checking in on charter schools: a review of 2008 financial management practices

8/14/2019 Checking in on Charter Schools: A Review of 2008 Financial Management Practices

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CHECKING IN ON

CHARTER SCHOOLS A REVIEW OF 2008 FINANCIALMANAGEMENT PRACTICES

John FitzgeraldMinnesota 2020 Fellow

November 2009


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Table of Contents___ Executive Summary 1

Introduction 3

Audit Findings 5

Schools with Perfect 2007 & 2008 Audits 8

Biggest Offenders 9

Worst from 2007 12

Appendix A: Schools listed by community &infractions 14

Appendix B: List of accounting terms 19

AcknowledgementsMinnesota 2020 would like to thank Laura Huiras, a Minnesota 2020 undergraduate research fellow and Marieand Robert Jackson Fellow through the College of St. Benedict, and Amanda Wilson, also a Minnesota 2020undergraduate research fellow and Chuck Green Civic Engagement Fellow through Macalester College, fortheir help gathering research for this report.


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Checking in on Charter Schools 1

Executive Summary___________________ Some of Minnesotas charter schools have a nancial management and accountability problem. A Minnesota2020 examina on of the nancial audits for all charter schools led for the 2007-2008 school year found thatsome conduct their business a airs reasonably well while others face great di cul es. These results echo

ndings from our previous examina on of charter school nancial documents. While some schools meetdemands for nancial accountability, many do not.

This year, Minnesota 2020 digi zed each charter school nancial audit and is making them available online.Public con dence is strengthened by ready access to public data. We hope our example will encourage theMinnesota Department of Educa on and other organiza ons to follow our lead and provide documents in amore easily accessible format.

To access all of the charter school audits, visit www.mn2020.org

Key FindingsThe na ons rst charter schools opened in Minnesota in 1992. In the 2007-08 school year, nearly 30,000Minnesota students were enrolled in 154 charter schools. They receive an average of $10,500 in public fundsper student. A review of charter school audits from the 2007-08 school year found:

115 charter schools, or 75 percent, had at least one irregularity noted in their nancial audit.

47 charter schools, or 31 percent, were agged for lacking proper segrega on of du es, which shows alack of a en on to nancial details that could lead to misappropria on of public funds.

39 charter schools, or 25 percent, had deposits not su ciently insured by either a bond or collateral.This requirement ensures that the charter schools bills can be paid.

These numbers are nearly iden cal to those uncovered by our study of 2006-2007 charter schoolnancial documents in which slightly more than 80 percent of schools had at least one irregularity, 55percent had limited segrega on of du es, and 26 percent had insu cient collateral.

Recommenda onsTo ensure appropriate focus on the educa on mission, Minnesotas charter schools must manage their

nancial a airs in a more responsible, professional manner. While two-thirds of the states charter schoolshave problema c audits, 15 charter schools had awless audits for two years in a row. Their success should bea guide for the en re charter school community.

Recent changes in state law ghten oversight of charter schools, but we recommend addi onal oversightmeasures. The Minnesota Department of Educa on should be required to:

Revoke charters with schools that have repeated nancial problems;

Hold sponsor organiza ons nancially accountable for the scal health of their charter schools;

Organize mandatory, basic nancial training for all charter school board members and administratorsbefore they are allowed to conduct any business as charter school o cials;


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2 Checking in on Charter Schools

Direct charter schools to send cons tuent parents an easy-to-read nancial report card each year thatno es them of all nancial infrac ons found in their yearly audits and o er parents all available choicesfor their children to a end more professionally managed school districts.

ConclusionCharter schools, by de ni on and design, have a special place in the constella on of Minnesotas educa onalsystem. To provide greater educa onal variety, they were designed to skirt much of the oversight demanded of tradi onal public schools.

Therefore, charter schools should face nancial oversight that is not only equal to tradi onal schools, butbecause of their greater freedom in choosing administrators and board members, they should face oversightgreater than that of public schools.

We applaud those charter schools that responsibly manage their nancial a airs. We encourage the schoolsthat cant produce a clean nancial audit to look to those that can for guidance.

We call on state o cials, the Minnesota Department of Educa on and charter school leaders to take

concrete steps to ensure that all charter schools can manage their nances appropriately and produce cleannancial audits year a er year. In addi on, we call on charter schools to provide greater accountability andtransparency with their nancial documents.

Professional nancial management prac ces are cri cal for the health of any organiza on, and charter schoolsare no excep on.


