As President-Elect Donald J. Trump cozies up to Russian leader Vladimir Putin, I’m reminded of Ronald Reagan’s famous dictum “Trust, but verify.” Barton Swaim has pointed out that the phrase pacified foreign-policy hawks and doves, each of whom focused on one wing of the maxim, not realizing that trust supersedes verification, and vice versa. Translated from the original Russian, Reagan’s use of the phrase annoyed Mikhail Gorbachev, but it didn’t really represent a policy strategy.
Is there a place for “trust, but verify” in education policy? Trump’s nominee for Secretary of Education, Betsy DeVos, will likely use whatever weapons exist in the federal policy arsenal to expand access to charter schools and private schools, shifting public funds to the private and quasi-private sector. (Charter schools are public schools that are privately managed, typically by nonprofit or for-profit education management organizations.)
Historically, charter schools have been viewed as the product of an exchange: autonomy for accountability. Freed from the bureaucratic red tape that stifles innovation, charter schools could adopt new policies and practices to promote student learning and development. And although the mechanisms aren’t always crystal-clear, it’s evident that some charter-school networks have found ways to boost student performance on standardized tests, as well as improve college preparation and enrollment.
It’s the accountability side that is especially worrisome—accountability both for student outcomes and for the stewardship of public dollars. Does the current array of laws and regulations ensure that charter management organizations use public funds responsibly?
Three recent investigations raise questions.
In September 2016, the Office of Inspector General (OIG) of the U.S. Department of Education released an audit of both education management organizations (EMOs) and charter management organizations (CMOs), covering the period of July 2011 through March 2013. OIG’s charge was to assess the risk to three offices in the Department of Education: the Office of Elementary and Secondary Education, the Office of Special Education and Rehabilitative Services, and the Office of Innovation and Improvement.
The audit concluded that “charter school relationships with CMOs posed a significant risk to Department program objectives. Specifically, we found that 22 of the 33 charter schools in our review had 36 examples of internal control weaknesses related to the charter schools’ relationships with their CMOs (concerning conflicts of interest, related-party transactions, and insufficient segregation of duties).” The audit further concluded that the Department of Education did not have adequate internal controls or monitoring procedures to identify and address financial and program performance risks, in part because it delegated this monitoring to state education agencies.
A lack of appropriate oversight can be found in Betsy DeVos’s backyard, Michigan, where legislators repealed a cap on charter schools in 2011. A Detroit Free Press investigation published in August 2016 found that 61 percent of the 370 charter schools in Michigan had contracted with full-service, for-profit EMOs. The report linked this configuration to a series of excesses, including conflicts of interest, outlandish severance packages and poor spending decisions, all undertaken with minimal public scrutiny. The lack of regulation of the charter sector in Michigan is why I and others have referred to the state, and the city of Detroit in particular, as the “Wild West.” The Michigan legislature has rebuffed efforts to promote transparency in its charter school finances and management agreements.
More recently, New York City Comptroller Scott Stringer released a financial audit of the city’s largest and best-known CMO, Success Academy, concluding that the network kept poor records and couldn’t document the provision of services for which it was billing the city. Success Academy is polarizing; its students generate extraordinarily high test scores while adhering to a strict behavioral regimen not to everyone’s taste. The ambitious founder and CEO of Success Academy, Eva Moskowitz, found a sympathetic audience in former NYC Mayor Michael Bloomberg and Schools Chancellor Joel Klein, who bent over backwards to co-locate Success Academy schools within traditional public schools. In some cases, these co-locations have been congenial; in others, the communities associated with the traditional public schools have felt they were being squeezed out by the Success schools.
Despite the fanfare, I don’t think Stringer’s audit of Success Academy is a huge deal. There certainly may be some undocumented expenditures and/or some overcharges; and if these hold up under scrutiny, Success Academy should be held accountable and make appropriate restitution. But the scale of the disputed expenditures doesn’t strike me as grand; nor do such disputed expenditures point to gaping holes in financial management. Any large organization is going to have some transactions that slip through existing management controls. Charter school proponents in New York City are quick to point to the many scandals in the city’s Department of Education where funds have been misused or embezzled, or management protocols evaded, and they’re right: public management doesn’t inoculate an education system against corruption or sloppiness.
