The embattled board of the Philadelphia Academy Charter School last night released a scathing internal report alleging that the charter's founder and its former chief executive officer systematically looted the school for personal gain.

The report, compiled by a team of lawyers led by a former federal prosecutor, says more than $700,000 is missing from a school account and cites "substantial evidence of wrongdoing" by Brien N. Gardiner, a former public school principal who founded the popular charter in Northeast Philadelphia, and Kevin M. O'Shea, a former police officer who replaced Gardiner as CEO two years ago.

Gardiner's alleged "frauds" were complex and included what appears to have been a no-interest $70,000 loan to one of his other business entities, the report says.

O'Shea's misconduct, it says, was "no less destructive, as he systematically siphoned cash from virtually every aspect of [the school's] operations, even going so far as to misappropriate money raised by the Student Council and National Honor Society that was intended for the Marine Corps' Toys for Tots Program."

The 62-page report, by former federal prosecutor Henry E. Hockeimer and other attorneys at Ballard Spahr Andrews & Ingersoll L.L.P., also alleges that O'Shea's sister, Constance, coordinator of the school's elementary program, destroyed computer records in April at her brother's behest to keep investigators from getting them.

The board released the report at a meeting of about 40 parents and staff members inside the lunchroom in the charter's high school building, at 1700 Tomlinson Rd.

When attorneys read from the report about O'Shea's alleged misappropriation of money intended for Toys for Tots, gasps emanated from the audience.

Neither Gardiner nor O'Shea cooperated with the internal investigators, and both have declined to comment on their administration of the school.

The school's board hired the attorneys to comb through records after The Inquirer reported in mid-April that the Philadelphia School District's inspector general was investigating allegations of financial mismanagement, nepotism, and conflicts of interest at the charter.

Federal authorities subsequently launched a criminal probe. Patty Hartman, a spokeswoman for the U.S. Attorney's Office, declined to comment yesterday.

The report concludes that Gardiner and O'Shea may have spent $145,000 on lavish personal offices and inappropriately billed the school for a raft of personal expenses, including a $434 birthday dinner at Moonstruck for one of O'Shea's daughters.

Attorneys also contend that the two men used the school's credit cards from Lowe's and Home Deport to buy more than $3,477 worth of items for Gardiner's Shore home in Cape May and O'Shea's in Beach Haven, including bookshelves, area rugs, a showerhead and shower rings. The school also received an invoice from Colonial Electric's Cape May store for a $175 chandelier.

Hockeimer, who focuses on white-collar crime, found that Gardiner and O'Shea may have improperly diverted money from Philadelphia Academy to other charter schools and businesses in which they were involved, including the $70,000 interest-free loan to Philadelphia Academy Services, a nonprofit that Gardiner founded and that has a $2.1 million contract to provide special-education services to the school district.

The attorneys concluded that most members of the charter school's board had been kept in the dark and had never voted on the questionable contracts and pay raises.

"Ballard has found no evidence that members of the charter board benefited through O'Shea's and Gardiner's misconduct," the report says.

The board's six members have agreed to resign as a condition for obtaining a new, five-year operating charter from the Philadelphia School Reform Commission. Three have already been replaced. The remaining three will leave at the end of this month. Four new members will replace them on what will be a seven-member board.

As The Inquirer reported in mid-April, a web of charter and business entities enabled the two men to earn more than most school superintendents in the region.

Gardiner collected a total of $224,500 in salaries in 2005-06 from Philadelphia Academy and Northwood Academy, another charter he opened. In addition, he received $70,000 from Philadelphia Academy Services.

In the same year, O'Shea received $102,700 as director of operations, and he and his wife received an additional $144,000 from Gardiner's nonprofit.

In all, the Gardiner and the O'Shea families took home $541,200 in salaries from the charters and related companies in 2005-06 and at least $494,120 the next year.

Hockeimer's team found Gardiner had violated his duties to the charter to advance other business interests. By doing so, the report says, he jeopardized the school's ability to pay for capital projects and educational programs.

"Gardiner's conduct is particularly surprising and disappointing in light of the profound trust PACS' faculty, staff, parents and students placed in him," the report says.

Ballard Spahr investigators labeled O'Shea's allegedly fraudulent conduct "pervasive." Their report says they uncovered "substantial evidence" that he stole a large amount of lunch money at the high school, pocketed the $2 students paid to attend school without uniforms on Dress Down Days, kept the proceeds from the candy and soda machines at the school, and forced maintenance staff to cut his lawn and make repairs to the $1.4 million house he built in Beach Haven.

A former city police officer with a high school diploma, O'Shea earned $204,000 as the school's chief executive officer until he and Gardiner were fired in May.

The "largest abuse in monetary terms" detailed in the report stems from actions of the nonprofit that owns the Philadelphia Academy's high school building. The school has been paying nearly $67,000 a month in taxpayer money to rent the building from Philadelphia Academy Charter Development Corp., a nonprofit established by Gardiner that had been led by O'Shea's wife, Jamie.

Lawyers said they had uncovered evidence that more than $700,000 in proceeds from rent may have been used to invest in other properties. The attorneys found that in August, the nonprofit "appears to have loaned" Philadelphia Academy Services $710,000 so that Gardiner's entity, which provides special education services, could buy a $1.4 million building at 6632 Bustleton Ave.

The incorporation papers the nonprofit filed with the state say its sole purpose is "to develop and maintain an educational facility for the Philadelphia Academy Charter School."

As for the alleged destruction of some of the school's computer records, Ballard Spahr attorneys said they had been told that Constance O'Shea asked another employee to help her remove the hard drive from Gardiner's school computer in April, but that the employee refused.

The report says Constance O'Shea succeeded in removing the hard drive and locked it in a file cabinet. Three days later, she called Penn Systems Group Inc. in Edgmont to have the hard drive replaced. Penn Systems officials told the attorneys that Gardiner's hard drive was one of three they replaced at Constance O'Shea's direction.

Penn Systems received a federal subpoena last month after authorities learned the company had been hired to remove the computer hard drives, according to several sources with knowledge of the investigation.

The board fired Constance O'Shea in May.

Ballard Spahr investigators recommend that Philadelphia Academy's new board work with its new attorneys to seek money and assets that were improperly taken from the school.

This month, the legislature amended Pennsylvania's school code to prohibit charter school administrators from collecting multiple salaries from charter schools and entities that do business with charter schools. Rendell administration officials who pressed for the change in the final hours of budget negotiations said revelations about Gardiner's and O'Shea's salaries had prompted it.

Last month, the Philadelphia School Reform Commission voted unanimously to give the Philadelphia Academy Charter School a new, five-year operating charter starting Sept. 1, provided the school agrees to meet a list of 20 conditions.

Contact staff writer Martha Woodall at 215-854-2789 or martha.woodall@phillynews.com.