Cosmetics and Clothes: Parents Misspent $700,000 in Arizona's School Choice Program

Parents used funds for banned items

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Cosmetics. Clothing. And computer-technology support.

Those are among the prohibited purchases parents in Arizona made with public money meant to support their children’s education, according to a recent audit by the state’s attorney general.

In the revolutionary school choice program that gives parents near-total control over how state dollars are used on their children’s education, some parents continue to abuse the system even after many of these issues were flagged in a 2016 audit.

In all, Arizona parents fraudulently spent $700,000 in fiscal 2018 on banned items and services.

The audit’s findings highlight how innovative new programs beget unique problems and beg the question, is this simply a regulatory bump in the road or a systemic issue?

“We want to hold programs to high financial accountability,” said Robert Enlow, the president and CEO of EdChoice, an advocacy group that favors school choice programs such as Arizona’s. “We also really want to make sure we modernize the government to be able to keep up with this.”

Passed in 2011, Arizona’s Empowerment Scholarships were the next phase of evolution of the traditional school voucher: the education savings account, or ESA.

Instead of giving parents tuition vouchers to spend at private schools, which is prohibited by Arizona’s constitution, the state deposits 90 percent of the per-pupil funds allocated to a participating student into a dedicated bank account. Parents use a debit card to spend the money on approved educational expenses, which can include private school tuition, home-schooling supplies, and therapy.

The program is restricted to select students, including those with disabilities and those attend low-performing public schools.

Lack of Accountability

The idea has spread to other states, including Florida, and numerous bills keep popping up in state legislatures across the country each year to establish more ESA programs.

Although there are some safeguards built into Arizona’s education savings accounts that are supposed to block parents from misspending funds, critics of the program say they are not enough.

“There is a severe lack of accountability to make sure that the funds are being used as intended and making sure that the program is being evaluated to measure if it’s working,” said Oscar Jiménez-Castellanos, an education professor at Santa Clara University.

Under the program’s rules, the bank automatically declines cash withdrawals and transactions at certain merchants such as fast-food restaurants, and parents must submit quarterly expense reports to the Arizona education department.

But the Arizona education agency has been slow and inconsistent in reacting to fraudulent purchases and collecting misspent funds, auditors said. The department has not prioritized evaluating accounts that are deemed high risk, something flagged by auditors in 2016 as well as the most recent audit.

In several instances, investigators found there were warning signs before parents made a prohibited purchase. Several parents who were able to successfully make a forbidden purchase did so after multiple attempts to either withdraw cash or after other transactions were automatically denied. Sometimes, months can pass between a parent attempting to buy a banned item or service and the state taking action, the audit found.

One parent misspent more than $10,000 of their child’s funds by making “noneducational” purchases from merchants approved by the Arizona department of education. That occurred after the parent had tried and failed on multiple occasions to make purchases on travel websites. But state officials didn’t flag the spending until four months later when the parent failed to turn in an expense report.

Investigators also found three parents who had been kicked out of the program for misspending funds but whose debit cards were not deactivated for more than a year. Those three spent nearly $6,000 combined from the time they were suspended from the program to the point at which their debit cards were voided.

The Arizona education department has also been slow to issue warning letters to parents and to turn over cases of misspending to the state attorney general’s office for collection. That makes it much harder for the state to recoup the money, the audit says.

Of 142 collection cases totaling $500,000 that were referred to the attorney general, only two had been closed and $11,000 recovered as of July, the audit found.

The Arizona education department is now tracking cash-withdrawal attempts on a daily basis, but the state schools superintendent, Diane Douglas, has told local media that the legislature has not given the department adequate resources to properly administer the program as it continues to expand.

“It’s clearly obvious that the state department of education isn’t doing a great job of administering the program, and they have actually said that they don’t have the resources to do that very well,” said Enlow of EdChoice.

Administrative Innovation

It’s not enough for policymakers to come up with innovative education ideas, Enlow said, they also have to be equally innovative in devising the regulatory and administrative architecture.

He pointed to Florida as an example of a state Arizona could learn from.

There, instead of the state administering the program, it’s done by two nonprofit groups, which have more flexibility, he said.

But Florida has had its own issues. A recent audit there found some problems with how the main group that administers the state’s education-savings-account program calculated how much money students should be awarded in a separate but related program.

While auditors in Arizona acknowledged that state officials had tried to address some concerns raised in the 2016 audit, many issues surrounding the misspending of funds that were identified in 2016 persist.

Related Blog

Overall, the Arizona education department is not adequately monitoring how parents are spending public dollars, nor is it reviewing expenses or taking corrective measures when money is misspent in a timely manner, the audit concludes.

But the audit only scratches the surface, said Jiménez-Castellano of Santa Clara University. Because state law does not require the education department to collect much data on students participating in the program, a lot is unknown about how it is functioning.

“Imagine if public schools were held to that same standard, if they only had to report how they spent their funds, which they do, but what if that’s all they had to do,” he said. “We would say we need to know a lot more about those schools.”

Vol. 38, Issue 14, Page 8

Published in Print: November 28, 2018, as Audit Finds Fraud in Arizona Choice Program
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