Epic ordered to repay $11 million

October 12, 2020

Ray Carter

Members of the Oklahoma State Board of Education have ordered Epic Charter Schools, a virtual K-12 provider, to repay $11.2 million to the state.

The $11.2 million consists primarily of money cumulatively provided for school administrative costs from the 2015 to 2019 state budget years that state auditors say exceeded a state cap on those expenses. Roughly $200,000 of the “claw back” effort is tied to money auditors said Epic officials redirected to support its California affiliate. The state board ordered Epic to repay the funds within 60 days of receiving the “work papers” associated with the state audit.

The vote occurred after officials with the Office of State Auditor and Inspector discussed the audit of Epic during a special Monday meeting of the State Board of Education.

The presentation did not discuss the audit’s criticisms of the Oklahoma State Department of Education’s oversight, which the audit characterized as superficial and of little value. The audit criticized OSDE reviews as involving no real verification, saying the agency mostly accepts schools’ financial claims “at face value” without “on-site follow-up.”

During the presentation, Brenda Holt, audit manager for the Special Investigative Unit of the state auditor’s office, did reference instances in which the department signed off on what the auditor considered improper financial statements, although the agency’s role was not stressed.

Holt also told the board that no financial “claw back” efforts were expressly endorsed by the audit.

“I don’t think the report itself is requiring or demanding a recoup or claw back from the board,” Holt said. “That is strictly your decision.”

State law caps the share of school spending that may be spent on administration in a school district. Auditors argued Epic exceeded the cap by incorrectly classifying administrative positions in state reports. Schools that exceed the cap are subject to penalties imposed by the State Board of Education.

In its public letter of response to the audit, officials with Epic have noted that the Oklahoma State Department of Education “is responsible for administering the Oklahoma Cost Accounting System” and “has always carefully monitored Epic Charter Schools,” conducting 54 reviews over the last three years.

“Epic has always consulted the SDE whenever there was a question about the application of broad OCAS codes to specific expenditures because it has confidence in the expertise of the SDE professionals,” Epic’s response stated. “Epic believes the SDE advises it in compliance with reporting requirements, which has culminated in SDE recertification of the schools each year. While the State Auditor may have an ‘opinion’ on how costs should be coded, the SDE is the expert and has final say and approval, which has always been given.”

Department officials did not address Epic’s response in any significant way during the board meeting.

State Reps. Rhonda Baker, R-Yukon, and Mark McBride, R-Moore, attended an executive-session meeting of the State Board of Education, which is closed to the public, during the group’s Monday meeting. Baker is the chair of the House Common Education Committee while McBride is chair of the House Appropriations & Budget Subcommittee for Education.

Following the board’s action, the two lawmakers announced their committees will receive testimony later this month from the state auditor concerning Epic Charter Schools. They said State Auditor and Inspector Cindy Byrd will present findings and answer questions at a public joint hearing Oct. 21.

In a joint statement, Baker and McBride said the pending hearing is “not about determining guilt or innocence because that is the responsibility of law enforcement, not legislators. These hearings are not about school choice or Epic’s learning model because those are not the issues in this audit. These hearings are about gathering information for policymaking.”

Shortly before the State Board of Education began its meeting, Attorney General Mike Hunter announced that he has appointed Melissa McLawhorn Houston as a special counsel to the Attorney General’s Office to review the state auditor and inspector’s audit of Epic Charter Schools.

Hunter has recused himself and much of his office from further review of the audit because officials at the attorney general’s office “have been or remain involved in several investigations into Epic and their continued role in the ongoing litigation into Epic’s financial records,” Hunter’s release stated. “The office also serves as counsel to the Virtual Charter School Board.”

Hunter announced that Senior Deputy Attorney General Joy Thorp will be the chief liaison from the office to work with Houston in reviewing the audit. Thorp heads the Criminal Justice Unit.

Houston has previously served as Oklahoma labor commissioner, secretary for education and workforce development, and as chief of staff in the office of the Oklahoma Attorney General.

Hunter’s release said Oklahoma County District Attorney David Prater has agreed to allow the Attorney General’s Office to assume control of examining the audit and any other allegations surrounding Epic.

The Statewide Virtual Charter School Board is scheduled to meet on Tuesday, Oct. 13, to consider the Epic audit, including potential termination of Epic’s charter contract.

Epic is currently the state’s largest school district, serving a reported 61,000 students. Many families have enrolled in Epic this year as some major school districts have declined to provide any in-person instruction and parents have criticized the online alternatives provided by those districts.

Following the State Board of Education’s action, Epic Superintendent Bart Banfield issued a statement saying, “It’s no secret we dispute some of the SAI’s material findings and have requested through an open records request its work papers to review their calculations so we can go beyond our initial audit response to exercise our due process and debunk these calculations.

“Epic is not perfect,” Banfield continued. “No school is. But the dedication of Epic’s 2,100 employees working here to get things right and improve our processes is. We know more than 60,000 students and their families are counting on us to work with the State Department of Education to resolve issues and we will not let them down.”