The State Board of Education, chaired by State Superintendent of Public Instruction Joy Hofmeister, recently voted to impose more than $11 million in “clawback” penalties on Epic Charter Schools for alleged improper coding of administrative costs on state finances reports.

Yet Epic denies wrongdoing and has stressed that those reports were reviewed and approved by staff at the Oklahoma State Department of Education (OSDE) as part of the agency’s oversight of the Oklahoma Cost Accounting System (OCAS).

The board’s vote on Epic is in stark contrast to its typical handling of other schools’ failures to comply with OCAS reporting requirements. During Hofmeister’s tenure, the board has waived penalties on dozens of school districts facing fines that would have totaled more than $250,000 combined since 2015.

With only rare exceptions, the board has waived school penalties for failure to meet financial reporting deadlines, even in situations where school leaders indicated that a district’s prior financial reports may have been fraudulent.

Minutes from those meetings do not indicate any votes were taken to either review noncompliant schools’ previous financial reports or review why state department staff did not catch the apparent wrongdoing.

In some instances, school districts have failed to meet reporting requirements for more years than not.

Oklahoma public schools are required to utilize the OCAS for reporting all funds, except the school activity fund, and to do so according to the functional category of each fund as defined by the State Board of Education. Those reports are due no later than September 1 each year and districts can begin uploading reports starting July 1. Every school district is required to transmit a copy of actual income and expenditures for the preceding fiscal year (July 1–June 30).

Schools that fail to file reports by the Sept. 1 deadline face penalty fees based on a share of the school’s state-appropriated funds, but those fees can be waived by the State Board of Education if the district demonstrates its failure to report is due to circumstances beyond the control of the district.

At the Jan. 23, 2020 meeting of the State Board of Education, the group considered requests to waive $118,523 in combined penalties for 21 school districts that failed to comply with financial reporting deadlines. Five of the districts had failed to comply with reporting standards more than once from the 2014 to 2019 budget years, and two of the districts seeking waivers had failed to meet reporting deadlines in four of six years.

Twenty of the 21 school districts requested a waiver of penalties, and the State Board of Education approved all waiver requests except for those sought by the Albion and Gans districts, waiving all but $2,991 of the $118,523 in potential fines.

At the Jan. 25, 2018 meeting of the State Board of Education, board members considered wavier requests for a combined $19,821 in penalties for four school districts. Board minutes show the waivers were approved unanimously.

At the Jan. 26, 2017 meeting of the State Board of Education, the group voted on lifting penalties for 25 school districts who sought a waiver out of 27 total that failed to comply with reporting mandates. The 27 districts faced a combined $51,393 in penalties.

Six of the 27 districts seeking waivers that year had also faced penalties the prior year for noncompliance: Fort Towson, Henryetta, Peavine, South Rock, Terral, and White Rock. The State Board of Education voted unanimously to waive penalties for all schools that were in their first year of noncompliance as well as South Rock Creek and White Rock.

At the State Board of Education’s Jan. 28, 2016 meeting, its members considered penalty waivers for 13 districts that failed to report completed financial data by the Sept. 1 deadline. Those schools faced a combined $39,502 in penalties, and three of the districts—Fort Towson, Peavine, and White Rock—had faced prior-year penalties as well.

The board unanimously voted to approve penalty waivers for all but three of the 13 schools. The only exceptions were Choctaw, Adair, and White Rock.

At the State Board of Education’s February 26, 2015 meeting, held during Hofmeister’s first year in office, the group considered requests to waive penalties for 17 school districts facing a combined $23,616 in fines.

One of the 17 schools, Ryal, was facing a penalty for the second consecutive year. Even so, the board voted unanimously to waive penalties for all 17 districts.

Red Flags?

In many instances, the letters sent by schools requesting penalty waivers highlighted the likelihood of financial wrongdoing at the district that was missed by OSDE officials when they accepted prior-year OCAS financial reports from the district.

In a Nov. 14, 2019 letter, Lawton Interim Superintendent Tom Thomas told members of the State Board of Education that he had discovered “serious issues with our financial accounting work products” upon taking his position July 1 of that year, including the fact that the school had missed the OCAS reporting deadline for 2018. Efforts to “reconcile the outstanding issues in the 2018 and 2019 accounting” prevented filing the report by that year’s deadline, Thomas wrote. The report was not filed until Sept. 29, 2019.

