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School Choice & Charters

Audit: Cronyism Between Charters, Management Groups Imperils Federal Aid

By Arianna Prothero — October 05, 2016 2 min read
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Cross-posted from the Charters and Choice blog

A federal audit warns that cozy relationships between charter schools and the organizations that run some of them could put federal funding at risk.

Charter management organizations, or CMOs, are groups that run critical functions like finances, fundraising, communications, and curriculum for multiple charter schools.

Not all charter schools are run by a CMO—the majority of charter schools in the country are actually single-campus operations.

The level of independence between the school and the CMO varies on a case-by-case basis, and the U.S. Department of Education’s Office of Inspector General, which conducted the audit, is basically saying that in some instances there is so little independence between the school and the management group that it could lead—and has led—to trouble.

The OIG audit examined 33 schools in six states and found several examples of conflicts of interest, related-party transactions, and insufficient segregation of duties—all controls designed to prevent fraud.

The lack of proper guard rails in these relationships between charter management organizations and their schools, the audit concludes, significantly increases the risk that federal programs are not being implemented correctly and are wasting public money.

Furthermore, the audit found that the Education Department did not have good enough procedures in place for monitoring the specific issues that could arise out of the unique setups between charter schools and charter management organizations, nor did it instruct state education agencies to do so.

The schools the OIG examined were picked based on their tax filings, local and state audits, news stories, and other operational characteristics, which means that this sample in the audit does not necessarily reflect charter schools as a whole.

The audit also includes both for-profit and not-for-profit charter management groups. It’s important to note that the audit’s definition of charter management organizations differs somewhat from general charter school parlance. Typically, charter management organizations, or CMOs, are nonprofit, while education management organizations, or EMOs, are for-profit.

You can find the full audit here.

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