Auditor: Board should improve charter school financial oversight
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The board that oversees charter schools in Arizona isn’t doing enough to ensure schools’ financial viability, according to the state auditor general.
In a report released Tuesday, the Arizona Auditor General found that the methods used by the Arizona State Board for Charter Schools to evaluate school finances are not always adequate to pinpoint financial struggles that could cause schools to close midyear, leaving students and families scrambling.
The board, created in 1994 with the inception of charter schools in Arizona, is tasked with sponsoring and overseeing the vast majority of charter schools in the state. As of June 30, the board oversaw 413 charter holders operating 559 individual schools, with a collective enrollment of around 226,000 students. Charter schools are publicly funded, but serve as alternatives to traditional public schools, and are subject to different rules and regulations.
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The board has the power to issue corrective action plans or discipline schools based on charter schools’ poor academic performance, failure to comply with the terms of their charter and for financial issues.
The board initially put its financial oversight program into place in 2012, following a change in the law, and implemented an updated version in 2020, after several schools closed due to financial issues. During the 2022 fiscal year nine charter holders that were on financial probation closed their schools, but none closed during the school year.
However, auditors found that the financial struggles of three out of five schools that suffered low enrollment and closed midyear in 2019 and 2020 would not have been identified through the board’s updated financial accountability program.
Those closures affected around 130 students, whose families had to suddenly find new schools in the middle of the year.
“When schools close in the middle of the school year, students’ educational progress could be interrupted and parents/families are required to find openings for their students at other schools that may or may not have the resources needed for these students in the middle of the school year,” Auditor General Lindsey Perry wrote in the report.
Auditors advised the board to make more changes to its financial monitoring system. Under the current model, if student enrollment is the school’s only issue, the board does not place the school on “intervention” status, which includes added monitoring of its finances.
Auditors also found that the board’s formula to calculate average daily student attendance obscured substantial changes in enrollment for those five schools that closed midyear.
The board’s method of calculating the percentage changes in year-to-year enrollment and then averaging those percentages over a three year period resulted in an official enrollment decrease of 5.7% from 2014 to 2017, even though the actual decrease was 86%.
In response to the auditor’s recommendations to make several changes to its financial monitoring program, the board in August established a Financial Framework Subcommittee to recommend changes in its calculations, targets and measuring, using data and feedback collected over the past few years.
Auditors also recommended that the board update its employees and board members on conflict of interest policies, after discovering that a small number of employees had not filled out conflict disclosure forms in 2022 and that one board member had abstained from voting on an issue but did not share whether it was because of a conflict of interest.
The board responded that it updated its conflict of interest policy this year, requiring all staff to complete a form each year, and added that board members received guidance about the requirement to disclose conflicts when they refrain from voting.
After finding that the board did not resolve 13 out of 67 complaints about charter schools that auditors reviewed within the required 180 days, the auditor general recommended that the board work on its process to ensure that complaints were resolved in a more timely fashion.
The board did not dispute any of the auditor’s findings and agreed to make changes in line with the recommendations in the report.
“The Board has already addressed many of the findings by developing written policies and procedures, updating existing policies and procedures, and with the deployment of Board’s newly implemented online system,” Ashley Berg, executive director of the board, wrote in her response to the audit.
She added that the new system, implemented in May, was aimed at helping staff to better track and communicate processes and requirements and that it automated several of those processes that had previously been completed manually.
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