Law & Principles
Stitt Administration investigating dubious uses of education funds
May 4, 2022
State documents show Gov. Kevin Stitt’s administration is poised to sue a vendor for alleged failure to abide by its contract, thereby potentially allowing several hundred thousand dollars in alleged misspending to occur.
The documents show the Stitt administration has been focused on the issue since at least late 2021 and has warned the vendor, ClassWallet, that the state is poised to seek full restitution for reported misspending that occurred because of ClassWallet’s alleged failure to perform duties mandated in its contract with the state.
In a Dec. 27, 2021 letter sent to ClassWallet CEO Jamie Rosenberg, Oklahoma State Chief Operating Officer Stephen Harpe wrote that the letter “shall serve to place ClassWallet on notice of the State of Oklahoma’s intent to recover funds distributed by ClassWallet for unintended and potentially fraudulent purposes. The state of Oklahoma will further seek to recover those funds for which no detailed use has been documented or provided by ClassWallet.”
By April 29, 2022, Harpe wrote Rosenberg/ClassWallet that “the State of Oklahoma fully intends to pursue from ClassWallet any and all damages the State has incurred or will incur as a result of ClassWallet’s failure to comply with its contractual and related legal obligations.”
“To date, ClassWallet has sought to minimize—or, in some instances altogether shirk—its contractual and legal obligations to the State and some of its most vulnerable citizens,” Harpe wrote.
In 2020, the state of Oklahoma received $360 million in federal funding for the state’s public education systems to respond to the COVID-19 pandemic. The federal law directed $39.9 million of Oklahoma’s total to the Governor’s Emergency Education Relief (GEER) Fund.
In July 2020, Stitt announced he would use GEER funds for several purposes, including a Bridge the Gap Digital Wallet program, which provided grants of up to $1,500 to low-income families to purchase curriculum content, tutoring services, and technology.
That program was launched at a time when many children were falling far behind academically due to the closure of physical school sites in spring 2020. Accumulative learning loss worsened for many low-income children in school districts that remained closed throughout much of the following school year, such as the Oklahoma City and Tulsa districts. The Digital Wallet program was one effort to aid those children.
The launch of the Bridge the Gap Digital Wallet program drew bipartisan support at the time. Joe Dorman, a former state lawmaker who was the Democratic gubernatorial nominee in 2014, was among those praising the Bridge the Gap Digital Wallet program.
“We are happy to see Governor Stitt provide grants to these families to assist with their students’ learning during COVID-19,” said Dorman, now serving as the CEO for the Oklahoma Institute for Child Advocacy. “These students need these types of resources to ensure they can be successful. It is crucial as a state we find ways to assist our students during this difficult time.”
Roughly $8 million was earmarked for the Bridge the Gap Digital Wallet program, and the state contracted with ClassWallet to handle key aspects of the program. Among other things, the state contract with ClassWallet required the vendor to provide a fiscal management and payment system that allowed grant recipients to “purchase educational resources other than tuition such as technology, supplies, books, etc. with approved ecommerce vendors integrated into the Fiscal Management and Payment System.”
But it appears ClassWallet facilitated some purchases that were not for “educational resources” including from a retailer not on the approved list.
Oklahoma Watch and The Frontier, two online news entities, recently questioned roughly 6 percent of purchases made through the Digital Wallet program with the most common questionable item highlighted being TVs. In some instances the two entities reported that some individuals used grant funds to purchase items such as pressure washers, car stereo equipment, coffee makers, exercise gear, and smart watches.
Oklahoma Watch and The Frontier reported that ClassWallet approved purchases from a retailer “not included on a vendor list ClassWallet provided to the state.”
Harpe’s Dec. 27, 2021, letter to ClassWallet shows state officials had begun investigating questionable purchases long before that report.
Harpe’s December 2021 letter noted that Oklahoma government officials had “reviewed the expenditures ClassWallet reported as subrecipients” of the Bridge the Gap Digital Wallet program “to determine eligibility,” and requested that ClassWallet provide information “substantiating the educational uses” of certain purchases.
In a Jan. 14, 2022 letter of response, Skeeter Scott, legal counsel for ClassWallet, denied the company had any significant oversight duties and suggested the state should sue individual grant recipients, not the vendor that allowed the apparently improper purchases to occur.
“To the extent that the State believes that it has a basis for recovery from any recipient or recipients of Program funds based upon the improper use of those funds by a recipient or recipients or fraud by a recipient or recipients in respect of the Program, such notice would more appropriately be addressed to the individuals that the State believes to be culpable for such impropriety …” Scott wrote.
Scott’s letter denied that ClassWallet had any meaningful oversight obligations and claimed that a “substantiation exercise is not within the scope of services to which the parties agreed in the Contract.”
