spoke with – corrected the problem, and that Vessey is listed in the Department of Education’s “School Finance Award” winners.
Let’s go back to our original manager, to discuss his school’s third allegation, failure to report Electronic Fund Transfers. “We’re required by statute to report EFTs”, said the manager. “There was a brief stretch of time when these transfers were not noted in the school board meeting minutes“. Not that the transfers weren’t legal, or otherwise undocumented, but that they didn’t get entered in the board minutes as electronic transfers. “It was nothing out of the ordinary; it’s just that the medium of exchange was omitted from the minutes”. In other words, the minutes noted “Staffer X got $x hundred dollars”, rather than “Staffer X got $x hundred dollars via an EFT”. That was the “violation”. And, the manager notes, “it was corrected, and has been consistently correct since then”.
The manager’s school’s fourth “violation” regarded documentation of cash disbursements. “Being the finance manager ,I need to have another person to sign the records for cash disbursements”, the manager notes. There was a brief issue with proper signatures in 2008, but – this is important – the “violation” had nothing to do with misappropriation of actual money. “I don’t know the school’s safe combination, I can’t get to the blank checks”, and the issue, such as it was was corrected by 2008.
Judy Ingisson, director of Saint Paul’s German Immersion School, a charter on University Avenue, had the same problem. “If I recall correctly there was a time sheet and purchase order that hadn’t been signed by the director but she has verbally or in email approved the expenditures. Also, I don’t think the school did have a regular schedule for deposits but the only money that was collected regularly was milk money which in total was around $2,200 for the year. The money came is sporadically after parents were billed and I don’t think exceeded $62 in a week!”
Hardly seems to be the kind of thing that bears much taxpayer scrutiny, much less John Fitzgerald’s call for shutting down the charter system. Oh, and Ingisson notes, as did Vance and the other manager, “Both of these problems were addressed in the 2008-2009 school year by implementing new procedures and I have emphasized to office staff that need for making sure everything is signed even if there was verbal or email approval.”
While it’s an infraction that must be reported to an auditor – as it was – it’s not a sign of irresponsibility with taxpayers money.
So the great bulk of the “violations” in the MN2020 report were trifling in the extreme, but they are the same precise problems faced by most smaller non-profits, and indeed units of government.
So why do the report at all?
Good question. “Matt Entenza’s MN 2020 report does nothing to advance the discussion of how to improve the academic quality of charter schools in MN”, says Al Fan of Charter School Partners, a non-profit advocacy group. “It is simply an attempt to bully the charter school community. Making the assertion that all audit infractions are equal and that any infraction should lead to the charter application being revoked is ludicrous and a waste of taxpayer dollars. The report does nothing to show how audit infractions impact student learning or overall performance.”
But the report does raise some interesting questions. Fitzgerald’s report lists five “Worst Offenders” at financial management: In addition to the scandal-riven Heart Of The Earth Charter, whose director allegedly embezzled hundreds of thousands of dollars, it lists Aurora Charter School of Minneapolis, the Recovery School of Owatonna, the E.C.H.O Charter in Echo, and the Duluth School Academy charter.
And on the Department of Education’s “School Finance Award Winners” list? Along with Vessey, and thirty-odd other charters?
The E.C.H.O Charter School.
So – is the E.C.H.O. Charter School a Public (Accounting) Enemy Number One? Is the Minnesota Department of Education wrong? Or do MN2020’s shopping list of petty violations have a purpose very different from actually holding charter schools accountable for taxes spend on charter schools?
More on Wednesday.