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Introduction__________________________ Minnesotas charter school system is considered one of the best in the na on a recogni on that is wellearned. Since its incep on in 1993, more than 150 charter schools now thrive in Minnesotas educa onlandscape. In the main, they provide small school environments for a variety of student popula ons.

This report focuses on the nancial audits of Minnesotas charter schools. It does not examine charter schools

academic achievements, teacher quality or curriculum.Each year, all public schools are required to hire an independent auditor to review their books and submit thisaudit to the Minnesota Department of Educa on. In June and July 2009, Minnesota 2020 collected 154 charterschool audits for the 2007-2008 school yearthe most recent audits availableand compared them to the2006-2007 charter school audits examined by the organiza on. This report is the result of that inves ga on.The audits for the 2008-2009 school year, which ended its scal year on June 30, 2009, are due by Jan. 1, 2010.

Like the report on the 2006-07 nancial audits, this report nds the vast majority of charter schools do notfollow basic nancial guidelines.

Charter schools are purposefully nontradi onal, publically funded schools. While tradi onal public schoolsreceive roughly $9,500 per-student from the state, charter schools receive $10,500 for each student from thestate. 1 Because charter schools dont exist in a geographic district, state o cials say charter schools deservemore taxpayer money because they cant ask local ci zens for addi onal taxes to operate their schools or forbonds to build school buildings the way tradi onal districts can.

A major component of the 1991 charter school enabling legisla on allows public educa onal funding to followthe student: If a student leaves a tradi onal school and enrolls in a charter school, the per-student moneyleaves the school and is allocated to the charter school.

While tradi onal schools are run by a publicly elected school board, charter school boards do not, by design,have that element of direct public oversight. Charter school board members are not directly accountable to thefunding public.

HistoryIn 1991, Minnesota was one of the rst states in the na on to pass legisla on to create charter schools. In1992, eight charter schools were formed. 2 By 2008, there were 154 charter schools serving more than 28,000studentsor about three percent of the states K-12 student popula on.

To open a charter school, parents, teachers, or community members rst must nd a sponsoring organiza on,also known as an authorizer. Sponsors must be a school district, a Minnesota higher educa on ins tu on, or

nonpro t organiza ons with an end-of-year fund balance of at least $2 million.

Once the Minnesota Department of Educa on approves a sponsors applica on, the sponsor and developersenter into a contract, or charter, through which the school must show how it will ful ll at least one of the


____________________________________________________________________________________________________________1O ce of the State Auditor, Financial Trends of Minnesota School Districts and Charter Schools for the period 2001 to 2005,h p://www.osa.state.mn.us/default.aspx?page=20050620.001, Accessed 4/15/09

2Resources on Minnesota Issues Charter Schools h p://www.leg.state.mn.us/LRL/Issues/Charter.asp, Accessed 4/10/2009


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following charter school purposes:

Improve student learning;

Increase learning opportuni es;

Encourage the use of di erent and innova ve teaching methods;

Require the measurement of learning outcomes and create di erent and innova ve forms of measuringoutcomes;

Establish new forms of accountability for schools; or create new opportuni es for teachers, including theopportunity to be responsible for the learning program at the school site.

Some charter schools emphasize civic responsibility while others focus on speci c careers. Some focus onimmigrant students, or students recovering from alcohol or drug dependency. Some center their programs onan educa onal model, such as Montessori, while others employ a speci c type of curriculum.

The contracts dura on can be no longer than three years. The sponsor can terminate the contract if thecharter school fails to meet the performance requirements or fails to meet generally accepted standards of scal management. Addi onally, MDE can terminate a charter school contract if the school has a history of nancial mismanagement or repeated viola ons of the law.

In June 2008, the non-par san O ce of the Legisla ve Auditor released a report that was cri cal of charterschool nancial management. In 2009, the Minnesota Legislature required MDE to review a sponsorsperformance at least once every ve years and take correc ve ac on against a sponsor if it violates a term of the charter. The law also requires charter schools to post on their web sites iden fying informa on about theirsponsors, have a board of directors of at least ve nonrelated members, provide prospec ve employees with awri en descrip on of the terms of employment, establish quali ca ons for persons that hold administra ve,

supervisory, or instruc onal leadership roles, distribute an annual report, and comply with open mee ng anddata prac ces laws.


