Letter to the Auditor

 

I recently received this letter from a friend named Mark Joyce, who has been getting very actively involved in Louisiana’s education scene and in particular the malfeasance at the LDOE.  (Mark has recently been investigating and publishing pieces about campaign financing for candidates in the Advocate and Louisiana Voice.)  After reading about the latest disgusting revelations that have come out about ReNew charter in New Orleans he apparently recognizes this systemic abuse and neglect is something we all need to be concerned about and he as written the legislative auditor to try and rekindle some interest in some of the auditor’s own findings as well as these latest developments.

Mark summarizes some more historical revelations about now LDOE and RSD have squandered precious funding over the years without any repercussions.  Local school districts are also dramatically impacted by the way our state has chosen to implement charter schools. This is putting a strain on local communities and school systems over the same time period that funding for local systems has decreased.

The State has devised a scheme whereby they essentially steal locally local tax dollars allocated to pay for public schools overseen by the local district and hand them off to charter schools that the state “oversees” (not very well if at all as the ReNew situation shows) and approve and which the local district has no oversight over.  In light of our state’s current dire financial situation can we afford to permit this systemic and commonplace incompetence continue?

 

 

February 3, 2016

Daryl G. Purpera, CPA, CFE

Legislative Auditor

1600 North Third Street

P.O. Box 94397

Baton Rouge, Louisiana 70804-9397

Mr. Purpera,

I applaud your office’s efforts to help ensure transparency and accountability in the use of taxpayer funds. With a budget deficit in the billions, there is no room for fraud or financial mismanagement.

The Financial Audit Services Management Letter issued December 21, 2015 by your office, highlighted the Recovery School District (RSD)’s inadequate financial controls for the ninth year in a row. As your office noted, “We determined that the prior year findings related to inadequate controls over movable property and inadequate controls over payroll terminations and overpayments have not been resolved by management and are addressed again in this letter.”

Problems are not limited to RSD; more generally, your audits have repeatedly shown deficiencies throughout the Louisiana Department of Education (LDOE)’s financial systems. Problems with LDOE’s fiscal management of public money are pervasive.  The system lacks fiscal responsibility for both public and charter schools (within the RSD and elsewhere).

Charter school growth has added to the financial management and oversight problems for LDOE. The gaps are showing.  Some examples are highlighted below.

Recently nola.com reported January 29, 2016, on fraud in testing and special education at a charter school in New Orleans.

The former principals of ReNEW SciTech Academy in Uptown New Orleans were accused Friday (Jan. 29) of special education fraud, failing to follow federal special education law and breaking state testing rules. Louisiana Recovery School District officials said the principals, Tim Hearin and Alex Perez, snagged almost $320,000 in public money for the school in the 2014-15 academic year by artificially inflating special education services. They also broke numerous test security rules, including asking at least three teachers to look at testing books — one during the test itself — to improve future results.

These are special education funds. These dollars are precious.  Back in 2013, in your report, Louisiana Department of Education – Monitoring of Charter Schools, it was reported that three of the six schools that offered special education services either had excess charges for special education students or could not provide documentation of services provided to special education students. Obviously the issues around the management of these funds continue.

A rising financial issue that New York and other states are identifying is charter schools paying inflated leases for their buildings significantly above market rates. This is happening in Louisiana, also.  One example is the Mentorship Academy type 1 charter in Baton Rouge.

Annual rent is approximately $800,000 on a building (owned by an out-of-state Real Estate

Investment Trust) with an assessed value of $3.2 million. This equates to yearly rents equivalent to 25% of the building costs. More dollars for rent leaves fewer dollars for education.

Another example is Inspire Charter Academy, another type 1 charter in Baton Rouge.  It is owned by a company in Michigan that shares an office address with National Heritage

Academies. This site has an assessed value of $5.5 million and annual rent above $1 million.

