Philadelphia charter school cluster

This is a huge, and still evolving, story which started because a couple of moms were willing to file a complaint about their concerns. This investigation is taking place at a time when charter schools have been operating in Pennsylvania for 13 years. The charter school law was passed in 1997.

UPDATE: U.S. probe widens to 18 city charters: Details are sought on the use of public money. (The Philadelphia Inquirer, May 3, 2010)

What began as a federal probe of a single charter school in Northeast Philadelphia two years ago has spread to at least 18 schools and may be the largest federal charter investigation in the country, experts say.
"I can't think of a similar situation" anywhere else, said Nelson Smith, president and chief executive officer of the National Alliance for Public Charter Schools in Washington.
"There has not been any other state or city that has had this kind of charge made against so many [charters] in a confined period of time," said Jeanne Allen, president of the Center for Education Reform, also in Washington.
In recent weeks, a flurry of federal subpoenas has been served on schools across the city seeking five years' worth of financial records to show how the charters have spent taxpayer money.
Documents from one school provided to The Inquirer offer a glimpse into the broad scope of the federal inquiry. At New Foundations Charter in the Northeast, investigators sought a wide range of print and electronic records, including those showing how the school spent public money. The school received $5 million in the last academic year…

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Butkovitz cites charter school profiteering (The Philadelphia Inquirer, April 7, 2010)

City Controller Alan Butkovitz's investigation of 13 Philadelphia charter schools found repeated examples of complex real estate arrangements in which charters leased or rented facilities from related non-profit organizations…
"The fact there were significant issues at 13 out of 13 raises the likelihood you would see many of these same issues found in a much larger sampling of the schools," Butkovitz said.
Among those 13 schools, four were the subject of extensive focus by Butkovitz for complex real estate maneuvers, apparent conflicts of interest and CEO salary arrangements, according to a draft of the report obtained by The Inquirer [Franklin Towne Charter High School, Preparatory Charter School, People for People Charter School, and New Foundations Charter School].

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Butkovitz' Charter School Investigation Faults School District for Lack of Oversight: Controller's findings include mismanagement, questionable leasing agreements, undocumented expenses and nepotism (Press release from City Controller Alan Butkovitz, April 8, 2010)*

Click here to view investigative report

View the Controller's Charter School Investigation Page

PHILADELPHIA - City Controller Alan Butkovitz today released the findings of his in-depth investigation into 13 Philadelphia charter schools that found a lack of oversight by the School District, resulting in numerous cases of financial mismanagement, questionable spending practices and fraud and abuse, all at the expense of taxpayers.

The Controller's investigation concentrated on the School District's Charter School Office to determine if it was adequately monitoring all 63 charter schools and to ensure that millions of tax dollars were being spent appropriately and were not susceptible to fraud, waste or abuse.

"Each year, taxpayers provide an estimated $300 million to fund charter schools in Philadelphia," said Butkovitz, today at a press conference. "It is our responsibility, and the responsibility of the School District of Philadelphia to ensure that this taxpayer money is being spent appropriately."

While reviewing the Charter School Office, the Controller's investigators uncovered numerous missing documents for the 13 schools that were investigated, including missing charter agreements, articles of incorporation and proof of insurance, -- all of which is a violation of School Reform Commission (SRC) requirements. The Charter School Office also failed to compile and submit annual reports and compliance summaries to the SRC, as mandated.

"In spite of the numerous problems uncovered at individual schools, the biggest problem lay clearly with the School District's Charter School Office," said Butkovitz. "The Office demanded little in the way of accountability from any charter school we investigated.

"There was a complete and total failure on the part of the Charter School Office to monitor charter schools and hold these schools accountable for how they spend taxpayers' dollars."

By reviewing the Charter School Office, the Controller's investigation looked at 13 charter schools and found financial mismanagement and questionable practices at all 13 schools. Some of these findings include:
-nine schools had leasing agreements with related organizations, six of which listed their only source of income as rental revenue from the charter school.
-eight schools had related party transactions involving construction, maintenance and/or management contracts: one school's management company's owner also owned the construction company that did work on some of the schools under its management purview.
-Joseph Caruso, who was paid $80,000 as legal counsel to the Preparatory Charter School, was listed as a full-time teacher at the charter school and received retirement benefits under the Public School Employees Retirement System (PSERS).
-Imani Education Circle Charter School was located on a property owned by the school and leased to the Imani Foundation, which housed six for-profit entities but was receiving a 100 percent property tax exemption by the Board of Revision of Taxes.

"To fix many of these abusive practices, legislation needs to be enacted to allow for a complete audit of all fund transfers or other dealings by charter schools with associated entities or non-profits," said Butkovitz.

"There must be total transparency, mandating that all charter schools and their related non-profits provide all non-educational records and documents for review upon request."

Controller Butkovitz also recommended that, "all charter schools be required to submit their annual operating budget as well as year-end financial disclosure reports to the School District. Most importantly, the School District needs to improve its oversight, accountability and management of the charter schools."

