The oversight system of charter schools in Illinois contains "fundamental flaws" that need to be revamped in order to prevent fraud, argues a report by Action Now and the Center for Popular Democracy (CPD).
The report -- which pointed to the scandal involving insider deals at the charter school operator United Neighborhood Organization (UNO) as a more recent example of the need for stronger oversight -- noted that over $13 million in charter school fraud, waste or abuse has been uncovered in Illinois since the legislature passed a 1996 law allowing charters to open in the state.
As a result of the state's "lack of transparency and necessary oversight," there are likely more instances in which funds were inappropriately used in the Illinois charter system than has been reported, the researchers claim. According to their estimate, charter school fraud in Illinois tallied up to nearly $28 million in the last year alone.
There are three major problems with the state's charter oversight structure, the report says. First, state agencies tasked with overseeing charters depend mostly on whistleblower complaints and audits commissioned by charter operators, according to researchers. And those charter-commissioned audits are usually conducted using "general auditing techniques, not those specifically designed to uncover fraud," the report explains.
Government agencies and offices charged with investigating possible cases of fraud, waste and abuse in the charter school system also have inadequate staffing levels, according to the report.
"Illinois has invested in charter growth, but not adequately in charter oversight," stressed Kyle Serrette, CPD's education director, adding that there are several "concrete solutions" policymakers could adopt to "prevent and deter future fraud."
Specifically, Action Now and CPD are recommending that charter schools be required to undergo more rigorous audits meant to uncover and deter fraud, with the results made available to the public online.
On an annual basis, charter schools currently have to turn in financial audits to both the Illinois State Board of Education and its charter school authorizer, usually the school district. However, "this basic requirement is insufficient at preventing and detecting fraud, and oversight agencies must broaden the parameters of their oversight by conducting their own audits of the state's charter schools, including targeted fraud audits designed specifically to detect asset misappropriation, financial reporting fraud and corruption," the report says.
Among other suggestions relating to transparency and accountability, the report calls on local school systems to establish a way in which to "categorize and rank charter audits by fraud-risk levels" with comprehensive reviews taking place once every three years. The groups behind the report also want the Illinois Attorney General's office to review each charter school in the state to "identify inadequate school oversight by boards of directors or executives and publicize the findings."
The Illinois legislature should install a state-level moratorium on new charter schools until the reforms have been implemented, according to the report. The groups say a charter school moratorium could be lifted after one year, but "only if, at that time, all charter schools in Illinois have undergone a fraud risk assessment and established fraud risk management programs."
Meanwhile, researchers found that "weak internal controls" are a problem at the charter schools. According to the report, charter schools themselves should conduct fraud-risk assessments that are updated annually, while also stepping up efforts around educating staffers and board members about fraud.
"Because hundreds of millions of public tax dollars are allocated to the charter system each year, it is important that all charter schools adopt strong internal control systems to assess the risk of fraud," the researchers wrote. "Charter school management and governing boards must establish strong internal controls, and charter school oversight agencies must ensure their auditing protocols incorporate regular audits of those internal controls and conduct targeted fraud audits."
In response to the report, the Illinois Network of Charter Schools issued the following statement to Progress Illinois:
Accountability and transparency are at the core of the charter movement. The Illinois Network of Charter Schools (INCS) supports strong accountability and improved transparency for the academic and financial performance of all public schools, whether they are charter schools or district-run schools. In fact, charter schools are held more accountable for financial stability and academic performance because they must comply with state and federal regulations, as well as meet the terms in their contracts with their authorizers.
The charter community welcomes credible, independent research to inform best practices and continually improve. However, the merits of the Risking Public Money: Illinois Charter School Fraud report are questionable. Assumptions made in the report are not supported by the data and its policy recommendations are drawn from opinions and not facts. INCS believes in strong accountability and improved transparency for all charter public schools. We are working with our state and local elected officials to strengthen the law and authorizing practices across Illinois to ensure schools serve the best interests of our students and communities.
The city of Chicago is home to 90 percent of the charter schools in Illinois, according to the report.
"The proliferation of charter schools in Chicago has diverted millions of dollars of taxpayer money away from public neighborhood schools without proper oversight - and the instances of fraud have been well documented," Action Now's Executive Director Katelyn Johnson said in a statement. "Chicago Public Schools says they are broke, but a small investment in financial oversight of charters would pay dividends for our schools. Instead of losing millions to fraud, we could have more librarians, after-school programs and gym. We could build real, high-quality education that our children need."