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Minnesota 2020: Perfect audits for local charter schools

About 75 percent of Minnesota charter schools mishandled their finances in 2008, says a report issued Tuesday by Minnesota 2020.

At the same time, the progressive think thank noted that all three Bemidji charter schools -- Voyageurs Expeditionary, Schoolcraft Learning Community and TrekNorth Junior and Senior High School -- scored perfect 2008 financial audits.

That wasn't the case earlier this summer when Minnesota 2020 issued a report of 2007 charter school financial audits, finding TrekNorth and Schoolcraft Learning Community both with two findings.

"It's nice to have our clean records recognized," Trek-North Executive Director Dan McKeon said Tuesday. "But I still think that the way that they went about reporting on the financial status of charter schools is potentially misleading to people who don't have specific knowledge about the school finances."

Minnesota 2020 profiled charter audit results for 2007 early this summer. At that time, 80 percent reported an adverse finding. The group's review of 2008 financial audits for all 154 charter schools in the state found that the majority of schools had at least one financial irregularity and the biggest offender had eight each.

"Charter schools receive public funding yet receive little public oversight," John Van Hecke, executive director of Minnesota 2020, said Tuesday. "Earlier this year we found that nearly 80 percent of charter schools had problems on their 2007 audits. This report looks at 2008 audits, and it appears not much has changed. The majority of Minnesota's charter schools still have a financial management and accountability problem."

According to the report "Checking In on Charter Schools," there were 154 charter schools in Minnesota in the 2007-08 school year, and nearly 30,000 students were enrolled in charter schools. They received about $10,500 per student from the state but are not required to publicly elect a school board. As a result, the public pays for the school but has no say in how it's run or managed.

"We applaud the charter schools that have clean financial records; however, this report echoes the findings of our previous examination of charter school audits. While some schools meet demands for financial accountability, the majority do not," said John Fitzgerald, Minnesota 2020 education fellow and report author. "And a large number of these schools have violations year after year."

The report found that the three Bemidji charter schools had perfect records for 2008, and that 12 schools had perfect records for 2007 and 2008.

"The fact that these schools have produced perfect, clean audits for two years straight shows us that proper financial accounting is achievable," said Fitzgerald. "However, 12 schools is only a small step in the right direction when the majority of charter schools continue to struggle with financial management. We encourage the rest of Minnesota's charter schools to take a look at these 12 organizations to find out what they're doing right."

Among the report findings:

- More than 30 percent of charter schools were flagged for lacking proper segregation of duties, "which can lead to a misappropriation of funds."

- About 25 percent of charter schools had deposits not sufficiently insured by either a bond or collateral. This requirement ensures that the charter school's bills can be paid.

- Three charter schools topped the "Worst Offenders" list with eight or more violations including Bluffview Montessori (Winona), Riverway Learning Community Center (Minnesota City) and Recovery School of Southern Minnesota (on "Worst Offenders" list for the second year in a row -- Owatonna).

TrekNorth was found deficient in 2007 for segregation of duties. That's where McKeon said findings can be misinterpreted.

"A lot of charter schools have that finding, and a lot have that finding on a yearly basis," he said, adding that when TrekNorth was cited for segregation of duties, the audit report also noted it was typical of businesses of that size.

Good accounting practices dictate that different people handle receipting of deposits and recording of those deposits, but that isn't always possible in small staffed offices.

"We were able to segregate the duties enough so that we don't get that finding any more," McKeon said. "There are a lot of charter schools in the state that aren't as big as we are, with 167 students. A lot have less than 100 students."

For those schools to provide enough staff to segregate financial duties "is virtually impossible," he said. "Because they get that finding doesn't imply that they are financially poorly run."

Charter school finances need to be transparent, but school finances are extremely complicated for the lay person to understand, McKeon said.

A finding can mean that there is criminal wrongdoing, he said, but it could also mean the duties haven't been segregated enough.

If Minnesota 2020 is going to do reports, "there's a responsibility on their shoulders to do it in a way so that even a lay person who doesn't understand school finance ... so even the uninformed can understand it," McKeon said.

In 1991, Minnesota was one of the first states in the nation to pass legislation to create charter schools.

The report makes a number of recommendations to tighten charter schools' financial practices and calls on the state to:

- Revoke charters with schools that have repeated financial problems.

- Hold sponsor organizations financially accountable for the fiscal health of their charter schools.

- Require mandatory financial training for all charter school board members and administrators.

- Direct charter schools to send parents a financial report card each year that notifies them of all financial infractions found in their yearly audits.