A new report from a trio of activist groups says Pennsylvania charter schools have defrauded taxpayers of more than $30 million because oversight is so lax.
The researchers call for a temporary moratorium on new charter schools, contending agencies are not able to adequately monitor the 186 charters that already exist.
The study by the Center for Popular Democracy; Integrity in Education; and Action United of Philadelphia and Pittsburgh was to be released Wednesday.
The report urges the state Attorney General's Office to review all Pennsylvania charters for potential fraud. It asks the legislature to require charters to undergo regular fraud-risk assessments and fraud audits. And it suggests that until the law is changed to require such actions, charters should voluntarily undergo them and make the findings public.
Researchers said most of the $30 million in fraud that has been detected since the state's charter law was passed in 1997 was not uncovered by charter-oversight offices but by whistle-blowers and the media, including The Inquirer. They said the total amount of misspent funds was likely far larger.
"The current oversight system in Pennsylvania falls miserably short when it comes to detecting, preventing, and eliminating fraud," said Kyle Serrette, education director at the Center for Popular Democracy in Washington.
The center receives funding from foundations, including $990,000 this year from the Ford Foundation. It also receives a small amount of support from teachers' unions, and Randi Weingarten, president of the American Federation of Teachers, is on the organization's board.
Robert Fayfich, executive director of the Pennsylvania Coalition of Public Charter Schools, said that while his group supports accountability, the report makes "sweeping conclusions about the entire charter sector based on only 11 cited incidents in the course of almost 20 years."
". . . Fraud and fiscal mismanagement are wrong and cannot be tolerated, but to highlight them in one sector and ignore them in another indicates a motivation to target one type of public school for a political agenda," he said in a statement.
Pennsylvania school districts paid $1.5 billion to charters that enrolled 128,712 students in 2012-13. More than 67,000 Philadelphia students attend 86 city charters.
Sabrina Stevens, executive director of Washington-based Integrity in Education, said: "With over $1 billion going to charter schools in Pennsylvania, it's time for charter schools to be held to the same standards of transparency and oversight that public schools are held to."
State Auditor General Eugene DePasquale said it's "good that they put this together," adding that Serrette's group had testified at a charter-oversight hearing his office held in March. "To me, the more voices on this, the better. I think in the next term in the legislature, there is going to be a charter-reform bill move forward."
City Controller Alan Butkovitz said the report echoed concerns he raised in 2010, when his office released its own oversight study that highlighted several problems his office found at city charters.
"We certainly agree with the need for greater oversight and auditing," Butkovitz said. "That's been one of our constant themes."
The instances of fraud cited in the new report include cases where charter officials were indicted or pleaded guilty and instances uncovered in state audits.
Examples include Nicholas Trombetta, founder and former CEO of the Pennsylvania Cyber Charter School in Midland, who is awaiting federal trial in Pittsburgh on charges that he diverted $8 million in school funds for personal use.
The tally also includes $6.3 million that federal prosecutors allege Dorothy June Brown defrauded from the four Philadelphia-area charters she founded.
But the authors give special attention to another recent case involving a city charter: New Media Technology Charter School in the city's Stenton section. The former CEO and founding board president went to federal prison in 2012 after admitting they stole $522,000 in taxpayer money to prop up a restaurant, a health-food store, and a private school they controlled, and for defrauding a bank.
From 2005 to 2009, when the crimes were occurring, third-party auditors hired by New Media failed to spot the fraudulent payments.
"Fraud detection in Pennsylvania charter schools should not be dependent upon parent complaints, media exposés, and whistle-blowers," the authors wrote. Rather, they urged, the system should be proactive and use forensic accounting methods.
According to the report, Pennsylvania's charters are vulnerable to fraud and financial mismanagement because school districts and state offices charged with overseeing them lack resources and staff.
For example, although the cash-strapped Philadelphia district has about half of the state's charters, it has only two auditors and a small office to monitor 86 schools, the report said.
"We agree in the need of greater oversight and a deeper look into the health of charter schools," district spokesman Fernando Gallard said, "and we have taken steps to do so."
Although the district's charter office at times had only two or three staffers, Gallard said, it now has six and is seeking an executive director.
Researchers also said that charters lack strong internal fiscal controls and that their boards have not adopted strict management policies.
And even though the charters are required to have annual audits performed by outside firms, researchers said, those audits rely on general accounting techniques and are not designed to detect fraud.
"The current system of oversight relies heavily on information provided by charter schools themselves and traditional audits that are designed to check accuracy rather than detect and prevent fraud," the report said.
The report said taxpayers cannot afford to lose another $30 million in misspent charter funds. "While the reforms proposed will require additional resources," the authors said, "they represent a smart investment in our communities and in our future."
Researchers said the study was the first in what would be a state-by-state investigation of oversight of charters in the 42 states that have them.
Serrette said researchers decided to begin with Pennsylvania because the timing seemed right. He pointed out that both DePasquale in Harrisburg and Butkovitz in Philadelphia have highlighted the fraud risks in charter schools. And State Rep. James R. Roebuck Jr. (D., Phila.), minority chairman of the House Education Committee, introduced a bill last year to tighten charter controls.
Said Serrette: "The stars are aligning."
Editors Note: This story was changed to correct the amount of money school districts paid to charters schools. It is $1.5 billion.