Audit uncovers widespread abuse in charter school finances

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A new study on Arizona charter schools uncovered widespread abuse of public money for personal profit among charter schools involving owners, board members and their families.

The Grand Canyon Institute conducted a three-year forensic audit of Arizona’s charter school’s finances and found that 77 percent of schools engaged in nepotistic transactions. These types of transactions are illegal for public schools to engage in, but there is no law prohibiting nepotism in charter schools.

Curt Cardine, a fellow at Grand Canyon Institute who worked on the study, spoke with Arizona Horizon about his findings.

Coming up next on "Arizona Horizon," a new report raises questions about the financial transactions of charter schools. Also tonight, why homeowners associations are increasingly foreclosing on homes. And as the Ken Burns Vietnam special continues, we'll hear about two Arizona women who served during the war. Those stories next, on "Arizona Horizon." "Arizona Horizon" is made possible by contributions from the friends of Arizona PBS. Members of your PBS station. Thank you.

Ted Simons: Good evening and welcome to "Arizona Horizon." I’m Ted Simons. Governor Ducey today expressed his support for the latest republican attempt to repeal and replace Obamacare. The bill, sponsored by senators’ Lyndsey Graham and Bill Cassidy would end Medicaid expansion in 2020, replace the current subsidy system with block grants and end the individual and employer mandates. The governor called the legislation, quote, "the best path forward to repeal Obamacare. I will continue to work with the congress and the administration to give states more flexibility and more options moving forward. Congress has 12 days to say yes to Graham-Cassidy. It's time for them to get the job done." Senator John McCain said today that Ducey’s support for the bill is helpful but it doesn't mean that he'll vote for the legislation. A new policy report by the Grand Canyon institute reveals that most Arizona charter school holders use state taxpayer funds for potentially questionable financial transactions, involving in many cases, business deals with charter school owners and corporate boards and their relatives. Here to talk about the report is Curt Cardine, a Grand Canyon institute fellow and principal author of the study. Good to have you here. Thanks for joining us. Good evening.

Ted Simons: Looking at charter, what is are we looking at here?

Curt Cardine: It's three years of results. We generated data on the data. That's how the report was done.

Ted Simons: It is on related party financial commitments. What does that mean?

Curt Cardine: It's looking at a transaction in public schools and a legal transaction. You have to put things out forbid in the public schools. The superintendent can't be doing business with his brother. The board can't do business with a relative. That is allowed in charter schools by law. 99% of them engage in it. 90% sought approval and received it.
Ted Simons: We are talking about a for profit holder.

Curt Cardine: It can be. You have a nonprofit charter under the charter board which is audited, but there are other companies for profit doing business with the charter.
Ted Simons: Members on the corporate board doing business with them as well.

Curt Cardine: Sometimes, that's the case. You have the board member doing business with the charter they are a member of.

Ted Simons: The charter holder, member and relatives are covered as well?

Curt Cardine: That's covered under nepotism in the school district, but it's legal under the charter.

Ted Simons: Give us a description. I manage you have more than one example?

Curt Cardine: We looked at related party transactions in the audit and the 990s, the filing that goes to the IRS where you are supposed to declare the related party transactions. We evaluated them based on the criteria that the charter board puts out for the dealings. They should be saving money, and they should be efficient. 77% of them were not fitting the category. 23% were.

Ted Simons: As far as examples are concerned?

Curt Cardine: Leasing teachers to a charter school. Sometimes charters set up a separate company running their personnel. Then they lease the teachers to the school, which from that separate company, and what I did with the data, I looked at what they were spending on payroll, taxes and benefits and the audit, and compared that to the fee going to that company. There was a disparity 10 to 20% between the numbers. That means they are keeping the numbers.

Ted Simons: It sounds like captive financing in an internal setting. It stays within.

Curt Cardine: It stays within their corporate structure. It's similar to subsidiaries, nonprofits having subsidiaries which we don't allow.

Ted Simons: Contracts, rents, these sort of things most often cited?

Curt Cardine: Yes. Leases when another company owns the property as the charter and leases it back to you for more than their payments are on the property. Some businesses do that with their property. With charters, it appears to be a real problem.

Ted Simons: How much are we ponying up?

Curt Cardine: Everything that goes to a charter but their local donations from people. That means everything they are doing is guaranteed by the money -- backpacks full of cash coming from the children from their a.dm, average daily membership.

Ted Simons: This is legal for charters, not so for public districts.

Curt Cardine: We cite two public districts trying to do the same thing and the people went to jail.

Ted Simons: Charters, I imagine say they are doing this to save money and resources, etc. Are you buying that?

Curt Cardine: I checked that. We saw the data and went to see who the dealings were with and figured out the i.e. Maintenance contract. That's easy to check. You call a maintenance company not related and say if I had this, what would you charge? There was a disparity in the charges.

Ted Simons: Before we go further, there are a lot of people listening thinking, this guy is anti-charter. He has an axe to grind. Do you have an axe to grind?

Curt Cardine: Absolutely not. I started with charter, working with Ted Greg and Ted Kennedy. We looked at the Arizona model at that point called the wild west. The community and people we talked to in New Hampshire said there is not enough fiscal control. That's very important to me that the fiscal control, we are answering to the taxpayers how we are spending money.

Ted Simons: You have experience in this industry. Why did you decide to look at this?

Curt Cardine: I'll go back to my experience. I did 30 years in New Hampshire, teaching, principal, and superintendent. Started a charter school, moved out here, started a profit company and started working in charter schools. I did that eight years here. What I was seeing and asking questions about was explained to me that, that was totally legal for charter, and was not getting the information I wanted and when I resigned from my last position, I started the process. My grandchildren are here and I’m very interested.

Ted Simons: As far as charter schools are concerned, most people think charter school teachers earn more than public districts. That's not true, is it?

Curt Cardine: No. The claim was, this was in 1960 when they were trying to get vouchers through. They said teachers will make a hundred thousand which is a fortune back then. You don't have those cases in Arizona. You average the total payout to teacher and charter, with number of teachers; it comes to $35,000.20% lower than for Arizona teachers. Arizona teachers are not on the top of the file.

Ted Simons: No, they are not. What about executives?

Curt Cardine: Executives pay themselves -- the only way to check on that is looking at the 990s. They put out the salary of the superintendent. I'll give you an example of an egregious one. There were several in the position, 270 children. The chief executive officer was paying himself $275,000. Second in command, $225,000.

Ted Simons: My goodness.

Curt Cardine: Same year, superintendent in Scottsdale received $203,000 for 25,000 children.

Ted Simons: That's your study. That's what you have found. Those are the numbers. We crunched them. Recommendations, is it over sight? New law?

Curt Cardine: Barry Goldwater said you can't legislate morality. Martin Luther King answered back, you can regulate behavior. That's what this report is about. They don't need more laws. They need to enforce what they have as rules. They need to be cross checking the reports that are put in -- the charter board needs more authority to deal with what they are trying to deal with now. They do give a report on the financial soundness of the company. There are no real reports.

Ted Simons: Good to have you here. Up next on "Arizona

Curt Cardine: Fellow, Grand Canyon Institute

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