The board of the state’s largest online charter school system approved a new deal it hopes will settle a contract dispute with the Statewide Virtual Charter School Board.
The proposal, approved after a nearly seven-hour board meeting that concluded after midnight Tuesday, would make significant changes to the school’s financial procedures and relationship with its for-profit management company.
It’s intended to address issues raised by the Statewide Virtual Charter School Board, which on Oct. 13 voted to begin terminating the contract with the nonprofit Community Strategies Inc. to operate Epic One on One, its statewide virtual school. Community Strategies also contracts with Rose State College to operate a second charter school, Epic Blended Charter School, for students in Oklahoma and Tulsa counties.
In recommending a move to terminate Epic’s contract, an attorney for the Statewide Virtual Charter School Board said an investigative audit of Epic revealed the school was failing to meet standards of fiscal management and violating state law, including by blending public funds between the two distinct school districts and failure by Epic’s board to review and approve transactions.
A contract termination hearing is set for May 12-13 but the two boards could come to an agreement first. Rebecca Wilkinson, executive director of the Statewide Virtual Charter School Board, said Wednesday her office is reviewing the proposal and the agency’s next steps have not been determined.
Epic’s proposed settlement was approved unanimously by Epic’s five board members: Doug Scott, Betsy Brown, Kathren Stehno, J.P. Franklin and Wyjuana Montgomery. Stehno joined the board in December, Franklin in January and Montgomery in February.
Here are five takeaways from the proposal:
Epic’s Learning Fund Will Become Public
Perhaps the biggest change proposed is to make the school’s learning fund public. The learning fund is a credit of at least $1,000 the school gives each student to spend on technology, curriculum and extracurricular activities, like dance or horseback riding lessons.
Those funds are transferred from the public school to the private bank account of Epic Youth Services, the school’s management company, which then makes the purchases from vendors. State auditors have not been given access to records of those funds — totaling more than $79 million in state appropriations between 2015 and 2020. An additional $65 million has been transferred to Epic Youth Services for the learning fund this school year, records show.
Beginning July 1, the learning fund will be held in a public school bank account and all records will be public, including invoices and purchase orders. The management company will no longer have access to that bank account, or oversight or management of the learning fund.
That change would not apply to past learning fund records.
Epic’s Private Management Company Would Relinquish Access to School Bank Accounts
Epic Youth Services is owned by David Chaney and Ben Harris, the two co-founders of Epic Charter Schools. Chaney was also Epic’s superintendent until 2019, when a state law prohibiting that type of conflict of interest went into effect.
Auditors were critical of Chaney and Harris’ involvement in school decisions given their profit motive. “A charter school should show they have negotiated contracts, especially comprehensive management contracts, at arm’s-length and that they benefit the school rather than the services provider,” auditors wrote.
The proposed agreement sets more boundaries between the school and management company, defining the relationship as that of a “customer and vendor contractor.” A separate resolution passed by the board restricts access to school bank accounts to its employees and the treasurer and prohibits vendors from using Community Strategies’ nonprofit tax identification number.
And the school will add more frequent evaluations and reviews of the management company.
The School Will Add Financial Checks and Balances
Epic’s agreement says all contracts will be signed by the superintendent or board president, depending on the dollar amount. Epic will employ an assistant superintendent of finance to oversee the school’s finances. The board agreed to ensure only public employees have access to public school funds.
The board also approved contracting with a new firm for its annual audit beginning with the current school year.
That addresses another of auditors’ concerns: that the same firm performed Epic’s routine annual audits every year since 2012. They recommend rotating auditors periodically to “promote independence and increased oversight.”
The schools also agree to begin processing payroll separately. Their current method is to process through Epic One on One and report each teacher as working 60% of the time for one charter, 40% for the other. The Statewide Virtual Charter School Board said this was a violation of its responsibility to keep each school’s funds separate.
The Board Will Add Two Members
Auditors said Epic’s board hasn’t provided enough oversight — members were handpicked by Chaney and Harris — and met too infrequently.
Following the audit’s release, Epic’s board started meeting monthly. It has also seen significant turnover; three board members resigned since October. Each has been replaced. In the proposed agreement, Epic says by June 30, it will have a seven-member board, with two members who are parents, grandparents or guardians of a current or former student.
What Hasn’t Been Addressed
One of the contract violations in the Statewide Virtual Charter School Board’s termination proceeding is a provision that Epic “cooperate fully in all aspects” of an audit by the state auditor’s office. There is still an unresolved lawsuit between the auditor’s office and Epic Youth Services over learning fund records.
Attorneys for the company have said they’ll provide the records to the auditors if they agree not to give them to any other person or entity or disclose them under the Open Records Act. The auditor’s office, in its court filings, says that arrangement violates their code of ethics, which requires them to report suspected illegal activity, if found, to law enforcement. A judge is expected to take up the issue on Thursday, court records show.
Correction: A previous version of this story contained an incorrect spelling of the name of Epic board member Kathren Stehno. Story has been updated.
Jennifer Palmer has been a reporter with Oklahoma Watch since 2016 and covers education. Contact her at (405) 761-0093 or email@example.com. Follow her on Twitter @jpalmerOKC