OKLAHOMA CITY (KFOR) – The Oklahoma State Auditor & Inspector conducted a special investigative audit into Epic Charter Schools and found that Epic is managing more than $125 million in educational funds outside taxpayer purview.

“[Epic Youth Services] has restricted [the State Auditor & Inspector’s] access to these records and
transparency for public accountability purposes is non-existent,” the audit report states.

Full Report is Below:

Gov. Kevin Stitt tasked State Auditor & Inspector Cindy Byrd, CPA, and her office with auditing “Epic Charter School and all related entities.”

“The objective of the audit was to determine if public funds had been properly expended, providing the best educational opportunity for every child in Oklahoma,” the audit report states.

Stitt sought the audit after Epic fell under intense scrutiny and became part of an ongoing investigation that spanned at least six years, according to the audit report.

“Even so, [the State Auditor & Inspector] approached the task at hand with an obligation to the taxpayers of Oklahoma to conduct and report the results of our audit in a fair, accurate, and unbiased manner,” the audit report states.

Stitt asked that the audit’s scope should “include a three year look back on all previously issued audits.”

The audit was conducted over the course of a year.

In total, the State Auditor & Inspector’s Office made 21 findings through the audit. Here’s a summary of the key findings, as provided by Byrd:

• Epic spent almost $3 million on advertising in three months to recruit new students
• Epic has paid almost $80 million into the Student Learning Fund which is managed by founders Ben Harris and David Chaney
• The Student Learning Fund has never been independently audited and the release of its financial records to the State Auditor is currently in litigation
• The State of California has confirmed Epic Charter Schools’ Charter Management Organization, Epic Youth Services (EYS), used $203,000 from the Student Learning Fund – money dedicated for educating Oklahoma children – to help with start-up expenses for Epic-California (Epic-CA)
• Epic’s founders used Oklahoma school personnel to operate its California counterpart including $210,000 to develop Epic-CA and these funds were only repaid after the State Auditor discovered the transfer and made inquiries into the expenditure
• Harris and Chaney pledged credit from Epic Charter Schools (Oklahoma) bank accounts as collateral to obtain a half-million dollar loan to run their for-profit venture in California
• Epic Charter Schools underreported administrative costs above the statutory five percent cap last year and was required to repay the state a half-million dollars
• During the audit period, SAI calculates that Epic exceeded the administrative cost cap by $8.9 million
• The audit identified $6 million in fund transfers between Epic school districts without board approval
• One Epic district loaned another Epic district $3.3 million without board approval

The full audit report is as follows:

Epic One-on-One and Epic Blended, combined, serves approximately 60,000 students in Oklahoma, making it the largest school district in the state. Community Strategies, Inc., a nonprofit corporation, oversees both Epic sectors.

Epic has received $458 million in state aid and federal funds, disbursed by the State Department of Education, over the past six years.

Of that money, Epic Youth Services LLC (EYS), the for-profit charter management organization, received $125.2 million; $45.9 million went to management fees, and $79.3 million went to the Student Learning Fund.

The money in Epic’s Student Learning Fund is budgeted instruction funds intended for student educational resources and approved extra-curricular activities.

Those funds are meant for school related goods and services, but they are being kept in an outside bank account controlled by Epic Youth Services, according to the audit report’s findings.

“The $79.3 million has never been audited by an outside agency and continues to remain hidden behind a wall of privacy. This $79.3 million, coupled with the $45.9 million paid [Epic Youth Services] for Management Fees resulted in almost 28 percent of the entire Epic Charter School budget, a total of more than $125 million in educational funds, being managed outside of the purview of the taxpayers of Oklahoma,” the audit report states.

Epic students receive a Student Learning Fund budget. Budget amounts vary between $800 to $1,000 each year.

The audit found that Epic administrators’ exact methodology for calculating the total invoiced amount Epic pays for Student Learning Fund expenses hasn’t been contractually defined or board approved. The report said there is a significant lack of oversight.

“The oversight of payments to the Student Learning Fund provided by the Community Strategies Board is virtually non-existent. Multi-million-dollar invoices lacked specificity and did not provide the per student count needed to account for the payments made,” the report states.

Epic’s board also failed to provide meaningful oversight over purchase orders used to submit payments to the Learning Fund from Fiscal Year 2015 through Fiscal Year 2019, according to the report.