“I am at a loss as to why the previous administration did not address the multiple accounting issues the district was facing in FY19 so I cannot assure you with any confidence that our failure to submit a timely report was ‘due to circumstances beyond the control of the district,’” Thomas wrote.

Thomas wrote that the district was actively addressing those issues and said the potential penalty for late filing, if not waived, “would be very close to the cost of a teacher for the district.”

Lawton faced a penalty of $58,922. It was waived by the board.

In a letter dated Jan. 5, 2017, Allen-Bowden Superintendent Kelly Husted told the state board that, upon hiring a new treasurer and encumbrance clerk, she discovered “that our financial statements were not balancing with what the former treasurer was showing.” Husted wrote that an internal audit “found no criminal activity from the former treasurer, but did find that numbers were being plugged as far back as 2003 in order to make bank statements and treasurer’s statements match.” Husted said the process of dealing with that issue prevented the district from uploading income and expenditure data into OCAS by the mandatory deadline.

Husted vowed that the Allen Bowden district “has taken the necessary action to ensure that this will not happen in the future.”

The following year, Allen Bowden again failed to meet financial reporting deadlines.

In a Nov. 21, 2019 communication to the State Board of Education, Albion Superintendent Jim Caughern, who said he had taken that position the previous July, wrote that his school failed to meet the reporting requirement because all “personnel that dealt with payroll had quit by July 1, 2019.” (Albion’s penalty was not waived.)

In a letter addressing his school’s failure to meet the 2016 reporting deadline, Bart Watkins, acting superintendent of Crescent Public Schools, wrote that his school had submitted its data by the prior year’s Sept. 1 deadline, but “due to the many coding errors along with a negative balance in the General Fund, the data could not be locked.”

Watkins said his staff worked with OSDE personnel to correct mistakes but did not finalize the data until Sept. 12 of that year.

“Crescent Public Schools has been undergoing an extreme financial hardship this year,” Watkins wrote. “We ask the Board to please take this into consideration when reviewing our district.”

On Jan. 13, 2017, White Rock Superintendent Bob Gragg wrote, “There is really not an acceptable excuse, other than to say that the first sixty days as superintendent was not enough time to begin to change an atmosphere and culture of poor accounting practices.”

Prior to his tenure, Gragg wrote that White Rock “had almost no written procedures for what I consider ‘best-practice financial accountability.’”

In a Jan. 9, 2017 letter, South Rock Creek Superintendent Mike Crawford told the state board that his district “had difficulty in getting our coding to match exactly with the coding with the county treasurer.”

Haworth Superintendent Jason Price wrote that his district’s noncompliance was due in part to having hired a new payroll clerk and having “a large majority of payroll being miscoded from set up” in the 2015-2016 school year.

Hugo Superintendent Earl Dalke wrote on Jan. 10, 2017 that forced annexation of Grant-Goodland School had created major challenges for Hugo, the receiving district, since some “records were not available for review because they had been seized by investigators” and the “clerk doing the reporting at Grant-Goodland committed suicide and no one from Grant school with knowledge of the reporting issues was available.”

In a letter dated Jan. 1, 2017, Wanette Superintendent Silvia McNeely wrote, “I cannot explain the conditions involved as to why those documents were not submitted within the given time frame.” McNeely wrote that she was newly hired as the school’s superintendent and would ensure compliance going forward.

Skiatook Superintendent Rick Thomas wrote on Jan. 4, 2016 that his school tried to submit its data to OCAS on 13 occasions but the system did not accept it because “we continued to have errors in our records.”

Swink Superintendent Mark Bush wrote, “Due to the devastating audit findings on July 16, 2015, which resulted in immediate suspension of two employees on July 20, 2015, one of which performed the duties of completing the above-mentioned task, the district was left without a knowledgeable candidate to assume the OCAS reporting responsibilities for a period of time.”

Ryall Superintendent Lynn Maxwell wrote on Feb. 10, 2015, that the school’s former superintendent “left without completing multiple reports” and the school’s records for the OCAS system contained “multiple errors.”

