SCRANTON — A report by the state Office of Auditor General recommends the Bear Creek Community Charter School be required to reimburse the state Department of Education $106,332 for lease payments that auditors say the school improperly received.
The report was among six audits released Thursday by Auditor General Eugene DePasquale that identified “systemic problems” he said resulted in charter schools receiving a combined total of more than $550,000 in state funds to which they were not entitled.
The audits found additional problems with the six schools, including failure to file proper tax forms, possible ethics violations and other record-keeping issues.
Bear Creek and other charters vehemently have disputed the findings regarding the lease payments, noting they provided all required paperwork to the Department of Education, which approved the payments.
“It seems to be a situation where one part of the government feels some other part of the government is doing something inappropriate,” said Dave Blazejewski, president of the Bear Creek Charter School’s board of trustees. “Rather than take it up with the Department of Education, they’re going after the participants of the program instead of the people who created the program.”
More troubling, Blazejewski said, is the audits’ findings could result in a loss of funding that could impact the ability of charter schools to maintain the upkeep of buildings and build new structures.
Rental payments an issue
At issue is a provision within the Department of Education that permits charter schools to receive reimbursement for rental payments they make for school buildings. However, the schools are not entitled to the payments if they own the buildings.
State auditors found that Bear Creek and some of the other schools transferred ownership of their buildings to an outside foundation, from which they then rented the structures. They then sought the rental reimbursement.
The problem, according to auditors, is those foundations were created by the board of trustees of the schools. The auditors contend that means the schools, in effect, are the “owners” of the buildings, and therefore not eligible to receive the lease reimbursement.
Speaking at a press conference Thursday in Scranton, DePasquale stressed he is not alleging any of the schools set up the foundations in an attempt to fraudulently bypass the law. The situation appears to be an honest misunderstanding of the rules by the charter schools, he said.
“Our understanding from our auditors is they did not know this was wrong,” said DePasquale. “Most of the charters have been doing this for several years. That doesn’t make it right.”
DePasquale recommended the Department of Education seek total reimbursement of $557,848 from the six schools. In addition to the $106,332 from Bear Creek, he’s seeking $94,266 from Fell Charter, Carbondale; $60,248 from School Lane Charter, Bensalem; $191,267 from Roberto Clemente Charter, Allentown; $85,375 from Keystone Charter, Greenville; and $20,360 from Evergreen Charter, Cresco.
DePasquale noted the decision to seek repayment lies with the Department of Education, as the auditor general has no authority to require the agency to take action. Tim Eller, a spokesman for the Department of Education, said the department’s secretary will review the audits and determine what, if any, action should be taken.
Blazejewski said Bear Creek board members are disappointed by the auditor general’s findings, which they continue to dispute. If the Department of Education agrees and withholds the lease payments, it will dry up an important revenue source the school uses for upkeep of buildings and construction of new structures, he said.
The school received an average of $30,000 to $40,000 in lease reimbursements annually from the state, he said.
Funding for charter schools comes from local public school districts, which are required to pay charters 80 percent of the designated per-pupil tuition cost. Unlike public schools, charter schools are not eligible for a state program that provides funding for new construction, Blazejewski said.
The lease payment money helped make up for that shortfall, he said.
“It’s the only way we can do anything to upkeep our existing buildings or build new buildings,” Blazejewski said. “We don’t have the ability to raise taxes. We have to sit back passively and take what is given to us.”
Other audit issues
Bear Creek also took issue with several other findings in the audit, including questions of whether the school’s chief executive officer, Jim Smith, violated state ethics rules by serving as CEO of the school and president of the Bear Creek Charter Foundation, the entity that leased the buildings to the school.
The audit raised concerns that a conflict of interest existed because there was no clear separation of duties between Smith in his capacity as school CEO and foundation president. That could result in “inaccuracies in financial reports” filed by the charter school relating to the amount of rental payments being paid, which might not be detected because of the lack of separation of duties, the audit said.
Smith no longer serves as president of the foundation, Blazejewski said. The school took particular issue with that finding for the years he did serve as president, calling it baseless and defamatory.
“Your draft audit … implies that there is a potential for intentional inaccuracies in financial reports due to an alleged conflict of interest. This is nothing more than conjecture, and there is no evidence that inaccuracies exist,” the school said in a written response included in the audit.
The school called upon the auditor general to withdraw all its findings related to the lease payments and alleged conflict of interest. “It is not only wholly without merit, but defamatory of the charter school, the foundation and the CEO,” the school said.