CORRECTED AND UPDATED: Oct. 19, 2016
(Keystone Crossroads) Some charter schools operate like islands — day-to-day they run independently of any higher or centralized power. Others contract with a management organization — sometimes part of a big network, sometimes not. Sometimes for-profit, sometimes not.
It's these charter management organizations, or CMOs, that have been criticized recently by the Office of the Inspector General inside the U.S. Department of Education.
In a September report, the OIG warned that CMOs pose a "significant risk" to both taxpayer dollars and performance expectations.
The report studied 33 CMOs in six states and found that two-thirds were cause for concern, with internal weaknesses that put federal tax dollars at risk.
Pennsylvania was one of the states investigated, and the report echoed much of what Pa. Auditor General Eugene DePasquale has already flagged about CMOs in the state.
He testified on the issue at a hearing in Allegheny County last week.
"When you have the larger management companies running a broad chunk of schools, we view that as a major issue," he said. "If you were not allowed to find out the salary of your school district superintendent, what would be the outcry in your district?...There would be pitchforks at that meeting. In many of the management companies, we don't even get to see the salaries let alone the costs."
In the federal report, five Pa. CMOs were studied — four in Philadelphia and one in Chester. Two in Philadelphia checked out, but the other three rang alarm bells.
The report did not call out organizations by name.
A spokesman for CSMI, a for-profit CMO which contracts with Chester Community Charter School, confirmed CCCS was the school in Chester investigated by the Inspector General.
CSMI is headed by founder and CEO Vahan Gureghian, a wealthy, politically influential player in state politics.
The report states that Gureghian "had the authority to write and issue checks without charter school board approval and wrote checks to himself from the charter school's accounts totaling about $11 million during the 2008–2009 school year."
The OIG could not confirm whether the checks in question were written without board approval. It states that the CEO had that authority at the time.
"Our audit examined the control environment between the charter schools and the CMOs; we did not review the schools or the CMOs regarding expenditures of funds," said OIG spokeswoman Catherine Grant.
In a letter written to the OIG in 2013, CCCS' lawyer said each payment was in fact approved by Chester Community Charter School's board, and reflected in monthly financial reports.
"The report and the approval votes are reflected in the school board's minutes, which were provided to the auditors," said attorney Francis J. Catania.
A spokesman for CSMI could not immediately produce the minutes to these meetings, citing the fact that they are eight years old.
The OIG said it could not release any documents related to its audit without being compelled by a freedom of information request.
CSMI did not produce a detailed accounting of how the $11 million was spent, but says the it was responsible for CCCS expenses including salaries for teachers, administrators, and staff; all maintenance and facilities costs; and all other major supports of the school.
Whether or not there was, in fact, board approval for the payments, the OIG flagged this example as one that raises concerns about the potential for waste, fraud and abuse.
CCCS says it has since tightened its fiscal oversight.
DePasquale says the report validates his view that the state's charter law is badly in need of revision — especially because it leaves these management organizations outside the purview of right-to-know laws and allows them to forgo audits.
"Because they are considered private companies, so they're basically beyond the scope. And so that's something that when the charter law was passed in the late '90s, these types of things were never envisioned," he said. "And there's never been any adjustment to the law since then which is certainly frustrating."
Traditional school districts also often contract with for-profit entities for some operations, such as food services. Critics of CMOs draw a distinction between these contractors and those that effectively run the entire operation behind a firewall.
Pa. charter school advocates largely agree that reforming the state's charter law should be a top priority.
In the meantime, the bulk of common sense reforms that most agree on remain unchanged.
Charter proponents, though, also warn against thinking that all management organizations can be painted with the same brush.
"To think that all CMOs exhibit some of the types of behaviors that were identified in the report would be misleading," said Amanda Fenton, a policy director at the National Association of Charter School Authorizers. "The real challenge that the report really highlights is how complicated oversight of these entities can be."
The report itself offered this overview of the debate about CMOs:
"Proponents of CMOs claim that they bring a much-needed dose of entrepreneurial spirit and a competitive environment to public education. Supporters argue that a network approach enables rapid charter school growth that can potentially influence greater change at district-run schools. Opponents argue that outsourcing to CMOs results in already limited school resources being redirected for service fees, profits, or both while creating another layer of administration. Opponents also have concerns about transparency and the implications of public bodies relinquishing control or ownership of schools."
In response to the report, the Pennsylvania Department of Education has created a new internal review team.
Editors' note: This story has been adjusted to correct two errors.
A prior version said that CCCS is the only charter school in Chester. That's untrue.
The prior version also characterized the federal report as saying that the CEO of CSMI wrote $11 million in checks to himself without board approval. As now fully quoted above, the federal report says he had the power to do so.
CSMI did not have an opportunity to respond before initial publication.