[were] properly used and accounted for.”

The purpose of this report is to echo the warning issued by the OIG and to inform the public and lawmakers of the mounting risk that an inadequately regulated charter industry presents to our communities and taxpayers. Our examination, which focused on 15 large charter markets*, found fraud, waste, and abuse cases totaling over $100 million in losses to taxpayers. Despite rapid growth in the charter school industry, no agency, federal or state, has been given the resources to properly oversee it. 4 Given this inadequate oversight, we worry that the fraud and mismanagement that has been uncovered thus far might bejust the tip of the iceberg. Our hope is that lawmakers will use the information and concrete recommendations that we outline in this report to pass meaningful oversight legislation.

** States examined: AZ, CA, CO, DC, FL, HI, IL, LA, MN, NJ, NY, OH, PA, TX, and WI.

$100 million includes: 1) $51,146,094.65, federal prosecution of charter official/staff completed. 2) $33,400,000, state agency audit finds violation of federal law by charter official/staff. 3) $30,575,143.76, state agency audit finds violation of state law by charter official/staff. 4) $1,161,887.93, state agency audit finds violation of federal and state law by charter official/staff. 5) $19,550,489, charter official/staff is indicted by a federal grand jury. 6) $150,000, charter official/sta ff criminal prosecution in progress. 7) $20,000, charter official/staff is arrested and admitted to fraud. Total: $136,003,615.34

Introduction

Minnesota passed the first charter school law in 1991.Since then, lawmakers in 41 states and the District of Columbia have written their own charter school laws.By all accounts, the growth of the charter industry has been astronomic. Charter enrollment has doubled three times since 2000; it doubled from 2000 to 2004, and again from 2004 to 2008, and again from 2008 to 2014.Just last year, over 600 new charter schools opened and an estimated 288,000 additional students enrolled in charter schools.

Today, there are an estimated 6,400 charter schools enrolling over 2.5 million students.8

To understand why there are so many problems in the charter industry, one must understand the original purpose of charter schools. Lawmakers created charter schools to allow educators to explore new methods and models of teaching. To allow this to happen, they exempted the schools from the vast majority of regulations governing the traditional public school system. The goal was to incubate innovations that could then be used to improve public schools.9 The ability to take calculated risks with small populations of willing teachers, parents, and students was the original design. With so few people and schools involved, the risk to participants and the public was relatively low.

But today, as the charter sector grows far faster than originally envisioned, the risks are high and growing, while the benefits are less clear. Even relatively pro-charter organizations like the Center On Reinventing Public Education recognize that the regulatory foundation upon which the charter industry was built began from a place of insufficiency. In their analysis of charter oversight law, they found that “only minimal attention was paid to the question of how to oversee these new schools; frequently governments delegated charter school authorization as a side task to offices already burdened with other activities.”10 This is not an uncommon occurrence in our nation’s history. In the past — in some cases, our very recent past — industries such as banking have outgrown their regulatory safety nets. Without sufficient regulations to ensure true public accountability, incompetent and/or unethical individuals and firms can (and have) inflict great harm on communities.

This report will bring into focus some of the consequences of having inadequate charter regulations. We focus on just one symptom – the growing problem of fraud, waste, and abuse perpetrated by some charter school operators. The problem is pervasive; our search, despite being limited to fewer than half of the states with charter schools, found over $100 million in public tax funds lost to waste, fraud, and abuse.

The Growing Issue of Charter Operator Fraud and Mismanagement

Charter operators using public funds illegally for personal gain;

School revenue used to illegally support other charter operator businesses;

Mismanagement that puts children in actual or potential danger;

Charters illegally requesting public dollars for services not provided;

Charter operators illegally inflating enrollment to boost revenues; and,

Charter operators mismanaging public funds and schools.

Charter Operators Using Public Funds Illegally for Personal Gains

Our research reveals that charter operator fraud and mismanagement is endemic to the vast majority of states that have passed a charter school law. Drawing upon court cases, media investigations, regulatory findings, audits, and other sources, this report contains a significant portion of known fraud and mismanagement cases. We found, as stated in the introduction, that at least $100 million in public tax dollars has been lost due to fraud, waste, and abuse. These instances of fraud and mismanagement, which are catalogued in appendixes A-F, fall into six basic categories:The most pervasive type of charter fraud and mismanagement that we found in our survey is the illegal practice of charter operators using public funds for personal gain. Examples include: