Yvonne Wingett Sanchez, and Rob O'Dell

The Republic | azcentral.com

GOP lawmakers are renewing effort to expand the ESA program to all public students

A similar effort died last year amid concern over oversight and spending by ESA parents

Republican lawmakers are renewing their efforts to expand a program that allows parents to use public money to pay the educational expenses of children who attend private schools or are homeschooled.

The push to expand Arizona's Empowerment Scholarship Account program comes in the wake of a state audit that found officials had identified that more than $102,000 in ESA funds were misspent during a six-month period, from August 2015 to January 2016, in addition to other improper purchases, as well as spotty oversight.

The examples cited by auditors include parents who kept the state's money after enrolling their children in public school, parents who bought items that are not allowed under the program, such as snow globes and sock monkeys, and parents who didn't submit required expense reports to the Arizona Department of Education.

The state recovered less than 15 percent of the misspent funds, according to state auditors.

The review by the Office of the Auditor General came amid questions last year about oversight of the program. Auditors concluded the state Department of Education should strengthen its management of the program and its efforts to recover misspent money. Auditors also recommended lawmakers consider changing state laws to better ensure ESA money is properly spent.

Created in 2011

Empowerment Scholarship Accounts allow parents to take money that would otherwise go directly to their local public school, and put it toward private-school tuition, homeschooling, tutoring, therapy, and other education-related expenses. Critics of the program say it siphons money away from public district schools, and over time, could substantially erode school funding.

The Legislature created the program in 2011, limiting it to disabled children. Since then, lawmakers have expanded the program to children in failing schools, children living on tribal lands, siblings of children who have participated in the ESA program, and others. There are currently about 3,200 children in the program in 2017, said Ross Begnoche, the Department of Education's chief financial officer. The program is currently capped at about 5,000 students. The budget is about $40 million this year.

Under legislation introduced by Republican Sen. Debbie Lesko, of Peoria, all students would qualify for the ESA program by the 2020-2021 school year.

Senate Bill 1431 proposes phasing in eligibility, starting in the 2017-2018 school year with students in kindergarten, first grade, sixth grade and ninth grade. Within four years, all students would qualify. A separate bill, Senate Bill 1281, by Republican Sen. Steve Smith, would require the Department of Education to contract with a private firm to manage ESA accounts and require random, quarterly and annual audits of the program.

Lesko said in a prepared statement that SB 1431 would allow parents to tailor their children's education to their needs. Traditional public district schools oppose the program, she said, because "they don't want the competition."

"Luckily, our governor and Republicans in the Legislature don't focus on protecting a monopoly, but instead on what is best for the child," Lesko's statement said.

In an interview Monday, Lesko said she had not read the audit. Told of the misspent money, she added, "If it’s a mistake, that’s one thing. If it’s intentional, they need to be prosecuted and kicked off the program.”

MORE: State money helping wealthier Arizona kids go to private schools

Expansion could have momentum

Last year, she also sponsored legislation to allow all 1.1 million public schoolchildren to qualify for the ESA program by 2020. That expansion effort came as Gov. Doug Ducey was campaigning for a ballot initiative to put more money into public schools — a message seemingly at odds with legislation that would divert taxpayer money away from public schools. The bill died after an Arizona Republic investigation showed most children using the program were leaving high-performing public schools in wealthy districts.

DATABASE: Search for ESA awards in your district

Some supportive lawmakers say an ESA expansion could have more momentum this year, given President Donald Trump's nomination of school-choice advocate and billionaire Betsy DeVos for U.S. secretary of Education. A non-profit she chaired until recently, American Federation for Children, spent nearly $218,000 during the primary for legislative races last year, the most of any independent expenditure committee seeking to influence the outcome of such races.

The group advocates for school-choice measures across the country and at the Arizona Capitol, where those efforts have included pressing for ESA expansion. On Monday, the group touted Lesko's legislation, saying it would mean "no Arizona child will be trapped in a school that isn’t working for them.”

Ducey, a supporter of school choice, evaded questions last week on whether he would sign legislation to expand the ESA program. He said parents should be able to send their children to the schools they desire and noted his budget proposes $114 million in additional K-12 school funding, aside from mandated inflation costs.

Senate President Steve Yarbrough, a Chandler Republican who promotes alternatives to public schooling and programs that benefit private schools and charities, told The Arizona Republic before the ESA expansion bill was introduced he hoped to see the program accessible to more kids.

“Expanding the ESA program will provide educational opportunity for kids in low-income schools as well as kids in higher-income neighborhoods,” he said on Jan. 18.

