Follow the Money: Charter Schools and Financial Accountability

Abstract

Charter schools are an important and growing part of the nonprofit sector but the financial accountability and governance of the schools have received little attention from regulators or scholars. Highly publicized scandals of nonprofits have sparked strong interest in governance of nonprofits generally and have led to increased regulation. Charter schools receive more than $9 billion in public funds annually and the risk of improper use of that money merits attention. Although the charter school movement and the concerns it raises are national, this article focuses on Philadelphia as an example. In 2011-2012, one quarter of the public school students in Philadelphia attended charter schools. The Philadelphia School District provided $525 million to the 82 charter schools in the city. The vast majority of those schools also received funds from the state and federal governments as well. The District is expecting the percentage of students in charters to increase to forty percent in the near future.

The article examines the weaknesses of the existing oversight system which relies primarily on disclosure of information to the School District and other governmental agencies, all of which lack adequate resources to respond effectively to the disclosures. The goal is not to enter the debate about the educational value of charter schools but rather to focus on how the schools fit into the larger debate over governance of nonprofits. Charter schools share the same challenges of overreliance on disclosure instead of enforcement of rules, insufficient education and training of board members, and a lack of transparency. Nineteen Philadelphia charter schools have been the subject of criminal investigations by federal authorities, resulting in seven convictions and one suicide. The article reviews the issues raised by the available documents which raise questions about the salaries of school officials; the complex relationships between many schools and their founding agencies; the widely varying expenditures for legal representation, accounting, and management; and the concerns about conflicts of interest raised in some cases. The article proposes increased funding for oversight, use of more nuanced tools than just revocation of the charter, greater transparency by the schools, and greater emphasis on board training.

Keywords: financial accountability, charter schools, non-profit governance, public education reform, privatization

JEL Classification: K00, K10, K19, K22