Following ClassWallet’s disavowal of responsibility, Harpe wrote another letter to the company on April 29, 2022, noting that ClassWallet had previously touted its ability to “provide immediate and necessary services for Oklahoma schools to be able to manage their funding, transactions, reconciliation of paperwork and receipts, etc.” [emphasis in original].
Harpe wrote that ClassWallet’s Jan. 14 letter sought to “deny related responsibility” in “direct conflict with the obligations set out in contract.”
“But for ClassWallet’s express representations regarding its expertise and intentions, the State would not have chosen ClassWallet as a vendor to help address the coronavirus pandemic’s impacts on State families and students,” Harpe wrote.
He wrote that the state’s contract with ClassWallet required the company to create an online platform that included a fiscal management and payment system for the purchase of educational resources, and that “the system was not to allow purchases other than for educational resources.”
“Despite that, documentation reveals that some parents and/or legal guardians were able to utilize ClassWallet’s Fiscal Management and Payment System to expend grant funds for purposes not directly tied to education,” Harpe wrote.
Harpe wrote that ClassWallet’s role “was to design a system to determine eligibility; to make programmatic decisions (of which it made many); and to ensure federal funds were used appropriately.”
Critics Cite ClassWallet Controversy to Block School Choice
Some officials have cited publicity over ClassWallet’s alleged mismanagement as an excuse to block passage of any legislation that would expand school choice for Oklahoma families by allowing state funds to follow a child to any provider.
“If you're wondering how private school ‘vouchers’ would be implemented in Oklahoma, look no further than Gov. Stitt's attempt at a trial run: zero oversight, spending on non-educational expenses, management companies profiting, and no real benefit to show for it,” House Minority Leader Emily Virgin, D-Norman, tweeted on May 2.
However, the state has offered a limited voucher program to students with special needs—the Lindsey Nicole Henry Scholarships for Students with Disabilities—for more than a decade and there have been no reported problems with misspending during that time.
And complaints about the small share of Bridge the Gap Digital Wallet grants that involved misspending allegedly allowed by ClassWallet come even as state and local officials are cracking down on misspending in Oklahoma’s traditional school system.
Recent cases in just two schools have involved more misspending than what is alleged to have occurred in the Bridge the Gap program.
A recent investigative audit of Stillwater Public Schools conducted by the office of State Auditor and Inspector Cindy Byrd has led to felony embezzlement charges against former district employee Stacy Hampton, who is accused of stealing more than $200,000 from the school nutrition program.
“Based on our findings, this employee was literally taking food out of the mouths of children,” Byrd said.
Similarly, an employee in the Mustang Public Schools district was recently arrested and accused of stealing more than $416,000 from the school district. The accused embezzler, Kim Irene Weinrich, was the district’s former director of payroll services.
Those recent incidents continue a longstanding pattern in public schools across the state.
In 2018, former Grant Goodland Public Schools Superintendent Buck Hammers was sentenced to prison after embezzling money from the district. The financial mismanagement was so significant it led to the school district’s annexation by Hugo Public Schools.
In 2015, state officials discovered that nearly $235,000 had apparently been embezzled from Swink Public Schools by the district treasurer and encumbrance clerk. The independent auditing firm used by the Swink district did not discover the embezzlement during routine reviews, and that firm was used by more than 100 Oklahoma school districts at the time.
A 2014 state audit found that officials in the Dickson school district used school funds to stay at the Gaylord Texan Resort in Grapevine, Texas for a “one night planning session for administrators” and on another occasion used school funds to pay to stay at the Embassy Suites Hotel in Oklahoma City for a similar session. The audit noted that a “meeting held over 100 miles from the school district would appear to be ‘inconvenient’ for district citizens.”
While financial abuses in public schools have jeopardized and even forced the effective closure of some districts, state officials vow any money misspent through the Bridge the Gap Digital Wallet program will be recovered—even if it requires going to court.
“If a resolution or productive dialogue toward resolution is not reached soon, the State will have no option but to exercise its contractual right to file suit in the Oklahoma County District Court,” Harpe wrote.
Oklahoma Secretary of Education Ryan Walters voiced support for that effort in a public statement.
“As an Oklahoman, parent, and educator, I am proud of Governor Stitt's efforts to distribute emergency federal funds as quickly as possible directly to families who needed it most for their child's education when schools were shut down at the height of the COVID pandemic,” Walters said. “I firmly stand behind the Governor's actions to hold ClassWallet accountable for failing to fulfill its contractual and legal obligations to the state.”
He also criticized those who were using the ClassWallet situation to push “an anti-school choice agenda and acting as a spokesperson for liberal teacher unions and those who defend a government-controlled education system that has objectively failed Oklahoma students for decades.”
“Empowering parents and putting them in charge is critical for our state to become top 10 in education,” Walters said.