Charter schools slapped with new $10.5 million penalty by state Education Department

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    OKLAHOMA CITY, Oklahoma (Tulsa World) — Epic Charter Schools has been hit with another big financial penalty by the Oklahoma State Department of Education.

For the second year in a row, education officials say Epic’s own spending reports to the state reflect administrative costs well above statutory limits for all public schools and the school remains out of compliance with mandatory school cost accounting.

The state’s largest school system was notified in a Wednesday letter that it is being assessed penalties totaling at least $10.5 million over the remainder of the fiscal year ending June 30 for both its schools, Epic One-on-One and Epic Blended Learning Centers.

These new penalties for Epic Charter Schools are separate from the $11.2 million the state Board of Education voted to demand back in October after an investigative audit by the Oklahoma State Auditor and Inspector identified chronically excessive administrative overhead costs and inaccurate cost accounting.

Epic’s governing board has voted to hire a new school finance chief and internal auditor and passed several resolutions committing to overhauls in the school’s finances.

But simultaneously, Epic school officials have continued to dispute some of the details in the state’s forensic audit findings and have yet to repay the education department the $11.2 million that was to be clawed back for reported errors in previous years.

When asked, State Superintendent Joy Hofmeister explained the lion’s share of Epic’s new administrative cost penalties, which total $10.2 million, are the result of the school system’s lack of compliance with the requirements of a new law.

Sponsored by Rep. Sheila Dills, R-Tulsa, House Bill 1395 was intended to create transparency to ensure schools that contract with outside companies for their management are not diverting dollars away from students on more administrative overhead costs than allowed by law.

It requires schools with outside management organizations to provide the state with itemized, rather than estimated expenditure information.

The state of Oklahoma’s forensic audit already found that Epic Charter Schools did not provide an accurate accounting of actual costs for its for-profit charter school management company, Epic Youth Services (EYS), in Fiscal Year 2019.

According to state calculations, the Epic school system’s administrative costs for Fiscal Year 2020 were $20,781,968 total, well above the maximum 5% of expenditures allowed by law — which would have been $10,556,921 total in Epic’s case.

By contract with both Epic schools, EYS takes a 10% cut of every dollar, which state education officials say was confirmed by statements in Epic’s Fiscal Year 2020 audits.

But education officials found despite $211.1 million in combined total expenditures, Epic school officials certified to the state just $278,000 in EYS management fees as administrative costs of the school system.

“As part of determining public school administrative costs, HB 1395 requires schools with a management company to itemize and accurately report their administrative services expenditures to OSDE. In year one of this new law, Epic did not comply, whereas others have been able to comply and provide proper documentation,” Hofmeister told the Tulsa World, in a written response to questions.

“Despite repeated requests beginning in September of 2020 and continuing over the course of months, Epic has not provided information to validate the accuracy of the certified information related to the consulting and management services of EYS.”

Law enforcement officials probing Epic’s handling of hundreds of millions of Oklahoma taxpayer dollars over the last decade have filed public court records indicating EYS has made millionaires of Epic co-founders Ben Harris and David Chaney. That investigation is ongoing.

Additionally, Epic’s monthly state aid payments for April were reduced by 1%, or about $280,000 for remaining out of compliance with the Oklahoma Cost Accounting System for public schools. By law, the Education Department could continue to assess such a penalty monthly, up to 5%.

Asked for comment, Epic Assistant Superintendent Shelly Hickman, said: “We are in the process of reviewing the assessment. Our school and our board are working to bring additional transparency to our operations in the interest of serving our 60,000 kids and their families. They remain our focus.”

Records showing state aid penalties for administrative cost overages being assessed on 13 other school districts in Oklahoma of amounts ranging from $200 to $52,478, for a combined total of about $148,200.

Such penalties are deducted from each school’s monthly state aid payment and then distributed through the state aid formula to public school districts that have not been penalized for their use of taxpayer dollars.

Epic’s penalty for reporting administrative cost overages at Epic One-on-One in FY2019 was $530,527.

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