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The Oklahoma Department of Education is facing the first audit in its history after a funding scandal involving the state’s largest charter school operator.
Gov. Kevin Stitt last week ordered the audit of the entire department after a previous audit of the Epic Charter Schools cited misuse of funds, including the application of state funds and credit to launch a charter school in California.
In Oklahoma, each school district issues its own debt.
The investigation comes after lawmakers approved more than $3 billion of funding for education in the current fiscal year.
“As we make record investments in our public education system, students and parents deserve to know that their schools are spending our tax dollars appropriately and in accordance with the law,” Stitt said.
A group of 22 lawmakers, citing a “dereliction of duty” in the Epic case, also called for the audit of the State Department of Education.
“If the state auditor is correct in her assessment that the State Department of Education repeatedly neglected its responsibility to ensure compliance with OCAS [Oklahoma Cost Accounting System] and other required reports, one must ask if this dereliction of duty was confined solely to Epic Charter Schools or if it permeates throughout our public education system,” the legislators wrote. “If SDE [State Department of Education] did in fact routinely fail to perform its regulatory duties, this could result in the discovery of hundreds of millions of dollars of misused funds.”
State Auditor Cindy Byrd said, “It is clear Epic’s founders were able to take millions of dollars by manipulating the schools’ administrative costs reported to OSDE [Oklahoma State Department of Education].”
Byrd said that many have questioned if the same issue found with Epic is occurring in additional public school districts, prompting the audit of SDE.
“This type of audit has never been conducted in the history of Oklahoma and, perhaps, the nation,” Byrd said.
In Stitt’s call for the audit, Secretary of Education Ryan Walters said he supported the “commitment to protecting taxpayer resources and delivering transparency to parents for the first time.”
However, State Superintendent of Public Instruction Joy Hofmeister called the audit “yet another attack on Oklahoma’s public education system.”
“At a time during which there are serious audits we have requested which potentially involve criminal activity, and while 541 school districts are struggling to find normalcy during a pandemic, the governor’s attack on public education couldn’t be worse timing for students, families, teachers and taxpayers.”
Two state officials with relationships to Epic have quit the five-member state board that regulates virtual education programs, according to the Oklahoman news site.
Mathew Hamrick and Phyllis Shepherd resigned from the Oklahoma Statewide Virtual Charter School Board without notifying the agency of their plans to leave, the Oklahoman said. Shepherd cited health concerns while Hamrick said family responsibilities led to his resignation.
Officials did not know of the resignations until they asked if the two planned to attend a Sept. 14 board meeting, the Oklahoman said. That meeting was cancelled.
With a stated enrollment of 60,000 students, Epic Charter Schools would be the largest school system in Oklahoma. One of the claims under investigation is the operator used “ghost students” to boost its enrollment and funding.
Epic has said it is seeking to increase transparency but has resisted demands for emails. Oklahoma Watch, a public-interest group leading the investigations of Epic, sought emails from school officials under the state’s Open Records Act. Epic has demanded fees as high as $40,000 for copying the emails. On behalf of Oklahoma Watch, the Reporters Committee for Freedom of the Press has filed suit to obtain the records.
Epic has faced investigations and inquiries by law enforcement agencies, including the FBI and the Oklahoma State Bureau of Investigation for several years.
In May, a state grand jury issued a 25-page report, saying the system as operated by Epic was “ripe for fraud.”
“We are hopeful that this interim report will sound the alarm before additional public funds are diverted behind the cloak of secrecy by a private for-profit company; and greater accountability, transparency and oversight of public funds are provided,” the grand jurors wrote.
The grand jury questioned the school’s relationship to Epic Youth Services, the for-profit management company owned by the schools’ co-founders David Chaney and Ben Harris. The school board didn’t consider any other management companies, a “system ripe for fraud,” the grand jury report said.
Epic Youth Services took 10% of the schools’ revenue as a management fee, which amounted to $46 million between fiscal years 2015 and 2020.
“The public has not been served by the incestuous relationship between the for-profit vendor, EYS, and the governing board Community Strategies,” the grand jury wrote. The arrangement allowed a company to generate substantial “personal profit on the backs of Oklahoma students.” Jurors called the profit motive especially offensive during a pandemic.
In Oklahoma, Epic operates Epic One-on-One, a statewide, fully virtual school, and Epic Blended. Combined, the schools have about 53,000 students, more than any school district in the state.
The grand jury is investigating whether millions of dollars in public funds were misspent based on findings from the state Auditor & Inspector, which released part one of the report Oct. 1.
In April, the Oklahoma Department of Education imposed $10 million in sanctions for violating a virtual charter school transparency law passed in 2019. The schools also faced $11.2 million of repayment demands.
Details of the violations were contained in two letters sent to Epic One-on-One and Epic Blended.
In her report, Byrd wrote EYS had restricted the auditor’s access to records, “and transparency for public accountability purposes is non-existent.”
At a 2015 meeting, Harris and Chaney informed the board Epic had been awarded a charter for a school in California and the Epic schools of Oklahoma and California would begin sharing administrative costs “saving both schools’ money.”
“There was no evidence in the Community Strategies board minutes that any of these activities had been approved by the board prior to this meeting,” Byrd’s report said.
In August 2015, the financial resources of One-on-One were pledged to obtain $500,000 in capital for year one funding of Epic-California, Byrd reported.
“We found no evidence the Board approved the pledging of One-on-One’s capital for the purpose of supporting the financial underwriting of a California charter school,” the report said. “Additionally, the Oklahoma Constitution prohibits the pledging of the credit of the State to any individual, company, or corporation.”
“Statutes do not allow for funds apportioned to a school district to be used to provide support for other school districts or out-of-state school districts,” the auditor noted. “Statute also reflects the intent of the legislature is for the public funds apportioned and disbursed to a school district be used by each school on their own behalf, not on behalf of another Oklahoma school district, and certainly not on behalf of a charter school in the State of California.”
In the 2021 session charter schools in Oklahoma sought authority to issue bonds, but the bill died in committee.
The Legislature did pass Senate Bill 229, which created the Redbud School Funding Act. The new law uses medical marijuana taxes and the Public Common School Building Equalization Fund to provide annual per-student building funds to public charter schools.