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Audit Findings________________________ Minnesota 2020 examined every charter school nancial audit from the 2007-08 school year. We havehighlighted the most egregious infrac ons below, as well at those with the most o enders. For a complete listof all audit infrac ons and the schools that were agged for those infrac ons, visit www.mn2020.org

Limited Segrega on of Du esSchools are required to have a system of controls so that no one person has responsibility to execute acomplete nancial transac on, has access to cash and valuable assets, and has authority to record thetransac on. Last year, 55 percent of schools did not have proper segrega on of du es. This year, 31 percentwere noted for this infrac on. An * denotes the charter schools that were marked for this problem in both2006-07 and 2007-08.

Sojourner Truth Academy* Quest AcademyPrairie Creek Community School Pillager Area Charter School*Partnership Academy, Inc Odyssey Academy*Nova Classical Academy* North Shore Community SchoolNew Spirit School* New Heights School, Inc.*

New City School* Lionsgate AcademyDuluth Public Schools Academy* Lake Superior High School*Lafaye e Public Charter School KIPP Minnesota Charter SchoolInterna onal Spanish Language Academy Jennings Community Learning Center*High School For Recording Arts Great River Educa on Center*Glacial Hills Elementary* Learning For Leadership Charter*Laura Je rey Academy Charter* Lakes Area Charter School*La Crescent Montessori Academy* Emily Charter SchoolFace To Face Academy* East Range Academy of Tech & Science*Discovery Public School Faribault Cyber Village AcademyCologne Academy City AcademyBluesky Charter School Aurora Charter School*Aspen Academy Achieve Language Academy*Michael Frome Academy Metro Deaf SchoolMath & Science Academy* Main Street School Performing Arts*Waynewood School of Hope River Heights Charter School*Recovery School Of Southern MN Milroy Area Charter School*Crosslake Community Charter School Concordia Crea ve Learning AcademyMinneapolis Academy Charter School*

Prepara on of Financial Statements

Many charter schools do not have the resources necessary to prepare their own nancial audit, thus requiringauditors to pull together the data necessary for the audit, which could create a con ict of interest. This isconsidered bad nancial prac ce. Last year, 30 percent of charter schools faced this problem. This year, 15percent face the issue. An * denotes the charter schools that were marked for this problem in both 2006-07and 2007-08.

Twin Ci es Academy High School Twin Ci es Academy*Sage Academy Charter School Odyssey Academy*New Heights School, Inc* New City School*



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Interna onal Spanish Language Academy* Learning For Leadership Charter*Minneapolis Academy Charter School* E.C.H.O. Charter School*Cygnus Academy* Clark eld Charter School*City Academy* Aurora Charter School*Milroy Area Charter School* Metro Deaf School*Main Street School Performing Arts* Watershed High SchoolTrio Wolf Creek Distance Learning St. Paul Conservatory Performing Art*Spectrum High School* Recovery School of Southern Minn.*Birch Grove Community School*

Annual Financial Repor ng Under Generally Accepted Accoun ng PrinciplesSchools need an internal control policy over annual nancial repor ng. Without one, the poten al exists thata material misstatement of the annual nancial statements could occur and not be detected. Last year, 15percent of charter schools were noted for this aw. This year, that number is 16 percent. An * denotes thecharter schools that were marked for this problem in both 2006-07 and 2007-08.

Urban Academy Charter School* Team Academy*Rochester O -Campus Charter High* Riverway Learning Community Charter*

Riverbend Academy* Ridgeway Community School*Prairie Creek Community School* Partnership Academy, Inc*Odyssey Academy Northwest Passage High School*North Lakes Academy* KIPP Minnesota Charter SchoolJennings Community Learning Center* Glacial Hills ElementaryLa Crescent Montessori Academy* Dakota Area Community School*Cygnus Academy Blu view Montessori*Minnesota New Country School* Minnesota Internship Center*Math & Science Academy* Pillager Area Charter SchoolLake Superior High School Great River Educa on CenterLakes Area Charter School

Bank Reconcilia onThese charter schools didnt balance their general ledger to bank statements. Charter schools should havemore than one person preparing the bank reconcilia on with oversight, and the school should reconcile itsbank reconcilia on on a monthly basis to match the general ledger. These are the schools that dont balancetheir books with the bank:

Glacial Hills Elementary East Range Academy of Tech & Science

Collateral

Minnesota law requires that if a school has more in the bank than what the Federal Deposit Insurance Corp.will insure ($100,000 in 2007), they must have that money protected by a bond or collateral in case the bankgoes under or the money is no longer available. Last year, 26 percent of schools didnt meet this requirement.This year, the number was 25 percent. An * denotes the charter schools that were marked for this problem inboth 2006-07 and 2007-08.

