CA legislators propose reforms to prevent another A3 charter school scandal

A state Assembly bill that is meant to prevent the abuses and close legal loopholes exposed in the A3 charter school scandal is facing fierce opposition from charter school leaders.

The bill, AB 1316, is a sweeping reform measure meant to fix weaknesses in state law that allowed executives from the statewide A3 charter school network to pocket more than $50 million of public funds funneled from charter schools.

In February A3 executives Sean McManus of Australia and Jason Schrock of Long Beach pleaded guilty to conspiracy to steal public dollars and agreed to cooperate with authorities to recover the stolen money.

Proponents of the school reform bill AB 1316 say they used insights from state auditors and the San Diego County District Attorney’s Office, which handled the A3 case, to create the proposed legislation.

But charter school leaders say the bill goes too far to restrict charter schools and will hurt them financially.

A similar but more limited bill, SB 593, has not generated an outcry from charter school groups. But officials from the district attorney’s office and a state auditing agency say it doesn’t cover nearly enough ground.

“AB 1316 increases fiscal and attendance accountability to benefit all of California’s public school children, who deserve equal access to these precious state resources — instead of corrupt business people stealing state funding by exploiting loopholes in the law,” said Patrick O’Donnell (D-Long Beach), chair of the Assembly Education Committee and one of the legislators who introduced AB 1316.

“The days of handing out buckets of public money without accountability are ending.”

Prosecutors said that A3 school operators falsified and manipulated student enrollment data to get extra state money, then they funneled money from the schools into companies they controlled. Meanwhile A3 schools provided little to no education for many of the students they enrolled, prosecutors said.

Charter schools are public schools run independently of school districts. Every charter school must be authorized by another education agency, usually a school district, which is supposed to hold the charter school accountable.

O’Donnell said his bill would address finance and accountability issues found not just in the A3 case, but with other California charter school networks that have been investigated in recent years, including Inspire, California Virtual Academy, Celerity, Tri-Valley Charter and Today’s Fresh Start.

A3, Inspire and California Virtual Academy have had operations in San Diego County.

Both charter school bills focus on non-classroom based charter schools — schools that primarily provide independent study options such as online learning, home schooling or resource centers where students drop in to get teacher support. A3, Inspire and California Virtual Academy schools were non-classroom based.

The larger, AB 1316 bill also includes some measures that apply to all charter schools and even school districts.

Officials with the California Charter Schools Association, one of the main opponents of AB 1316, said the state may need legislative guardrails to prevent charter scandals from happening again. But, they said, AB 1316 will ruin charter schools’ ability to offer innovative and student-centered programs.

“AB 1316 attempts to paint a broad brush on the charter public school sector by citing a single egregious case of fraud by a school and local authorizers, and ignores the hard work and high ethical standards of the majority of charter public schools,” states a letter signed by the charter school association, two other charter groups and leaders of more than 130 charter schools and networks.

The bill would hold charter schools to new requirements related to audits, vendors, contract bidding, teacher credentials and in-person instruction, some of which already apply to school districts.

It also would increase what authorizers can charge charters for oversight fees, limit how many students certain non-classroom based charter schools can enroll, and limit the state funding that some non-classroom based charter schools can receive per student.

Supporters said AB 1316 is not about closing charter schools or trying to make life harder for them; it is about making sure state school dollars are spent properly and that they go directly to students.

“We want the money for our education system to educate kids, and in order for that to occur, we need to have better checks and balances on where the money is going,” said San Diego Deputy District Attorney Kevin Fannan, who prosecuted the A3 case. “And the current system just flat-out does not allow for sufficient oversight of where our taxpayer funds are going.”

Stopping another A3

Much of AB 1316 focuses on loopholes that prosecutors found in two key areas: school audits and the way the state pays public schools.

The state allocates funding to schools based on how many students the schools claim are attending their programs.

The A3 defendants got extra money from the state by manipulating what’s called a multitrack calendar system, which lets a charter school run multiple school calendars that start and end at different times of the year.

A3 leaders falsely enrolled students who were already participating in summertime sports and enrichment programs run by other organizations, even though in most cases A3 was providing them no services.

Because of the way state attendance funding works, A3 was able to get 40 to 50 percent more funding per student by moving students into its summer track than it would have gotten with a typical school year calendar, Fannan said.

The state might not have realized what A3 was doing with enrollment because it does not keep track of which students it is paying for, Fannan said.

The state education system primarily relies on auditors to verify the accuracy of schools’ attendance reporting, said Scott Roark, spokesman for the California Department of Education. School districts and charter schools must hire auditors to conduct annual audits of their books.

But auditors are essentially at-will employees of the schools they are auditing, said Deputy District Attorney Leon Schorr, who prosecuted the A3 case.

In early 2018, an auditor hired by A3 noted several concerns about an A3 school’s transactions and conflicts of interest.