“Since we did not know what took place at the school the prior year, recoding was a nightmare,” Maxwell wrote.

Repeat Offenders

Some schools repeatedly failed to submit financial reports to OSDE by the legal deadline.

In a Feb. 11, 2015 letter, Fort Towson Superintendent Jason Price wrote, “Frankly, I do not enjoy having an item completed after a due date, but in this situation there were circumstances beyond our control as we worked through them to complete the information correctly. That being said, make no mistake, I have addressed the importance of timely completion and will make it our goal to not allow this to occur again.”

An accompanying document blamed Fort Towson’s problems on a new staff member who “struggled to correct the Revenue errors.”

The following year, Price offered a different excuse, writing on Jan. 5, 2016, that “the individual who was in charge of taking care of the income and expenditure data was out on maternity leave from Aug.-December 2015. This is the reason the information was not submitted.”

A communication from subsequent Fort Towson Superintendent Charles Caughern, received by OSDE on Jan. 17, 2017, said the school’s reports were late that year because of a challenge encountered when entering “negative carryover.”

A Nov. 5, 2019 letter from another subsequent leader of the district, Fort Towson Superintendent Phillip Hall, acknowledged that the district “did not make our first submission” until Sept. 3, but assured the board he had spoken to the staffer in charge of reporting and told the employee future reports should be submitted “weeks before” the Sept. 1 deadline so that errors can be addressed before the deadline.

Despite Fort Towson having failed to meet OCAS financial reporting deadlines in four of six years, the State Board of Education waived the penalty for the school’s failure in 2019.

The Gans school district was also noncompliant over several years.

In a letter received by OSDE on Jan. 7, 2016, Gans Superintendent Larry Calloway wrote that the district’s delay in reporting was because “the Office computer with all the information had problems with Browser.”

In a Jan. 8, 2018 letter, Calloway said Gans’ noncompliance with reporting deadlines was “because the Internet for Gans School had problems” and also because his computer “crashed.”

In a Dec. 17, 2019 letter, Calloway wrote that the district had “switched internet companies and had to upgrade all Technology Equipment. This did not get done until the new fiscal year started and we could not use computers.”

OSDE at Fault?

In some instances, schools that failed to meet reporting deadlines blamed their noncompliance, in part, on the staff at the Oklahoma State Department of Education.

In a Nov. 5, 2019 letter, Fort Towson Superintendent Hall wrote that “there was a delay from the OSDE staff in getting the information” to Fort Towson employees that would allow the district to “correct the errors that were occurring in our submission.”

In a Nov. 5, 2019 letter, Bennington Superintendent Pamela Reynolds wrote that the OCAS division had given conflicting information regarding whether the school could correct reported information on child-nutrition programs.

“In the beginning, we were told we could not make these changes and then we were advised later that we were allowed to make those corrections,” Reynolds wrote. “This took several weeks to get approved.”

OSDE Under Scrutiny Due to State Audit

Hofmeister and staff at OSDE are under renewed scrutiny following the state audit of Epic Charter Schools, which included strong criticism of the agency’s financial oversight.

The state special investigative audit said the financial review processes of the state department of education (referenced as “SDE” in the report) amount to little more than paperwork and do not provide effective oversight of spending in Oklahoma’s public schools.

“Although the oversight mechanisms are in place, many of the SDE reviews are ‘desktop,’ a practice where a school is asked to provide data or proof of existing policies and procedures,” the audit stated. “This data is self-certified by the school and accepted at face value by SDE without on-site follow-up.”

The audit said in at least two reporting areas “a process to verify the accuracy of the reported information did not exist” at the Oklahoma State Department of Education.” The state audit also said OSDE has “no process in place to evaluate actual compliance with the written policies and procedures, or with applicable laws, statutes, or Administrative Rules” that govern the use of funds [emphasis in original].

In the “Final Thoughts” section of the audit, state auditors stated, “SDE must allocate resources properly to fully accomplish their oversight responsibilities. An assessment should be conducted to ensure that the hours invested by SDE on oversight are focused on the areas where they will provide the most significant impact.”