Education Savings Accounts Protect Students and Taxpayers

February 29, 2016

Jonathan Butcher

Forgery, money laundering, and embezzlement make for engaging Law & Order episodes but depressing headlines from local school districts. Sadly, school systems are not immune to bad actors.

For exhibit A, see Oklahoma’s Swink school district and its auditors. An Oklahoma State Department of Education investigation found the firm of Sanders, Bledsoe, and Hewitt missed an embezzlement scheme totaling $235,000 involving district employees. Now, the FBI and U.S. Department of Education are also investigating. Cue the Law & Order theme song.

School and district employee fraud and abuse has been a national phenomenon for decades. Policymakers in large systems like Los Angeles, Chicago, and New York City created investigative units for the purpose of tackling misuse. And they’ve been busy. Just last year, the former head of Chicago’s school system was indicted in a kickback scheme that stole some $23 million meant for children.

Preventing those bent on misdeeds from committing crime is the stuff of science fiction. However, there are ways to limit the damage done by those who intend to steal funds meant for students.

Arizona lawmakers enacted education savings accounts in 2011. With an account, the state deposits a student’s funds from an assigned school in a private account that parents use to buy educational products and services for their children. Parents can buy online classes, save for college, purchase textbooks, and pay private school tuition, to name a few—or any combination of such services. The Arizona Department of Education can track precisely how much was distributed to each account and monitors parent spending using an online system that looks much like your online checking account register.

Oklahoma lawmakers have introduced similar legislation to create education savings accounts, as have policymakers in more than two dozen states. Four other states—Nevada, Florida, Tennessee, and Mississippi—have already made similar accounts available to students.

According to data provided by the Arizona Auditor General, 0.17 percent of the money deposited in Arizona education savings accounts since 2011 has been misspent. During this period, $55 million has been deposited in the accounts of some 3,000 children. Department officials have limited ongoing account fraud. What explains this?

Critically, state agencies make quarterly deposits in Arizona students’ accounts. Parents must complete expense forms at the end of each fiscal quarter prior to the next disbursement. If department officials find discrepancies between expense forms and the online tracking system, staff can suspend an account until all funds are accounted for. If staff uncover purposeful misuse that amounts to theft or fraud, the department can close an account. Department officials also conduct random and annual account audits to make sure taxpayers and students are protected from misuse.

This means long-term misuse, like the false contracts issued by Chicago’s superintendent or altered school district checks in the Swink district, is stopped at the first sign of trouble and cannot multiply.

Oklahoma lawmakers can learn from Arizona’s experience with education savings accounts. Again, while eliminating fraud is impossible, lawmakers have other tools at their disposal to prevent fraud.

Nevada policymakers have already taken steps to protect students that will use the state’s education savings accounts. There, state policymakers have contracted with a private firm that processes medical claims to help with account deposits and payments. Policymakers anticipate that when parents make a purchase for their student using an education savings account, the processing firm will confirm that the transaction is legitimate before distributing funds. This dual-accounting should add yet another layer of transparency to the accounts and help make sure money meant for a child’s education is used for that purpose.

Education savings accounts give parents and students a variety of learning options. The accounts also provide lawmakers with a more transparent, effective way to prevent fraudulent use of taxpayer money meant for a child’s education. Oklahoma children deserve nothing less.

Jonathan Butcher (M.A. in economics, University of Arkansas) serves as education director for the Goldwater Institute. He has researched and testified on education policy and school choice programs around the U.S. He is a member of the Arizona Department of Education’s Steering Committee for Empowerment Scholarship Accounts, the nation’s first education savings account program. Prior to joining Goldwater, Jonathan was the Director of Accountability for the South Carolina Public Charter School District, South Carolina’s only statewide charter school authorizer.