Purchase orders used to submit payments were encumbered by Josh Brock, CFO, and approved by David Chaney, Epic Superintendent.

“With one hand Brock and Chaney were invoicing Epic and with the other hand they were approving payments from Epic to [Epic Youth Services],” the report states.

Purchase orders and payments are approved by the board, but board members admitted they do not see invoices, purchase orders or checks, and were not given documentation on how invoices were calculated.

“The Student Learning Fund payments are ‘rubber stamped’ as part of a consent agenda, after disbursements have already been made. The board failed to provide meaningful oversight,” the report states.

Access to Student Learning Fund records was restricted. The State Auditor & Inspector’s office issued a subpoena to obtain documentation to determine whether Epic administrators appropriately spent Student Learning Fund money for student education.

The State Auditor & Inspector’s office filed a ‘Motion to Compel’ in Oklahoma County District Court to force Epic Youth Services to comply with the subpoena. The court case is pending, according to the report.

“[The State Auditor & Inspector] respects the privacy of private companies but is adamant that the stewardship and management of $79.3 million in state appropriated funds designated for student education should be transparent and the records be made available for audit,” the report states.

All public funds should be maintained in public bank accounts and associated transactions should remain public. Transparency is vital. As a Supreme Court Justice once stated, “Sunlight is … the best of disinfectants.”

Cindy Byrd, Oklahoma State auditor & inspector

Byrd concluded the audit report by recommending that the state take the following measures:

• Charter school contracts should be structured to ensure that sponsors retain adequate authority to properly monitor operations and funding and provide rigorous oversight.
• Agreements between the charter schools and their charter management organizations should not be finalized without the approval of the charter sponsors. The sponsors must have substantial input in the financial aspects of the agreements.
• Charter management organizations should not have control over school district financial decisions. Ultimate authority should be with the board.
• Oversight activity by the charter sponsors and Oklahoma State Department of Education (SDE) must extend beyond “checking the box.” Boots on the ground are a must in order to provide effective oversight.
• All public funds should be maintained in public bank accounts and associated transactions should remain public. Transparency is vital. As a Supreme Court Justice once stated, “Sunlight is … the best of disinfectants.”
• SDE must allocate resources properly to fully accomplish their oversight responsibilities. An assessment should be conducted to ensure that the hours invested by SDE on oversight are focused on the areas where they will provide the most significant impact.
• All charter school boards should be truly independent in their administration and management of their schools. The manner in which charter school board members are appointed should be evaluated and a process for establishing independent school boards should be implemented.

Stitt issued a statement Thursday expressing concern over the audit’s findings. That statement is as follows:

“While we are still reviewing the entire contents of the audit, the initial findings are concerning. Our state has recently invested in public education at the highest levels in our state’s history, and Oklahomans deserve accountability and transparency on how their hard-earned tax dollars are being spent.

I am grateful for Auditor Byrd’s extensive work on this report and agree that her findings are not representative of all public charter schools or alternative forms of education. We know parents want educational options, especially in light of how education has shifted during the COVID-19 pandemic. We expect every Oklahoma student to have access to high quality options that are transparent about their performance and accountable to taxpayers.

I am committed to working with Superintendent Hofmeister and the Legislature to ensure our public education funding provides the maximum benefit for our students and teachers.”

GOV. KEVIN STITT

State Superintendent of Public Instruction Joy Hofmeister issued the following statement, saying the audit’s findings are highly alarming:

“In an education environment where every dollar is being stretched to the limit, these findings are deeply disturbing. It is one thing for a public school to utilize the services of a private vendor, which is common practice, but when that private vendor operates the school in question and can manipulate that structure to obfuscate or mislead, there is something systematically wrong. Oklahomans deserve better.

As the coronavirus pandemic has made clear, there is no question that virtual instruction and innovative models are important options for many students and families. These changes are rapidly transforming the education landscape and it is critical that laws, policies and infrastructure keep pace to ensure transparency and accountability. We will closely examine the most appropriate steps moving forward in consultation with the State Auditor and other state officials.”

JOY HOFMEISTER, STATE SUPERINTENDENT OF PUBLIC INSTRUCTION

Oklahoma Education Association President Alicia Priest issued the following statement, saying the audit’s findings are heartbreaking:

“More than anything, this news is heartbreaking for Oklahoma students. We are alarmed at the extent of the state auditor’s findings of Epic Virtual Charter School financial misdeeds. The OEA has been talking about these inconsistencies for years, and now we beginning to get a good picture of Epic’s betrayal of our students and Oklahoma taxpayers.

