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Checking in on Charter Schools: A Review of 2008 Financial Management Practices

September 15, 2009 By John Fitzgerald, Education Policy Fellow

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View all Minnesota charter school audits

Executive Summary
Some of Minnesota's charter schools have a financial management and accountability problem. A Minnesota 2020 examination of the financial audits for all charter schools filed for the 2007-2008 school year found that some conduct their business affairs reasonably well while others face great difficulties. These results echo findings from our previous examination of charter school financial documents. While some schools meet demands for financial accountability, many do not.

This year, Minnesota 2020 digitized each charter school financial audit and is making them available online. Public confidence is strengthened by ready access to public data. We hope our example will encourage the Minnesota Department of Education and other organizations to follow our lead and provide documents in a more easily accessible format.

Key Findings
The nation's first charter schools opened in Minnesota in 1992. In the 2007-08 school year, nearly 30,000 Minnesota students were enrolled in 154 charter schools. They receive an average of $10,500 in public funds per student. A review of charter school audits from the 2007-08 school year found:


  • 115 charter schools, or 75 percent, had at least one irregularity noted in their financial audit.
  • 47 charter schools, or 31 percent, were flagged for lacking proper segregation of duties, which shows a lack of attention to financial details that could lead to misappropriation of public funds.
  • 39 charter schools, or 25 percent, had deposits not sufficiently insured by either a bond or collateral. This requirement ensures that the charter school's bills can be paid.
  • These numbers are nearly identical to those uncovered by our study of 2006-2007 charter school financial documents in which slightly more than 80 percent of schools had at least one irregularity, 55 percent had limited segregation of duties, and 26 percent had insufficient collateral.

Recommendations
To ensure appropriate focus on the education mission, Minnesota's charter schools must manage their financial affairs in a more responsible, professional manner. While two-thirds of the state's charter schools have problematic audits, 15 charter schools had flawless audits for two years in a row. Their success should be a guide for the entire charter school community.

Recent changes in state law tighten oversight of charter schools, but we recommend additional oversight measures. The Minnesota Department of Education should be required to:


  • Revoke charters with schools that have repeated financial problems;
  • Hold sponsor organizations financially accountable for the fiscal health of their charter schools;
  • Organize mandatory, basic financial training for all charter school board members and administrators before they are allowed to conduct any business as charter school officials;
  • Direct charter schools to send constituent parents an easy-to-read financial report card each year that notifies them of all financial infractions found in their yearly audits and offer parents all available choices for their children to attend more professionally managed school districts.

Conclusion
Charter schools, by definition and design, have a special place in the constellation of Minnesota's educational system. To provide greater educational variety, they were designed to skirt much of the oversight demanded of traditional public schools.

Therefore, charter schools should face financial oversight that is not only equal to traditional schools, but because of their greater freedom in choosing administrators and board members, they should face oversight greater than that of public schools.

We applaud those charter schools that responsibly manage their financial affairs. We encourage the schools that can't produce a clean financial audit to look to those that can for guidance.

We call on state officials, the Minnesota Department of Education and charter school leaders to take concrete steps to ensure that all charter schools can manage their finances appropriately and produce clean financial audits year after year. In addition, we call on charter schools to provide greater accountability and transparency with their financial documents.

Professional financial management practices are critical for the health of any organization, and charter schools are no exception.

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