State auditor: EpicSchools’ money‘ not getting to students’

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  • Epic Charter Schools' testing facility in Midwest City. Whitney Bryen/Oklahoma Watch
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State Auditor and Inspector Cindy Byrd released a scathing investigative report about Epic Charter’s use of public money and a significant conflict between the school and a for-profit entity that receives millions of dollars from the school.

During a press conference held at the Oklahoma History Center Thursday afternoon, Byrd read from a six-page statement that outlined seven findings that will be for- warded to the FBI, Internal Revenue Service, Oklahoma Tax Commission, the Oklahoma Attorney General’s office, the Oklahoma State Bureau of Investigation and the U.S. Office of Inspector General.

Byrd labeled the audit and its findings as “one of the worst I’ve seen” in connection with irregularities and accounting violations. The findings released Thursday were part one of the audit. Byrd also said her investigators issued 50 subpoenas in their attempt to gain information from Epic Charter School and its founders Ben Harris and David Chaney and Chief Financial Officer Josh Brock.

“In a normal investigative audit, we might issue two or three (subpoenas),” Byrd said, in response to a reporter’s question.

Byrd acknowledged that her investigators interviewed Harris and Brock, but “Mr. Chaney chose not to meet with us.”

Epic Charter is a public school as defined by state law, which means it is subject to the same oversight and accountability as other districts across the state, but its administrative system is not consistent with the Oklahoma Charter School Act and Epic’s charter agreement, Byrd said.

According to Byrd, Epic uses three pools of money – a school fund, Epic Youth Services (EYS) and a Learning Fund. Epic Youth Services is a for-profit entity owned by Harris and Chaney.

According to Byrd’s report, EYS was hired by Epic Schools, which was also founded by Harris and Chaney. The duo takes 10% of every tax dollar that is received by the school.

The investigative audit revealed EYS received management fees of $45.9 million during the audit period, and EYS also took $79.3 million to manage the Student Learning Fund.

Seven findings that Byrd released have created grave concern for her office.

“From this thorough and exhaustive audit, I remain concerned that the money is not getting to the students. The lack of cooperation and the roadblocks encountered was unprecedented in the experience of the State Auditor’s office. It appears Epic did not comply with laws and regulations for reporting requirements,” the state auditor said.

Byrd also commented that Epic officials submitted certified documents in a “haphazard manner with estimates rather than actual numbers.”

One of the findings showed Epic’s structure is set up to provide the for-profit entity a financial incentive to recruit more students, which included spending $3 million in three months on an advertising campaign.

“To put that into perspective, the $3 million Epic spent on advertising was enough money to buy 1.2 million school lunches for low-income students, buy 15,000 new Chromebooks or buy half-million new textbooks,” Byrd said. “While many school districts are struggling, Epic spent millions from the school fund on advertising which benefitted EYS for-profit.”

Another audit finding showed Epic wanted to expand its brand into California, and used $203,000 from the Oklahoma Learning Funds to help with California expenses. The audit revealed Epic founders used Oklahoma school employees to operate the California school.

“They used $210,000 of Oklahoma resources to develop their project in California. And they only paid the money back after our office discovered what had happened,” Byrd said.

According to the audit, Harris and Chaney started the California school by using the pledged credit of OK Epic Charter School, a move that was not approved by the Epic Board of Education.

Byrd reported that CFO Brock had the same position for the charter school and the for-profit entity.

“This violates the most basic principles of accounting,” she said. “You can’t have a CFO whose priority is profit on one side, and taxpayer protection on the other. Taxpayers must ask, are the students really the ones being served?”

The audit also uncovered that Epic exceeded a state-mandated 5% cap on administrative overhead year after year. Last year, Epic was forced to repay the state $500,000 for underreporting administrative costs above the 5% level. However, that may have only been the tip of the iceberg.

“By our calculations, Epic owes the State of Oklahoma $8.9 million,” Byrd said.

Byrd also pointed out that major financial transactions are conducted without school board approval. In one instance, auditors found $6 million in transfers between Epic’s school entities. In another transaction, auditors discovered a $3.3 million loan from one Epic entity to another. Both of these transactions were not approved by board members.

“This would be like the superintendent of Oklahoma City schools, with no board approval whatsoever, just lending $3 million to the superintendent of Tulsa schools. Public schools cannot do that,” Byrd said.