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:…
People for People Charter School
Located at 800 N. Broad St. in North Philadelphia, the charter enrolls 534 elementary students. It is one of only two charter schools examined by the controller's office that failed to meet the academic benchmarks of the federal No Child Left Behind Law.
The charter is just one of the projects created by the Rev. Herbert H. Lusk II, pastor of Greater Exodus Baptist Church. Lusk, a former Eagles player, founded People for People Inc. as a community nonprofit in 1991 and established the charter school a decade later. He is president of the nonprofit and board chairman of the charter school.
Several of the charter's administrators and board members have ties with the nonprofit and Lusk's church. The nonprofit owns the charter's building. Omnivest Management LLC, a for-profit education management company in Newtown, Bucks County, rents the second through sixth floors at 800 N. Broad from the nonprofit. Omnivest, which has provided services to several charter schools, sublets 41,000 square feet to the charter school.
Lusk has signed the various lease documents as both CEO of the nonprofit and the charter school, the controller's office said. The nonprofit's tax returns show Lusk was paid $155,400 in the 2007 fiscal year and and $162,129 in 2008.
Omnivest was founded in 2001 by B. Robin Eglin, who is the nonprofit's chief financial officer. The charter school pays Eglin's firm 9 percent of its total revenues for management services. In the 2008 fiscal year, the amount was $626,344.
Rather than paying based on a percentage of revenues, the charter should pay fees based on services it receives, the controller said. Otherwise, Omnivest would be entitled to collect 9 percent if the charter receives a donation, "even if it provided no services whatsoever. . ."
Eglin could not be reached for comment.
The controller also found that Lusk's charter school had guaranteed the nonprofit's $7.3 million loans, including mortgages for properties the school did not use.
The charter, the draft report says, "is obligating future taxpayer funds to pay off loans on facilities owned by entities not controlled by the school."
Lusk declined to comment on Butkovitz's findings until he has seen the report.
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People for People Charter School
BUTKOVITZ CITES CHARTER SCHOOL PROFITEERING, April 7, 2010, Philadelphia (PA) Inquirer