Still, the Success Academy response to the audit was at once combative and defensive, a common stance for the CMO, but one that often seems disproportionate. Part of its 27-page reply to the 31-page Preliminary Draft Report, incorporated in the Final Report, was devoted to crowing about how well-managed the Success Academy network of charter schools is. “Success Academy’s board members and supporters are among the most sophisticated and highly respected business men and women in the world,” they wrote. “Eight board members are currently CEOs, seven have founded non-profits, and 11 have founded companies. Collectively, they manage more than $103 billion in assets.”
Impressive, to be sure. But do these credentials ensure adequate financial oversight?
Ask the faculty and staff of the College of New Rochelle in New York, an independent college with roots in the Catholic Church. In November, the college revealed that it had unmet fiscal obligations of more than $31 million due to inaccurate accounting records and budgets. The president of the college’s board of trustees was quoted as saying, “The board not only discovered errors in fiscal management, we discovered institutional practices, policies and procedures that have been ineffective, at best, and demoralizing at worst.” The institution has been running at a deficit of approximately $6 million per year for about six years, and is behind $20 million in payroll taxes owed to the IRS and the state of New York. It began cutting its budget and laying off staff almost immediately, but the pain won’t end any time soon. Given the financial exigency, further budget reductions and layoffs of tenured faculty are expected.
The trustees of the College of New Rochelle include the captains of industry who populate the boards of nonprofit institutions. Among their number are the former Executive Vice President and Chief Financial Officer of Consolidated Edison; the Global Head of Banking and Securities at Deloitte; a Managing Director of Prime Finance at Citigroup Global Markets; the Vice President for Human Resources, Systems & Technology, and Integrated Supply Chain at IBM; and the Presidents and Chief Executives of several successful privately held corporations. Much as is true of the board members at Success charter schools, these are people who know their way around a balance sheet. But their credentials didn’t preclude the current crisis.
Boards can exercise varying levels of oversight of internal operations. At the College of New Rochelle, President Judith Huntington, who resigned in October in her sixth year in office, was a certified public accountant and had worked at KPMG, the College’s external auditor, before arriving as Vice President of Financial Affairs in 2001. Perhaps her qualifications led the Board not to probe as deeply as they could have into New Rochelle’s revenues and expenditures.
And one wonders if something similar may be happening at Success Academy, where the sparkling test scores, coupled with Eva Moskowitz’s force of personality, might lead its board not to look too carefully under the hood. Other than lending their names (and perhaps dollars) to Success Academy, what do Success board members do? Well, according to their response to NYC Comptroller’s audit, they don’t vote. “As no motions, proposals, resolutions, or other matters were voted on at any Board committee meeting in fiscal years 2013, 2014, and 2015, no committee meeting minutes were required under either NYS Open Meetings Law or Success Academy’s bylaws,” the response states.
I don’t doubt the seriousness or good intentions of Success Academy board members—just as I don’t question the commitments of Success’s teachers and school leaders, some of whom I’ve had the privilege of teaching. But I do worry about gaps in the fabric of public accountability. It’s too easy for people to conclude that somebody else is responsible for oversight. If charter school authorizers assume that the boards of individual charter schools are exercising a fiduciary responsibility, and the boards assume that it’s the authorizers’ role to do so, who’s minding the store?
As Betsy DeVos faces a confirmation hearing on January 17th, it’s worth asking her: When federal, state and local dollars follow students to private and charter schools, what is the government’s role in—responsibility for—ensuring that these funds are used appropriately? Is trust enough? Or should we verify?
This story was produced by The Hechinger Report, a nonprofit, independent news website focused on inequality and innovation in education.