Yinghua Academy* World Learner Charter SchoolUrban Academy Charter School Twin Ci es Interna onal Elem School*Twin Ci es German Immersion Charter* Twin Ci es Academy High School


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Stonebridge Community School St. Paul Conservatory Performing Art*Sojourner Truth Academy Sobriety High*River Heights Charter School* Pine Grove Leadership AcademyE.C.H.O. Charter School New Visions Charter School*New City School Main Street School Performing Arts*Lincoln Interna onal School Lighthouse Academy of Na onsHope Community Academy* Excell Academy CharterKIPP Minnesota Charter School Kaleidoscope Charter SchoolInterna onal Spanish Language Academy Higher Ground AcademyHarbor City Interna onal Charter Global AcademyFour Direc ons Charter Schools* East Range Academy Of Tech & ScienceDunwoody Academy* Duluth Public Schools AcademyDiscovery Public School Faribault* Cygnus AcademyCommunity School Of Excellence Community Of Peace AcademyAurora Charter School* Augsburg Fairview AcademyAchieve Language Academy* Minnesota Online High School*Metro Deaf School*

Lack of Documenta on of Employee Pay RatesEmployee contracts should clearly document approved salaries. By not documen ng salaries, the charterschool could be subject to a higher risk that fraud or error could occur and not be detected in a mely manner.An * denotes the charter schools that were marked for this problem in both 2006-07 and 2007-08.

Noble Academy Bluesky Charter SchoolSouthside Family Charter School* Recovery School of Southern MnDuluth Public School Academy

Payroll Transac onAudits found mul ple payroll transac ons were incorrectly calculated. These charter schools were asked toimprove their internal controls:

Watershed High School Sobriety HighLighthouse Academy of Na ons Cyber Village Academy

Adequate Accoun ng SystemSome charter schools use accoun ng systems that arent compa ble with the MDE accoun ng systems. Thecharter schools then have to pay a management company at the end of the year to transfer data from thecurrent accoun ng system to an MDE-compliant system. These schools did not have adequate accoun ngsystems:

Avalon School Minisinaakwaang Leadership AcademyPine Grove Leadership Academy


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Schools with Perfect 2008 & 2007 Audits__ Schools with Perfect 2007 and 2008 Audits The following 15 schools had zero infrac ons on their nancial audits for the past two years.

Beacon Academy Beacon Preparatory SchoolNerstrand Charter School New Century Charter SchoolStride Academy Charter School Swan River Charter SchoolEmily O. Goodridge-Grey Accelerated Paideia Academy Charter SchoolGreat River School Green Isle Community SchoolAcademia Cesar Chavez Charter School ArtechHmong Academy Dugsi AcademyUbah Medical Academy Charter School

Schools with Perfect 2008 AuditsThese are the charter schools that produced a clean nancial audit. Last year, 17 percent of the 145 schoolshad clean audits. This year, 20 percent of the 154 schools had clean audits. An * denotes the charter schoolsthat had clean audits in both 2006-07 and 2007-08.

Hmong Academy Dugsi Academy*Beacon Academy* Beacon Preparatory School*Best Academy Minnesota Transi ons Charter SchoolMinnesota Interna onal Middle Charter Woodson Ins tute for ExcellenceSchoolcra Learning Community Charter Seven Hills Classical AcademyNerstrand Charter School* New Century Charter School*St. Croix Preparatory Academy New Discoveries Montessori AcademyStride Academy Charter School* New Millennium Charter SchoolSwan River Montessori Charter School* Treknorth High SchoolEmily O. Goodridge-Grey Accelerated* Loveworks Academy For ArtsFraser Academy Friendship Academy Fine Arts CharterUbah Medical Academy Charter School* General John Vessey Jr LeadershipPaideia Academy Charter School* Great River School*Green Isle Community School* Academia Cesar Chavez Charter School*Harvest Prep School/Seed Academy Hiawatha Leadership AcademyArtech* Eagle Ridge Academy Charter SchoolDaVinci Academy Great Expecta onsPaladin Academy/Liberty High Naytahwaush Community SchoolVoyageurs Expedi onary Rochester Math & Science (Adam Abdulle

Academy)*


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Biggest Offenders_____________________ The 2008 biggest o enders were those schools agged for at least eight infrac ons or more. These charterschools have the most o enses among the 2008 nancial audits:

Blu view Montessori, WinonaBlu view Montessori was founded in 1993 and has 200 students K-8. It was one of the rst charter schools in

the U.S. It is sponsored by the Winona School District, which also sponsors Ridgeway Community School. In2007, Blu view had six infrac ons.

