GloucesterTimes.com, Gloucester, MA

October 9, 2013

State audit details charter school failings

By Times Staff
Gloucester Daily Times

---- — A damning report issued by State Auditor Suzanne M. Bump has documented “a series of management deficiencies” within the leadership of the Gloucester Community Arts Charter School that “rendered the school insolvent” and triggered its abrupt shutdown last January — a little over halfway through its third academic year.

Citing excessive rent paid right from its September 2010 opening due to a no-bid contract, and finding fault with significant over-estimates of enrollment and thus budget projections, the auditor found deficiencies related to procurement, accounting, record keeping, education performance, or compliance with the state’s Open Meeting Law. And it found that the GCACS Board of Trustees or administration never adequately addressed the numerous findings in these reviews.

“The ripple effects of this school’s closing were widely felt by its students, their families, their teachers, and administrators, as well as the students, teachers, and administrators of the schools that had to absorb the displaced students mid-year,” Auditor Bump noted.

“What makes this especially troubling is that it was preventable,” she added. “I hope the lessons learned here will be appropriately incorporated into management and oversight practices to ensure a solid foundation for learning and to make this the last mid-year closing of a charter school.”

The audit report comes nine months after Gloucester Community Arts — plagued by enrollment shortfalls and widespread allegations of poor Board of Trustees and state oversight from the state — shutdown on a Wednesday in January after school officials had first sought to complete the school year, then the month, and finally, at least the week.

They couldn’t.

The audit noted that GCACS, in its three-year existence, had repeated lower-than-expected enrollment, with the number of students averaging 65 percent of the school’s pre-enrollment figures.

“With lower enrollment, the school’s tuition revenues were over estimated by as much as $571,000 at the start of the 2012-2013 school year,” the auditor’s report found, “(and) GCACS failed to adequately adjust its staffing and budgeting to reflect the revenue shortfall.”

Also, Bump found, “despite extreme cash-flow control measures including delayed payments, pay cuts, and staff reductions, GCACS closed with a deficit.”

The audit also found GCACS spent more to rent its facilities than was planned for in its approved charter proposal and also indebted the school for lease payment 10 years beyond the term of its charter.

The lease — a result of a no-bid contract, as cited in 2010 by the state Attorney General’s Office, — increased GCACS’s actual annual occupancy costs more than 23 percent above planned amounts, resulting in additional stress on the budget beyond that created by the revenue shortfall.

In addition, the audit found GCACS did not effectively manage its administrative staffing costs. In Fiscal Year 2013, management costs amounted to more than 19 percent of its tuition revenue, exceeding the 11.5 percent written into in its charter and a 10.8 percent statewide average for charter schools.

In addition to the AG’s sanctions regarding no-bid contracts, GCACS also received critical reviews from the state Inspector General’s Office, the Department of Early and Secondary Education, a private CPA firm, and a private charter-school management consultant.

Among the audit’s specific findings:

GCACS did not adequately address numerous deficiencies related to procurement, accounting, internal control, recordkeeping, management, education, governance, and compliance with the state’s Open Meeting Law (Chapter 30A, Sections 18 – 25, of the General Laws) that had been identified in external reviews conducted by the Commonwealth’s Office of the Inspector General (OIG), the Attorney General’s Office, a private certified public accounting firm, DESE’s Charter School Office, and a private charter-school management consultant.

GCACS did not accurately estimate its student enrollment; as a result, its actual enrollment figures were, on average, only approximately 65% of the enrollment estimates that it used to establish its budgets during its years of operation.

GCACS spent more to rent its facilities than was planned for in its approved charter proposal. Specifically, it leased a building that cost approximately $55,000 more per year than its charter proposal said it would spend on all of its occupancy costs (including lease payments, utilities, and other expenses) and also indebted the school for lease payments for ten years longer than its charter proposal permitted.

GCACS did not effectively manage its administrative staffing costs. Specifically, OSA estimated GCACS’s likely management costs at the start of fiscal year 2013 to be equal to 19.2 percent of its actual tuition revenue for 2012. This is significantly higher than the 11.5% that OSA calculated from planned amounts appearing in the school’s charter application.

Rather than verifying student enrollment before deciding how many educators to hire, or adjusting its planned staffing level to account for its history of lower-than-expected enrollment, GCACS hired enough educational personnel for the 2012-2013 school year to serve significantly more students than were actually enrolled.

According to unaudited information covering GCACS’s financial activity through January 2013, GCACS could have an accumulated net asset deficit in excess of $308,000 and substantial financial obligations could remain unmet, including approximately $5.8 million in outstanding facility lease obligations not included in the net asset deficit.