Ray Carter | October 7, 2020

Audit dings Department of Education’s school-finance oversight

Ray Carter

A recent state special investigative audit of online K-12 provider EPIC Charter Schools said financial concerns are the result not only of alleged actions by EPIC officials, but a product of lax Oklahoma State Department of Education oversight of public-school finances.

That’s a problem one expert says extends far beyond a single district operating in the online realm and includes all districts across Oklahoma.

“The kind of transparency we have in public education really isn’t transparency at all,” said Byron Schlomach, director of the 1889 Institute, a research organization.

The state audit criticized EPIC for its organizational structure and questioned some of the online school’s spending practices, although in many instances the audit stopped short of saying anything illegal occurred. Among other things, auditors questioned if administrative expenses were properly classified.

However, in addition to criticizing EPIC, the audit also 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, which include both traditional schools and public charter 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 the Oklahoma State Department of Education also took at “face value” reports regarding the hours worked by teachers, and that 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.

Superintendent Joy Hofmeister called the auditor’s findings “deeply disturbing”—but did not specifically address the audit’s criticisms of her agency.

The audit acknowledged that the Oklahoma State Department of Education conducted Consolidated Monitoring Reviews of EPIC One-on-One’s federal funds for fiscal years 2017 and 2019, and the school was found to be “in compliance” for both years.

However, the audit said the Oklahoma State Department of Education 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 recommended, “Oversight activity by the charter sponsors and SDE must extend beyond ‘checking the box.’ Boots on the ground are a must in order to provide effective oversight.”

The audit also said, “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.”

Schlomach, whose research focus has included Oklahoma’s school-funding formula and school finance, said it is not logistically possible for Oklahoma State Department of Education staff to physically check all reported expenditures in the more than 500 school districts in Oklahoma.

“They don’t go and say, ‘You spent $10,000 on weight-lifting equipment. Well, let’s go look at the equipment.’ They don’t do that,” Schlomach said. “The bottom line is in the end they’re taking everybody’s word for it.”

Officials with EPIC have denied any wrongdoing, calling the report “a work of fiction,” citing among other things the numerous reviews conducted by the Oklahoma State Department of Education.

“If at any point, SDE thought we were doing it wrong, they could’ve raised objections, and in fact at times, they did, and costs were categorized according to their feedback,” said Shelly Hickman, assistant superintendent and spokesperson for EPIC. “For an unrelated state agency to come in years after the fact and claim costs were categorized incorrectly shows a complete lack of understanding of the process. This should concern all public schools, who follow this process and trust that when the results are certified, they are final.”

In EPIC’s letter of response to the audit, school officials noted all financial coding selections “were and will continue to be made in consultation with the State Department of Education. And no coding issues have been raised by the SDE.”

“The applications have endured the scrutiny and review process of the State Department of Education and have always been approved without issue,” the EPIC letter of response states.

The letter also notes, “The SDE is responsible for approving reimbursement for schools for the State of Oklahoma. There is no more definite approval of Epic's handling of these funds than the SDE performing an audit of these very issues and marking green checks indicating they were performed correctly.”

While Schlomach is critical of Oklahoma’s financial oversight of school spending, he said the state’s financial reporting system is not designed for charter schools, which must “compete for customers,” while traditional schools are “regulated monopolies.”

While students are assigned to traditional public schools based on geographic proximity, all students who attend public charter schools do so by proactive choice, including at EPIC.

“It’s not a system designed for regulating competitive enterprises,” Schlomach said, referring to the state’s school finance-reporting system. “It’s a system designed to regulate government-imposed monopolies.”

The Oklahoma State Department of Education did not respond to a request for comment on the audit’s criticisms of the agency.

The day the EPIC audit was released, State Superintendent of Public Instruction Joy Hofmeister did issue a statement calling the report’s findings “deeply disturbing” and saying the report indicated there was something “systematically wrong.”

However, Hofmeister did not specifically address the audit’s criticisms of her agency or the role the agency was accused of playing in alleged wrongdoing.

Rather than rely on a state agency to generate financial transparency and oversight, Schlomach said lawmakers could instead require districts to make their financial data public.

“I advocate for them putting, basically, their check registers online,” Schlomach said. “You never know who might want to look at it, but then everybody can, and that means people mind their Ps and Qs a little more carefully.”

Ray Carter Director, Center for Independent Journalism

Ray Carter

Director, Center for Independent Journalism

Ray Carter is the director of OCPA’s Center for Independent Journalism. He has two decades of experience in journalism and communications. He previously served as senior Capitol reporter for The Journal Record, media director for the Oklahoma House of Representatives, and chief editorial writer at The Oklahoman. As a reporter for The Journal Record, Carter received 12 Carl Rogan Awards in four years—including awards for investigative reporting, general news reporting, feature writing, spot news reporting, business reporting, and sports reporting. While at The Oklahoman, he was the recipient of several awards, including first place in the editorial writing category of the Associated Press/Oklahoma News Executives Carl Rogan Memorial News Excellence Competition for an editorial on the history of racism in the Oklahoma legislature.

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