Yarbrough said he doesn’t like that ESA funds were misspent, but he was not troubled by it. He sidestepped a question about whether additional measures should be taken in light of the audit’s findings.

“To us, $100,000 probably sounds like quite a bit of money, but in the whole scheme of things, that frankly may not be an awful lot of money,” he said. “It doesn't make me feel good that anybody would misuse any government program.”

State Superintendent of Public Instruction Diane Douglas told the newspaper the department has been working to strengthen oversight of the program. Those efforts include a new technology system that, in her view, makes it easier for parents to submit expenses while better helping program officials flag “potential fraud.”

Audit details misspending

The audit cited wide-ranging issues with the Empowerment Scholarship Account program, including inconsistently referring cases of misspending to the Attorney General’s Office for investigation.

In one case, parents with children enrolled in the program in 2011 bought more than $3,600 in educational materials using their ESA debit cards. They then returned their purchases for store gift cards, and used them to buy “non-educational items,” including a sock monkey, a snow globe, a "World of Warcraft" calendar and "The Walking Dead" board game.

State officials learned of the “suspicious purchasing behavior” from the the bookstore, the audit said. They eventually kicked the parents out of the program and the case was referred to the Attorney General’s Office for a fraud investigation. Education officials would not have been able to detect the misspending through their normal review of the parents’ expense reports, the audit said. It is unclear if the money has been recovered.

Auditors included examples of instances in which education officials had fended off attempts to make prohibited purchases. Between 2011 and 2015, for example, parents had tried to spend the funds on such things as a dating website, hotel stays, and fast food.

Among the other problems cited by auditors:

The Department of Education recovered just $14,500 of the $102,602 misspent between August 2015 and January 2016.

As of March 2015, the attorney general recorded $10,000 in referrals to its office for collections but those referrals have resulted in the repayment of just $230.

Thirty-five parents misspent more than $1,000 over a six-month period, but most have not repaid the money, and as of March 2016, the department had not referred them to law enforcement for fraud or collections.

The department took no action against parents who unsuccessfully tried to misspend ESA funds. Education officials believed attempted cash withdrawals using the ESA debit cards are a sign of future misspending; the department allowed 150 parents who tried to withdraw cash to remain in the program.

One-third of the $102,000 that had been misspent over the six-month period was a result of parents accepting the ESA money on their debit cards and then enrolling their children in public schools.

One parent spent money on a child who did not reside in Arizona.

The audit also found the department struggled to guard ESA funds that were spent via the online money-transfer system known as PayPal.

In August 2015, one parent tried to withdraw cash and make purchases at a grocery store and drugstore. They were denied. Six days later, the parent used the ESA debit card to pay $500 “to what appeared to be a tutor” through a PayPal account. Bank records indicate the PayPal account was located in California.

Later, in October 2015, the parent made another $700 payment to the same PayPal account. Education officials tried to get more information about the transactions from the parent, but as of March 2016 there was no response.

Another parent paid someone $3,500 through PayPal with no indication of what he or she was buying. That parent also has not responded to education officials’ request for more information about the purchases.

MORE: Who was that guy? Ducey proposals spark cheers, head-scratching

Department of Education officials could not say whether they have recovered anymore of the money that was misspent, but said they are continuing to try and collect the roughly $85,000 that has been misspent but not paid back.

Some of it has been referred to the attorney general but some of the amounts are small enough that the state isn’t trying to collect it, Begnoche said.

The department agreed to all the audits findings and recommendations to improve ESA oversight.

'Very little oversight'

For years, the budget to oversee the program was $400,000, funding only three to four employees to root out fraudulent transactions by going through transactions on an individual level, Begnoche said. This year, the Legislature allowed the ESA program to spend $800,000, bumping the number of employees to eight, which will make it easier to audit and to identify misspending, he said.

Republican Sen. Kate Brophy McGee, of Phoenix, opposes further ESA expansion. She told The Republic she was disturbed by the audit's findings, saying, "You would expect conservative supporters of ESAs to demand accountability and proven outcomes in return for taxpayer dollars, but that's not what is occurring."

Student achievement of ESA recipients is not tracked by the state.

Democratic Sen. Steve Farley, of Tucson, suggested the state would have trouble administering a larger program.

"If you see these kinds of problems from a small program and then you open it up to 1.1 million kids and put debit cards in the hands of parents with very little oversight, you're creating a program that's ripe for fraud," he said.

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Follow the reporter on Twitter @yvonnewingett and reach her at yvonne.wingett@arizonarepublic.com or 602-444-4712.