NEWS RELEASE
For Immediate Release
Contact: Steve Halvonik 717-787-1381

Audit Text

2010 Special Report: Commonwealth Should Revise Its Charter and Cyber Charter School Funding Mechanisms

Auditor General Jack Wagner Refers Pocono Mountain Charter School Audit to Monroe County District Attorney

Auditors uncover questionable financial transactions involving school’s founders

HARRISBURG, Pa., Feb. 8, 2012 – Auditor General Jack Wagner today said that he was forwarding to the Monroe County district attorney a copy of his recently completed performance audit of the Pocono Mountain Charter School after his auditors uncovered questionable financial transactions that may have violated Pennsylvania’s charter school law.

Wagner said that more than $3 million in taxpayer-funded education dollars flowed to a related party founded by the charter school’s chief executive officer, through rental payments from the Pocono Mountain Charter School during the audit period July 1, 2006 to Aug. 20, 2010.

Charter schools are public schools created under the Charter School Law. The Department of the Auditor General has established in prior reports that the overall funding formula is flawed because it is not based on the true cost of educating a child at the charter school, but based on the actual cost to educate the child at the sending school district.

"This audit report further highlights that our 2010 charter school funding report is even more relevant today than when we issued it given the huge funding shortfalls of our school entities,” Wagner said. “Last year, the General Assembly took the important first step of eliminating the reimbursement to school districts that have lost students to charter schools. However, the failure to take action to eliminate the flawed and inequitable funding formula has harmed school districts and charter and cyber schools, and taxpayers are not paying the true cost of educating students. Therefore, I again call upon the General Assembly to fix the charter school funding formula.”

The Pocono Mountain Charter School was created by a local church in violation of the Charter School Law. Moreover, the church’s pastor and his wife simultaneously held positions as the charter school’s chief executive officer and assistant chief executive officer, thus blurring the line separating the public charter school from the private religious entity.

Wagner said he also was forwarding copies of his audit to the State Ethics Commission, the Department of Education, Gov. Corbett, and leaders of the General Assembly. Wagner’s audit recommended that the Department of Education seek to recoup $500,000 it had approved for the charter school.

"As a supporter of alternative education initiatives, I have long championed charter schools as a way of empowering families and giving parents a greater role in their children’s education,” Wagner said. “But this choice must not come at the expense of taxpayers. The Department of Education should seek repayment of taxpayer funds from the Pocono Mountain Charter School and any other school that deliberately and willfully violates state law.”

Wagner’s audit, which is available to the public at www.auditorgen.state.pa.us, concluded that the charter school and the church entered into a landlord/tenant agreement in 2003 for building space that is co-occupied by both parties. Auditors found that the church had raised the annual base rent for the charter school from $396,000 for the 2006-07 school year to $964,996 for the 2009-10 school year.

Auditors found that the church also utilized and benefitted from $765,763 worth of items, like gym equipment, bleachers, a new elevator, and a parking lot expansion, purchased by the charter school with taxpayer funds, in violation of the Charter School Law, which requires a charter school to receive and disburse funds for charter school purposes only.

Wagner’s audit also determined that the Pocono Mountain Charter School received $87,101 in state lease reimbursement and was approved for another $416,044 in state funds it had not yet received at the close of the audit. However, Wagner said, the charter school may not be eligible to receive any of the state funding due to its ownership interest in the property it was leasing from the church, which is a related entity, based on lease reimbursement provisions in the Public School Code.

In addition, Wagner said, the Pocono Mountain Charter School failed to make required disclosures on its audited financial statements regarding its relationship and financial transactions with the church and it did not provide documentation that both parties had taken steps to ensure that required public disclosures took place and that transactions were negotiated at “arm’s length.” As a result, his auditors found that there was a greater risk for potential abuse and an increased likelihood that leasing agreements and financial transactions involving taxpayer money occurred for reasons that were not in the best interest of the charter school and its students.

Wagner’s audit contains six findings and 18 recommendations aimed at the charter school and 10 recommendations aimed at a number of government entities, including the state Department of Education and the State Ethics Commission.

He recommended that the Department of Education:

• Review any questionable financial transactions between the charter school and the church,
• Take immediate steps to require the charter school to repay: the $87,101 improperly received in state lease reimbursement funds, $73,340 in state lease reimbursement for which it was approved for the 2007-08 school year, and $342,704 in state reimbursement for which it was approved 2009-10 school year, and
• Cease making future lease reimbursements to the charter school if it continues to lease space from a related-party entity for which it shares ownership interest and co-occupies building space.

Wagner’s audit also recommended that the State Ethics Commission determine if the Public Official and Employee Ethics Act was violated by:

• Reviewing the deed of the property that the charter school occupies,
• Reviewing the charter school CEO’s influence over contracts for lease agreements and rental payments between the charter school and the church,
• Reviewing the charter school CEO’s influence over items purchased by the charter school, including those items that were originally purchased by the landlord and then resold to the charter school, and
• Reviewing the statements of financial interests submitted by the charter school’s officials and certain board of trustees’ members for calendar years 2007 through 2009.
  

"With state government projecting a $500 million shortfall in state tax revenues, and with budgets still tight, taxpayers must be assured that state funds used to provide an education for our children are used only for that purpose,” Wagner said.

Auditor General Jack Wagner is responsible for ensuring that all state money is spent legally and properly. He is the commonwealth’s elected independent fiscal watchdog, conducting financial audits, performance audits and special investigations. The Department of the Auditor General conducts thousands of audits each year. To learn more about the Department of the Auditor General, taxpayers are encouraged to visit the department’s website at www.auditorgen.state.pa.us.

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