Tens of millions of dollars have been lost, and Oklahoma students are the victims. Our brick-and-mortar public schools have stepped up during the pandemic to deliver virtual teaching and learning despite great obstacles. They’ve done so without taking any money off the top.

Lawmakers have taken steps to shine the light on virtual school finances, but they must be more aggressive. They must act IMMEDIATELY to close any loopholes that allow virtual charter schools like Epic to play fast and loose with our tax dollars and commit this kind of academic malpractice.”

ALICIA PRIEST, OEA PRESIDENT

State Senator Ron Sharp (R-Shawnee) said in the following statement that he has previously tried to point out that Epic illegally used state funds:

“I’m not surprised with the findings of the audit of Epic Charter Schools as I’ve been trying to point out their illegal use of state funds for years with no avail. I commend Gov. Stitt for having the courage to call for this special audit and State Auditor Cindy Byrd for providing oversight and accountability of this unfortunate situation. Past leaders refused to listen to or acknowledge what I was trying to tell them. Not surprising, besides the millions of taxpayer dollars wasted by Epic on advertising, they also pay for a strong lobbying presence at the Oklahoma Capitol.

I hope with this information, the OSBI and FBI can conclude their investigations quickly. The Oklahoma families who have put their faith in this school system need reassurance that their children are getting a proper education and not just being used in an illegal scheme to make the owners rich.

Even after receiving the largest portion of state funds, our public school system has struggled financially in the last decade. I am disgusted that the owners of Epic would knowingly use the public education of Oklahoma’s children to grow their personal wealth while other public schools don’t have the funds to hire additional teachers, buy more books or take care of other classroom needs.

As a public official and retired educator, I have been a strong advocate of fiscal transparency and accountability, especially when it comes to our public schools and the education of Oklahoma’s children. Bringing to light Epic’s unethical and illegal handling of taxpayer money has been a difficult road.

My reputation and legislative career have been destroyed by what has now become Oklahoma’s largest school district because I brought their fraudulent activities to light. Their attempt to stop my inquiries and silence my criticism has not been successful.

I’ve been accused of being against charter schools but I’m not. I dedicated 40 years of my life in the classroom and I know that not all children learn the same so having a virtual option is sometimes what’s best for the child. What I’m against is entities who fraudulently use tax dollars to financially benefit themselves with no concern how it hurts others. Epic Charter Schools has taken millions in much-needed funds away from other public schools who are following state guidelines and law, and I’m glad that they are finally being held accountable.”

STATE SENATOR RON SHARP

Shelly Hickman, Assistant Superintendent for Epic Charter Schools, issued the following statement, accusing Byrd of political theatrics and attacking parents’ right to choose the public school that they think is best:

“We haven’t had a chance to read this 120-page report. What we witnessed today was political theatrics, but the information was not new and has been in the public realm for many years. What we did witness was Auditor Byrd attacking parents’ rights to choose the public school they think is best for them, and disparaging the work we are doing to provide high quality, remote learning opportunities for over 61,000 students and parents.

We take issue with the auditor’s assertion that we were not helpful or cooperative in this process. Our school’s staff has spent thousands of hours responding to a seemingly endless fishing expedition. We gave them access to our computer system, and to date we have paid $243,000 for the audit.

What the auditor seems to object to is the idea that our school model provides an alternative to traditional public schools. We have grown from only 1700 kids to more than 61,000 students over our 10-year history. Does our Learning Fund help us attract and retain students? Of course it does because it empowers parents and individualizes their children’s education. 

We also explained, many times, the method we use to calculate student enrollment. In fact, we provided the auditor’s office with a chart, outlining the method and the resulting calculations. Those calculations are in line with other school districts. They were also accepted, year after year, by the State Department of Education. If the State Auditor understood how those calculations are made and reported, she would understand why we don’t owe $8.9 million.

We will be providing a point by point response within 24 hours, but once you cut through the theatrics of today’s announcement, the conclusion of the report calls for changes to the law; it does not assert that laws have been broken. Policy makers should be cautious about believing politicians over parents.”

SHELLY HICKMAN, ASSISTANT SUPERINTENDENT FOR EPIC CHARTER SCHOOLS

Late Friday Epic released a detailed response to the audit:

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