Officials with the Oklahoma State Department of Education (OSDE), criticized for lackluster and ineffective financial oversight in a state audit of Epic Charter Schools, disputed portions of the audit in an appearance before lawmakers on Wednesday.

OSDE officials blamed their failure to review questionable school financial reports on statutory deadlines, but also admitted the agency has seldom or never imposed penalties on schools that file flawed or inaccurate reports even though the penalty is authorized in state law.

Oklahoma State Auditor & Inspector Cindy Byrd said OSDE officials have options that they have not pursued to provide better financial oversight of school spending.

“I think that whenever a red flag is raised in the future, maybe a good solution to that is to ask the auditor’s office to look into it if the State Department of Education doesn’t have the resources,” Byrd said. “And Superintendent (Joy) Hofmeister does have that authority. If she wants to call us and ask us to do an audit, we’re happy to do so.”

The state audit criticized Epic Charter Schools for its organizational structure, questioning its legality, as well as some of the online school’s spending practices.

However, the audit also included several pointed 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.”

Auditors have specifically said OSDE officials ordered the acceptance of improperly coded reports to the Oklahoma Cost Accounting System (OCAS), which is administered by OSDE.

Auditors say Epic improperly classified administrative spending in OCAS reports to avoid a penalty for exceeding a cap on administrative spending. After finance officials at the Oklahoma State Department of Education objected to Epic’s report, the school recoded its OCAS report in December 2015. The updated report showed the district had no overage on the allowed 5-percent share of funding that could be dedicated to administrative costs.

However, officials at the Oklahoma State Department of Education disagreed with that reclassification and the issue continued until February 2016, according to state auditors.

In a recent appearance before the Oklahoma Statewide Virtual Charter School Board, Brenda Holt, audit manager for the Special Investigative Unit of the state auditor’s office, said OSDE staff were ordered to accept Epic’s report despite staff objections.

“According to the state department director of OCAS, she did not willingly do that,” Holt said. “She was directed to do that.”

When a member of the Oklahoma Statewide Virtual Charter School Board asked who gave the order to sign off on Epic’s OCAS report, Holt indicated that officials at the Oklahoma State Department of Education did not provide a straight answer.

“We do not have an exact answer to that,” Holt said. “We interviewed the three individuals that were involved in that decision. As we understood it, honestly, we got three different answers.”

Hofmeister disputed those claims during the legislative hearing.

“Actually, I don’t believe there was an order,” Hofmeister said.

She described the event as one in which OSDE’s chief legal counsel “shared information with the director, at the time, of OCAS.”

Brad Clark, general counsel for the Oklahoma State Department of Education, blamed the agency’s acceptance of questionable financial reports on school districts’ practice of submitting data immediately before the statutory deadline for OCAS reports. Clark said Epic typically reported data close to the deadline and that “hamstrings the office of four people reviewing that information.”

However, Hofmeister also conceded the agency has not used its full enforcement power. While state law allows a penalty to be assessed on schools that do not comply with financial reporting requirements, Hofmeister said OSDE never adopted a rule that allowed the agency to “actually exercise the penalty that was written in statute but had never been assessed to a district for missing, for incorrect data.”

She said a rule providing for such penalties was not adopted until spring 2020. Hofmeister said the agency’s prior OCAS processes were done “without the use of the ‘teeth’ that the law actually allowed.”

While Hofmeister suggested penalties would improve oversight, Clark indicated agency officials remain reluctant to impose penalties on districts that submit questionable financial data.

“You withhold the money, and that money is directly intended for instructional purposes,” Clark said.

Katherine Black, executive director of financial accounting at the Oklahoma State Department of Education, conceded the audit’s conclusion that OSDE generally accepts financial reports without review.

“We have 500-plus school districts submitting data to us,” Black said. “We don’t see the daily operations of each individual school district. We rely on that school district and that superintendent—when the superintendent is verifying that ‘the data I have submitted is correct and accurate’—we’re relying on that.”

Rep. Tammy West, R-Oklahoma City, asked if a special investigative audit of the Oklahoma Cost Accounting System at OSDE is warranted, given the issues with proper OCAS coding that have been highlighted in the Epic audit.

“I’m not sure what an audit would do,” Clark responded.

But Byrd warned other districts may have evaded OSDE’s notice in OCAS reports.

“I don’t just think OCAS coding is a problem with Epic Charter Schools,” Byrd said. “I think this could potentially be a problem in all public schools.”

Rep. Mark McBride, R-Moore, noted several entities have oversight responsibility and numerous audits are reportedly conducted on Epic and other school districts each year.

“To me, it seems like there’s a bigger problem here than just Epic,” McBride said.

“Maybe something that we could have gotten to the root of this problem a lot sooner was whenever we first started hearing problems or issues, maybe it would have been better to ask for an investigative audit back in 2015,” Byrd said.

OSDE defended its approach to financial oversight during an appearance before members of two education committees of the Oklahoma House of Representatives, which met jointly to hear Byrd’s presentation on the Epic audit and also question OSDE officials about their role in the process.

Officials with Epic were offered an opportunity to appear as well, but declined due to an ongoing legal investigation, providing instead a statement vowing to address lawmakers’ questions after reviewing the work papers of the audit.

Byrd was asked if similar issues may be occurring at other schools across Oklahoma.

“These findings, could they be found in other public-school districts?” Byrd responded. “Sure.”