Budget & Finance

California Audit Alleges Charter Chain’s Funds Misspent

By Linda Jacobson — August 29, 2006 3 min read
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California’s largest charter school operators claimed $57 million more in state funds than they should have received, according to the results of an audit called for by state and county education officials.

Founded by John and Joan Hall, a husband-and-wife team of high school teachers, Options for Youth and its for-profit arm, Opportunities for Learning, run eight schools and more than 40 satellite sites where teachers meet with students in Los Angeles, Orange, Sacramento, San Bernardino, and Siskiyou counties. In one year, the Halls paid themselves more than $600,000 in salaries, the audit says.

Launched in March 2005, the audit found a series of accounting problems and suggested conflicts of interest involving the chain’s education-related businesses and a charity, called Pathways to Education, operated by the Halls’ daughter, Jamie Hall.

The auditors, from the Fiscal Crisis and Management Assistance Team, a nonprofit group created by state law to help school districts with financial troubles, say that OFY/OFL overstated data regarding the number of credentialed teachers, teacher-student ratios, and student attendance. Questionable expenses also included a staff party at Disneyland and a $5,200 luncheon for OFY and OFL employees.

The audit team, the document says, “could not determine the appropriateness or validity of many of the expenditures. This lack of internal control is significant considering that OFY paid six bills for several credit cards totaling $156,435 in 2002-03 and $221,361 in 2003-04.”

California Superintendent of Public Instruction Jack O’Connell expressed strong concerns about the findings of the report, which he has referred to state Attorney General Bill Lockyear for review.

“The audit shows that the operators of these schools are reaping millions in profit from public funds intended primarily for the education of students,” Mr. O’Connell said in an Aug. 9 statement, adding that he would “work aggressively to ensure that the state is reimbursed for the millions of dollars in overpayments taken by these schools.”

Confusing Law?

But officials with OFY/OFL argue that the state law that applies to independent-study charter schools is confusing, and that they repeatedly asked the state for clarification, but got none.

“These organizations are dealing with very at-risk kids,” said Kerry Mazzoni, a former Democratic state legislator who served as education secretary in Democratic Gov. Gray Davis’ administration and is now a consultant to OFY/OFL. “Why would the department have an agenda to close them down rather than an agenda to help them out?”

One of the major disagreements between state officials and the charter schools concerns payment for “full-time-equivalent” teachers. The charter schools argue they should receive a higher rate than that received for regular classroom teachers because OFY/OFL schools operate year-round and their teachers work “more hours per day, more hours per week, and more weeks per year,” according to Stevan Allen, a spokesman for the schools, whose headquarters are in Pasadena, Calif.

The charter schools have filed a lawsuit in Los Angeles County Superior Court against the state education department in a move to resolve that very dispute. The suit is pending.

Regarding the Halls’ pay, OFY/OFL officials say in a rebuttal to the audit that the compensation is “based on a comparison of salaries paid to officers of other similar-sized nonprofit entities.”

Nevertheless, OFY/OFL officials agree with some of the auditors’ recommendations, including one that they strengthen controls over credit card charges.

Mr. Allen argues, though, that the schools—which serve a population of roughly 25,000 students who have either dropped out of school or are deemed close to dropping out—are successfully fulfilling their mission.

“Our state test scores, including [high school exit exam] passage rates, exceed those of similar schools throughout the state,” according to the schools’ written statement. “We are constantly seeking new ways to improve our instruction and administration.”

Still, Mr. O’Connell, the state schools chief, and the local county offices of education superintendents who called for the audit aren’t the only ones who have been concerned about the OFY/OFL schools’ financial operations.

In 2004, the California Charter Schools Association denied membership to the OFY/OFL schools after concerns were raised about their accounting practices by the state school board’s Advisory Commission on Charter Schools.

A version of this article appeared in the August 30, 2006 edition of Education Week as California Audit Alleges Charter Chain’s Funds Misspent

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