Again, this money leaves state control and is not available for use in the classroom.  LDOE should have oversight systems in place to ensure that excessive amounts are not being paid in overhead at the expense of education.

Another example of lack of sound financial management systems related to the vouchers issued through the Louisiana Scholarship Program. This was highlighted in your report issued September 27, 2015, Prevailing Faith Academy May Have Used Scholarship Funds for Other Purposes.  The Legislative Auditor office uncovered this issue.  LDOE did not.

The issue of transparency, accountability and oversight is increasingly critical given that increasing amounts of local tax money is being diverted away from the control of local school boards without the commensurate growth in good financial management.

According to the most recent LDOE Minimum Foundation Program spreadsheet, over $242 million is expected to be deducted in 2015-16 from the state’s support of local schools and instead given to state-chartered schools, which effectively removes local tax revenue from local control.  This total has grown from $184 million in 2013-14.

Most of the local taxes transferred to the state for charters are in Orleans Parish, but the numbers elsewhere in the state are significant.  These figures include RSD but appear to exclude Type 1 (locally approved) charters. For 2015-16 the forecasts are:

• Orleans Parish will transfer $162,735,197 of local tax money to state control

• East Baton Rouge Parish School System:  $28,327,990

• Lafayette: $9,652,336

• Calcasieu: $9,599,131

• For the other 65 parish and city districts COMBINED, the total loss of local tax money to charters is $31,959,492

• The estimate statewide total diversion is $242,274,146

In the past three years, local education dollars rerouted from traditional public schools to charter schools rose by 39 percent in the East Baton Rouge Parish school district — to $28.3 million — and 73 percent in the Jefferson Parish school system — to $4.5 million, according to state figures (comparing the spreadsheet referenced above with similar reports from previous years).

These figures were reported in The Advocate: Critics say charter schools draining vital dollars.

Furthermore, it does not appear that either the RSD or the LDOE consistently audit student home address data to assure that school systems are having money transferred based on students who actually live in the districts whose local revenue is being taken away.

Regarding the distribution of funds, I have seen no evidence that the Superintendent has established systems to avoid the issue you reported in Louisiana Department of Education –

Monitoring of Charter Schools in 2013 that found that LDOE overpaid or underpaid half of the participating schools in academic year 2012-13.

Even parishes without charter schools are involuntarily contributing local tax revenue to support them.  “BESE is overriding local school board decisions in the name of choice, and the local district is left holding the bag,” according to Scott Richard, executive director of the Louisiana School Boards Association said just last week at a BESE meeting.

The LDOE Bureau of Internal Audit lacks the size, funding or independence to provide sufficient oversight to review both the public school system AND the new charter and voucher school systems in Louisiana. Results of these (any) audits have not been made public. Of course, there is an annual report from LDOE, but this presentation has been roundly criticized for lack of independence and the lack of any provision of data to an independent third party. For such a critical issue as education, the department does not provide de-identified data in any raw form.

In any case, the presentation does not provide the oversight envisioned by the legislature.

Finally, as LDOE reported, they stopped conducting on-site audits of charter schools in 2008 because of a reported “lack of resources”. Currently, charters self-report.

Obviously, LDOE under the current superintendent has not been responsive to the results of external audits. As you know, recently LDOE responded that they do not need to develop a more comprehensive financial management and oversight process; it “is confident that its current practice … is sufficiently comprehensive.”

Given the findings in the report coupled with the existing lack of oversight by the Department of

Education, we respectfully request that your office formally audit LDOE’s financial oversight of ALL charter-type schools and update Louisiana Department of Education – Monitoring of Charter Schools.

Adequate oversight processes are necessary to ensure that monies are spent as intended, in this case, for the education of our children.

Thank you for your time and thank you for all you have done for Louisiana.

To verify that this email has been received, please reply and acknowledge receipt. If I do not receive a reply in a few days, I will resend it as a certified letter. Feel free to contact me.

Sincerely,

Mark Joyce

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