Blu view Montessori4001 1321 Gilmore AvenueWinonaLeslie Hi ner, Directorwww.blu viewmontessori.org

Here is the list of faults agged by auditors on Blu view Montessoris 2008 nancial audit:

Annual Financial Repor ng Under GAAP, in which the school does not have an internal control policy inplace over annual nancial repor ng and the poten al exists that a material; misstatement of the annual

nancial statements could occur and not be detected by the schools internal controls;

Material Audit Adjustment, in which lack of internal control means the possibility for somemisstatements in areas such as intergovernmental revenue, tui on revenue, capital assets, cash, equity,accounts payable;

Control of Accounts Payable Disbursements, in which the school has no control to prevent unauthorizedpayments to be prepared without the boards knowledge;

Review of Cash Concilia ons, in which the school does not have a policy in place for the review andapproval of cash reconcilia ons by the business manager;

Investments not Reconciled to General Ledger, in which the school is not recording escrow accordingly,ac vity on a monthly basis and is not reconciling investment balances to the general ledger;

Adopted Budget, in which the school is required to approve and adopt its revenue and expenditurebudgets prior to of the rst day that school year;

Designa on of Depositories, in which the schools depositories of public funds be designated by the

governing body, or by its treasurer or chief nancial o cer;

Electronic Funds Transfer Policy, in which the school has not established an electronic funds transferpolicy as required by state law.

Riverway Learning Community Charter School, Minnesota CityRiverway Learning Community Charter was founded in 2000 and has 63 students in grades K-12. It issponsored by Audubon Center of the North Woods, which also sponsors Voyagers Expedi onary School, Great



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Expecta ons School, Swan River Montessori School, Aurora Charter School, Minnewaska Community Schooland the Laura Je rey Academy. It had six infrac ons in 2007.

Riverway Learning Community CharterBox 43 115 Iowa StreetMinnesota CityLaura Krause, Directorwww.rwlc.org

Here is a list of the infrac ons auditors agged in the schools 2008 nancial audit:

Approval of Journal Entries, in which the school should have controls in place to prevent and detect amaterial misstatement in the nancial statements in a mely manner;

Annual Financial Repor ng Under GAAP, in which the school does not have an internal control policy inplace over annual nancial repor ng and the poten al exists that a material misstatement of the annual

nancial statements could occur and not be detected by the schools internal controls;

Cash Receipt Documenta on, in which the school must maintain internal controls to require properdocumenta on of cash receipt transac ons;

Lack of Prompt Payment, in which disbursements from the main bank account were not paid within 35days and no interest was added, in viola on of state law;


Control of Accounts Payable Disbursements, in which the school has no control to prevent unauthorized

payments to be prepared without the boards knowledge;

Review of Cash Reconcilia ons, in which the school does not have a policy in place for the review andapproval of cash reconcilia ons by the business manager;

Adopted Budget, in which the school is required to approve and adopt its revenue and expenditurebudgets prior to of the rst day that school year.

Recovery School of Southern Minnesota, OwatonnaRecovery School of Southern Minnesota serves 18 students from seventh to 12th grade in Owatonna. Itssponsor is Pillsbury United Communi es which also sponsors Dugsi Academy, Jennings Experien al HighSchool, Learning For Leadership, LoveWorks Academy for Visual & Performing Arts, Minnesota InternshipCenter Charter School, Minnesota Online High School, Minnesota Transi ons Charter School, Paladin Academy,Richard Allen Math & Science Academy, Rochester Math and Science-Academy, Sojourner Truth Academy, andStonebridge Community School. It had 12 infrac ons in 2007.

