Arizona Charter Schools Rife With Questionable Financial Transactions, Says New Report

More than three-quarters of the charter schools in Arizona have used taxpayer funds for "potentially questionable financial transactions. That's the conclusion of a new report by the non-partisan Grand Canyon Institute.

The report found that those schools would do business with what's called a "related party" - a for-profit business owned, at least in part, by either the owner of the charter school, a member of its board, or a relative of either.

The report states that in the 2013-14 school year, half a billion dollars in taxpayer funds went to related party commitments.

That was nearly half of what charter schools spent on contracts, leases, and rent. (For more local news, subscribe to the Phoenix Patch to receive daily newsletters and breaking news alerts).

Examples of these related-party transactions, according to the institute include:

• Purchasing curriculum from the charter school holder’s for-profit company.
• Hiring teachers from an employment services firm owned by the charter holder’s relative.
• Contracting consulting services from a member of the charter school’s corporate board.
• Leasing property from the charter holder’s parents.

The report found that in one instance, a charter school paid $2 million for software curriculum to a company owned by the owner of the charter.

"The practice of related-party transactions is illegal for public district schools but permitted for Arizona’s charter schools," says Curt Cardine, a fellow with the nonpartisan think tank the Grand Canyon Institute (GCI) and principal author of the policy report Following the Money: Twenty Years of Charter School Finances in Arizona.

The report is also critical of how charter schools pay staff and executives compared to public schools.

"Charter school teachers earn 20 percent less than public district school teachers while their executives (often the charter holders) earn on average 50 percent more than their counterparts in similarly-sized public school districts," according to the report.

The institute cites the example of Litchfield Park’s Crown Charter School. The report states that it paid its top executive $276,350 annually to oversee 266 students, compared to Scottsdale Unified District’s superintendent who earned $203,000 to oversee 25,000 students.

The institute makes several recommendations, including:

• Conduct public competitive bid processes similar to public district schools.
• Ensure consistency among Annual Financial Reviews (AFRs), audits and IRS 990 filings.
• Adopt executive salaries comparable to similarly sized public district schools.
• Be subject to annual audits by the state Auditor General similar to public district schools.

"School choice is appealing to many families," said George Cunningham, the Grand Canyon Institute’s Board Chair and a former state lawmaker. "The bottom line is that greater oversight is needed to ensure that taxpayer funds paid to charter schools are in fact used for the primary purpose of educating students.

"Transparency and accountability are required so parents can make an informed choice as to the best educational opportunities available to their children."

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