"The charter school experiment is providing parents with educational choice and opportunities for their children outside of the normal public school route," said Butkovitz. "We must ensure that $300 million a year in taxpayers’ money that goes to charter school education is being spent effectively and efficiently with appropriate controls and oversight to prevent and detect fraud, waste and abuse."

The charter schools included in the Controller's investigation were: Community Academy of Philadelphia, Franklin Towne Charter High School, Harambee Institute of Science and Technology, Imani Education Circle, Khepera, Mathematics, Civics, & Sciences, Multi-Cultural Academy, New Foundations, People for People, and Preparatory Charter School of Math, Science, Technology & Careers. At the request of the U.S. Attorney, three schools that were part of the Controller's investigation have been redacted from the report.

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Off the charts: Charter-school probes expand (The Philadelphia Inquirer, August 16, 2009)
What began as a complaint from a couple of moms more than 18 months ago has mushroomed into a widening federal investigation of at least five Philadelphia-area charter schools, calling into question spending controls and management oversight in this burgeoning alternative to traditional public schools.
Federal authorities are adding resources to the probe, and people familiar with the matter say New Media Technology Charter School, which has campuses in the city's Stenton and Germantown neighborhoods, is the latest charter targeted for spending irregularities and conflicts of interest.
The probe began last year at the Philadelphia Academy Charter School in the Northeast and has led investigators to Germantown Settlement Charter School in Germantown, Northwood Academy in the Northeast, and the Agora Cyber Charter School in Devon, which provides online instruction to the homes of 4,400 students statewide.
A supervisory prosecutor in the U.S. Attorney's Office confirmed that federal authorities had taken a broad interest in charter-school operations.
Federal authorities are adding resources to the probe, and people familiar with the matter say New Media Technology Charter School, which has campuses in the city's Stenton and Germantown neighborhoods, is the latest charter targeted for spending irregularities and conflicts of interest.
The probe began last year at the Philadelphia Academy Charter School in the Northeast and has led investigators to Germantown Settlement Charter School in Germantown, Northwood Academy in the Northeast, and the Agora Cyber Charter School in Devon, which provides online instruction to the homes of 4,400 students statewide.
A supervisory prosecutor in the U.S. Attorney's Office confirmed that federal authorities had taken a broad interest in charter-school operations.
Charter-school critics say the fact that five charters are under federal investigation is proof that these educational alternatives need more oversight. But charter advocates contend that these are isolated cases and do not represent the 67 charters in Philadelphia or more than 60 others statewide.
The federal probe was launched at Philadelphia Academy after The Inquirer reported in April 2008 that the district's inspector general was investigating allegations of financial mismanagement, nepotism, and conflicts of interest at the school.
Since then, Kevin M. O'Shea, the school's former CEO, and Rosemary DiLacqua, the former board president, have pleaded guilty to fraud charges and are set to be sentenced in October.
O'Shea admitted taking more than $500,000, including kickbacks from contractors, using school money to make home improvements, and pocketing money from school vending machines. He also admitted to participating in a scheme to make money in a land deal involving Northwood.
As part of his plea, O'Shea has promised to cooperate.
DiLacqua admitted taking $34,000 in secret payments and loans from O'Shea and Brien Gardiner, the school's founder, and giving them raises and lucrative contracts.
Gardiner, 64, committed suicide in May amid reports that indictments were imminent.
Derek A. Cohen, the assistant U.S. attorney prosecuting the case, said Friday the investigation into Philadelphia Academy and its finances continues.
That probe led federal investigators to look into two other charter schools with close ties to Gardiner: Northwood Academy and Agora Cyber Charter School in Devon. Gardiner founded Northwood and helped found Agora with Dorothy June Brown. He also was her business partner in the Cynwyd Group L.L.C., an education-management firm that has a contract with Agora and that is the school's landlord.
Agora turned over its financial records to federal authorities in response to two grand-jury subpoenas.
The state Department of Education has begun proceedings to revoke the school's operating charter on grounds that the school illegally hired Cynwyd and that the company did little work for the $4.5 million it billed the school.
Brown has denied any wrongdoing, and Agora is fighting the state in Commonwealth Court and federal court.
In Germantown, authorities are trying to determine whether the charter school diverted some of the $31 million in taxpayer money it received over nine years to prop up other nonprofits operated by its sponsor, Germantown Settlement.
The school closed in June after the School Reform Commission denied it a new operating charter because of financial mismanagement and poor academics.
More recently, federal investigators turned their attention to the New Media Technology Charter School amid allegations that school money had been used to pay some expenses of a private school, a restaurant, and a health-food store, according to sources with knowledge of the inquiry. All have ties to New Media's leadership.
The School Reform Commission has twice delayed voting on a new charter to allow its inspector general to complete an investigation.
The commission is scheduled to vote on Wednesday. The district staff is expected to recommend keeping New Media open but with a new top administrator and board.