Recovery School of Southern Minnesota1225 Lincoln AvenueOwatonna


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Gary Braun, Directorwww.rssmn.com

Here is a list of the faults agged in Recovery School of Southern Minnesotas 2008 audit:

Limited Segrega on of Du es, in which only one employee has access to the boards check stock,authority to sign checks, and is responsible for recording the boards transac ons. Good business prac cesrequire that no individual has responsibility to execute a transac on, have physical access to the relatedassets, and have responsibility or authority to record the transac on;


Lack of Suppor ng Documents/Control for Expenditures;

Lack of Prompt Payment, in which disbursements from the main bank account were not paid within 35days and no interest was added, in viola on of state law;

Documenta on of Credit Card Charges, , in which the school incurred penal es for late payment of pension remi ances and credit card bills. This is in viola on of state law;

Prepara on of Financial Statements, in which the school had the audit rm prepare its annual nancialstatement as well as its audit, crea ng the possibility of a con ict of interest;

Inadequate Capital Asset Records, in which the school must maintain an inventory asset list forcomplete;

Lack of Documenta on of Employee Pay Rates, in which the school made payments to the Public

Employee Re rement Associa on a er the legal 14-day payment deadline.


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Worst from 2007_______________________ Aurora Charter School, Minneapolis

2007 2008Limited Segrega on of Du es Limited Segrega on of Du esPrepara on of Financial Statements Prepara on of Financial StatementsCollateral CollateralPayment/Approval of Invoices Payment/Approval of InvoicesBudget DetailPayroll Transac onJournal Entry Documenta onElectronic Funds Transfer PolicyDocuments/Control for ExpendituresDocumenta on of Compliance withLease Laws and Regula on

Duluth Public Schools Academy, Duluth

2007 2008Limited Segrega on of Du es Limited Segrega on of Du esAdequate Accoun ng System Adjus ng Journal EntriesMaterial Audit Adjustments UFARS ComplianceElectronic Funds Transfer Policy CollateralSuppor ng Documents/Control for Expenditures Lack of Documenta on of Employee Pay

RatesDeclara on for PaymentPrompt PaymentPrepara on of Financial StatementsLack of Capital Asset PolicyLack of Timely Data SubmissionInadequate Documents of the Components of Internal Control

Recovery School of Southern Minnesota, Owatonna

2007 2008Missing Audit Report Documenta on of Credit Card ChargesLimited Segrega on of Du es Inadequate Capital Asset RecordsPrepara on of Financial Statements Lack of Prompt Payment

Audit Adjustments Limited Segrega on of Du esElectronic Funds Transfer Policy Material Audit AdjustmentPrompt Payments Prepara on of Financial StatementsUnauthorized Grant Expenditures Lack of Documenta on of Employee Pay

RatesControl for Disbursements Lack of Suppor ng DocumentsChange in Employee Contracts Control for Expenditures


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E.C.H.O. Charter School, Echo

2007 2008Prepara on of Financial Statements Prepara on of Financial StatementsLimited Segrega on of Du es CollateralControl for Disbursements Audit Journal EntryAudit Adjustments Lack of Adequate Board Approval on DisbursementsNo formal policy on accrued leave balancesBudget DetailDisbursements not for public purposeDeclara on for PaymentElectronic Funds Transfer Policy


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Appendix A__________________________ Schools listed by community

City School Infrac onsAnoka Cygnus Academy 3

Apple Valley Paideia Academy Charter School 0

Balaton Yankton Country School 1

Bemidji Voyageurs Expedi onary 0Schoolcra Learning Charter 0Treknorth High School 0

Bigelow Worthington Area Language Academy 1

Blaine Davinci Academy 0Paladin Academt/Liberty High 0

Bloomington Beacon Preparatory School 0Seven Hills Classical Academy 0

Brooklyn Center Odyssey Academy 3

Brooklyn Park Sage Academy Charter School 3Excell Academy Charter 1Prairie Seeds Academy 2

Chaska World Learner Charter School 1

Clark eld Clark eld Charter School 6

Cologne Cologne Academy 1

Columbia Heights Global Academy 1

Coon Rapids Northwest Passage High School 2

Crosslake Crosslake Community Charter School 1

Crystal Lionsgate Academy 2

Dakota Dakota Area Community Charter School 3

Duluth Duluth Public Schools Academy 5Lake Superior High School 3North Shore Community School 1


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Harbor City Interna onal Charter 1Echo Every Child Has Opportuni es 4

Eden Prairie Eagle Ridge Academy Charter School 0

Elk River Spectrum High School 3

Emily Emily Charter School 1

Eveleth East Range Academy of Tech & Science 5

Faribault Discovery Public School Faribault 2

Forest Lake Lakes Interna onal Language Admy 1North Lakes Academy 1

Golden Valley Best Academy 0

Grand Marais Great Expecta ons 0

Green Isle Green Isle Community School 0

Henderson Minnesota New Country School 3Edvisions O Campus School 1

Hopkins Main Street School Performing Arts 6Ubah Medical Academy Charter School 0