Afterward A3 fired that auditor and hired a new one, who filed audits that said the A3 schools were in compliance, according to the A3 indictment. A3 school leaders also picked the samples of enrollment data that the auditor analyzed, prosecutors said.

“The charter school administrators — the same people that the auditors are supposed to be checking — are the ones providing the sample,” Fannan said. “It’s not surprising that the auditors were fooled.”

SB 593, the narrower bill, would require auditors of non-classroom based schools to choose their own samples when auditing enrollment. Auditors also would take training on recognizing “irregular practices,” identifying large transfers of money to individuals or organizations, and sampling credit card statements and other electronic payments.

AB 1316 would require that all school auditors choose their own samples and take education-specific training to keep their licenses.

The larger bill also would make charter schools disclose additional information in their annual audits, such as a school’s enrollment and attendance by month, list of third parties that have financial or governing control over a charter school and a school’s largest transfers to individuals or organizations.

AB 1316 also would require the state education department to study how to link the state’s school funding system with its school enrollment system — which does track and identify individual students.

Finally, AB 1316 would eliminate most multitrack calendars but would let the state school board grant permission to districts or charter schools that need them for facilities reasons.

Some non-classroom based charter schools need multitrack calendars because they have at-risk students who need to enroll at various times of the year, said Ricardo Soto, general counsel and chief advocacy officer for the California Charter Schools Association.

Not just auditing

AB 1316 goes beyond addressing problems with auditing.

The bill sets standards for non-classroom based programs in school districts and charter schools. The bill would define a minimum school day, require students meet with a teacher at least once every three days, and make schools offer an in-person instruction option for students with special needs.

The minimum school day is important, Schorr said, because A3 executives were able to set the length of their school days. Sometimes they reported students who had attended a summer baseball program for two days as attending A3 schools for six days, he said.

The bill also requires charter schools to use a competitive bidding process for contracts over a certain amount, a rule that already applies to districts. And third-party companies would no longer be able to charge charter schools a percentage of the schools’ revenues as a management fee; they would have to bill schools for actual services.

“Public bidding and competition is often one of the ways government regulators learn of malfeasance, and charter school students do not obtain this regulatory benefit,” Schorr said.

AB 1316 aims to regulate charter schools’ use of vendors, in light of the fact that Inspire charter schools had spent state dollars on activities like horseback riding and Disneyland trips for their students’ education, and churches and other private entities were being paid to provide some of A3 students’ education.

The bill would require that all vendor employees who directly serve charter school students have a teaching credential. The bill would also prohibit religious organizations from serving as vendors.

Under AB 1316 non-classroom based charters would receive less funding than traditional brick-and-mortar schools based on how much of their instruction is online.

The vast majority of non-classroom based charter schools currently receive as much funding per student as brick-and-mortar schools do, even though they don’t have as much overhead cost, AB 1316 proponents said.

AB 1316 also would create an Inspector General for the state education department, raise the amount that charter school authorizers can charge charters for additional oversight duties included in AB 1316, and cap how many students a non-classroom based charter school can enroll, based on how many students attend its authorizing school district.

A3 schools were often authorized by tiny school districts. Prosecutors said small districts lacked the capacity to properly watchdog the A3 schools, which often enrolled thousands of students.

The bill would require charter school authorizers to review charter schools’ attendance, student-teacher ratios and the time value assigned to student work.

Charter school groups say the financial reporting and audit requirements are “cumbersome and convoluted” and would represent “duplicative and wasteful oversight.”

They also say the restrictions on non-classroom based programs would threaten their ability to provide flexible learning options for students who need an alternative to traditional in-person learning.

“These schools serve students who have failed to succeed in a traditional site-based setting yet are now thriving in a personalized learning environment which is the hallmark of all” non-classroom based charter schools, the charter groups said in their letter.

While the California Charter Schools Association said AB 1316 is not the right approach to reforms, it does not have a concrete alternative solution to AB 1316, Soto said.

The association believes SB 593 is a more targeted approach to addressing the financial and accountability issues with some non-classroom based charter schools, Soto said. The association is keeping a neutral stance on SB 593 until the group talks more with the bill’s author, Sen. Steve Glazer (D-Contra Costa), about refining it.

Glazer, who said he is a “big supporter” of charter schools, said he kept the scope of his bill narrow to avoid hurting charters.

“The goal is to reduce the chance for fraud without penalizing the many great charter schools who are helping over 200,000 independent study students,” Glazer said.

Both the state’s school auditing agency and Schorr said SB 593 is not comprehensive enough. Schorr said the bill does not address the main methods the A3 defendants used to commit fraud.

A public hearing will be held for AB 1316 on Wednesday during a larger Assembly Education Committee hearing that starts at 9 a.m. in Sacramento.

On May 3 the Senate Appropriations Committee will decide whether to advance SB 593 to the Senate floor, refer it to another committee, or take no action.