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 way the charter law is written and not enforced--there is a gigantic loophole through which people can profiteer," Butkovitz said. "This is not supposed to be a vehicle for maximizing profit for operators and related parties."
Butkovitz began his special fraud investigation of charters several months after The Inquirer reported allegations of financial mismanagement and conflicts of interest at Philadelphia Academy Charter School in April 2008.
His staff has been sharing information with the U.S. Attorney's Office, which is conducting a criminal investigation of at least nine area charter schools, according to sources with knowledge of the probe.
Butkovitz's complete report, which will include findings on the School District's oversight of 67 city charters and recommendations for tightening state law, is scheduled to be released Thursday afternoon.
The charters Butkovitz focused on include Harambee Institute of Science and Technology Charter School in West Philadelphia. Butkovitz released part of his report March 30 after 6ABC reported a nightclub operated inside Harambee on weekends.
"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:…
New Foundations Charter School
Located at 8001 Torresdale Ave. in the Northeast, the school with 414 elementary students is one of several city charters with ties to a politician. Sheryl S. Perzel, wife of State Rep. John Perzel, former Republican House speaker, founded the school in 2000 and served on its board for many years.
The school leases its building from 8001 Torresdale Corp., a related nonprofit for $750,000. Under the terms of a lease that runs until 2022, the charter is responsible for all taxes, insurance and utilities.
Paul Stadelberger, New Foundation's CEO, is secretary of the nonprofit. The charter gave the nonprofit a $500,000 advance and guaranteed a $7.1 million loan, which the nonprofit took out on the school facility.
New Foundations has a contract with Santilli & Thomson LLC for consulting, business management and accounting. The charter declined to give Butkovitz's office a copy of the agreement, but tax filings show the charter paid the firm $122,848 in 2008.
Gerald Santilli and Michael Thomson are former board members of the nonprofit.
In addition to the contract with Santilli and Thomson, New Foundations contracts with The School Therapy Zone LLC, for occupational therapy services for students. In 2008, the bill came to $65,820. Santilli is president of the company; Thomson is vice president.
Santilli said Wednesday both contracts were with the charter school and not the nonprofit.
"This has nothing to do with the nonprofit," he said. "There is nothing wrong with that."
The controller's office report also pointed out that New Foundations received three grants totalling $529,747 from another charter school, the First Philadelphia Charter School for Literacy, between 2005 and the 2007. Santilli founded First Philadelphia and was board president until last year.
The grants came when Santilli & Thomson began providing services to New Foundations, the report said.
"The purpose of the grants and the relationship between the grants and the services," the draft said, "and the services provided by Mr. Santilli's firm is unknown."
Santilli said the money was New Foundation's share of a joint grant the two schools received from the state Department of Education for after-school and tutoring programs. He said Butkovitz's office had not asked for an explanation.
"The city controller under the law doesn't have the right to audit charter schools," Santilli said, adding that his report was based only on public documents and information obtained under the state's Right to Know law.
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New Foundations Charter School
BUTKOVITZ CITES CHARTER SCHOOL PROFITEERING, April 7, 2010, Philadelphia (PA) Inquirer