Houston Ridgeway Community School 3

Hutchinson New Century Charter School 0New Discoveries Montessori Academy 0

Inver Grove Heights Tarek Ibn Ziyad Academy 1

La Crescent La Crescent Montessori Academy 7

Lafaye e Lafaye e Public Charter School 1

Lindstrom Trio Wolf Creek Distance Learning 1

Mankato Riverbend Academy 3

Maple Grove Beacon Academy 0

McGregor Minisinaakwaang Leadership Academy 3

Milroy Milroy Area Charter School 6


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Minneapolis Pres ge Academy (Ascension Academy) 0Augsburg Fairview Academy 1Aurora Charter School 4Minneapolis Academy Charter School 5Minnesota Internship Center 5Dunwoody Academy 1KIPP Minnesota Charter School 6Minnesota Online High School 1Minnesota Transi ons Charter School 0Mn Interna onal Middle Charter 0Bright Water Elementary 1El Colegio Charter School 1Learning for Leadership Charter 2Watershed High School 4Woodson Ins tute for Excellence 0Yinghua Academy 3Sojourner Truth Academy 2Southside Family Charter School 1

New City School 7Stonebridge Community School 1New Millennium Academy Charter 0New Visions Charter School 1Noble Academy 2Lighthouse Academy Of Na ons 6Lincoln Interna onal School 1Emily O. Goodridge-Grey Accelerated 0Long Tieng Academy 1Four Direc ons Charter Schools 1Loveworks Academy for Arts 0

Fraser Academy 0Twin Ci es Interna onal Elem School 3Friendship Academy Of Fine Arts Chtr 0Cedar Riverside Community School 3Harvest Prep School/Seed Academy 0Hiawatha Leadership Academy 0

Minnesota City Riverway Learning Community Chtr 8

Minnetonka Interna onal Spanish Lang. Academy 4

Mon cello Swan River Montessori Charter School 0

Morton Eci Nompa Woonspe 1

Naytahwaush Naytahwaush Community School 0

Nerstrand Nerstrand Charter School 0


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North eld Prairie Creek Community School 3Artech 0

Osakis Lakes Area Charter School 3

Otsego Kaleidoscope Charter School 1

Owatonna Recovery School of Southern Mn 8

Pillager Pillager Area Charter School 2

Prior Lake Aspen Academy 2

Ramsey Pact Charter School 1

Rich eld Partnership Academy, Inc 3

Rochester Rochester O -Campus Charter High 2

Studio Academy Charter School 2

Saint Cloud Stride Academy Charter School 0

Sandstone Pine Grove Leadership Academy 4

St. Louis Park Quest Academy 2

Saint Paul Rivers Edge Academy 1Skills For Tomorrow Charter School 3Sobriety High 5

St. Paul Conservatory Performing Art 3Higher Ground Academy 1Hmong Academy 0Avalon School 1Dugsi Academy 0Jennings Community Learning Center 2Metro Deaf School 7Laura Je rey Academy Charter 4Hope Community Academy 1New Spirit School 1Twin Ci es Academy 1Face To Face Academy 4Twin Ci es Academy High School 3Nova Classical Academy 3Twin Ci es German Immersion Charter 1Urban Academy Charter School 4City Academy 3Community of Peace Academy 1Great River School 0


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Community School of Excellence 1Academia Cesar Chavez Charter 0Concordia Crea ve Learning Academy 2Achieve Language Academy 4Cyber Village Academy 4High School for Recording Arts 2Waynewood School of Hope 2

Starbuck Glacial Hills Elementary 6

S llwater St. Croix Preparatory Academy 0New Heights School, Inc. 2

To e Birch Grove Community School 1

Vadnais Heights AFSA High School 1

Waite Park Great River Educa on Center 2

Warba Northern Lights Community School 2

Waseca Team Academy 2

West Saint Paul Bluesky Charter School 2General John Vessey Jr Leadership 0River Heights Charter School 2

Winona Blu view Montessori 8

Woodbury Math & Science Academy 3Michael Frome Academy 2

For a directory of Minnesota charter schools by sponsor, visith p://www.mncharterschools.org/page/1/directory.jsp


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Appendix B__________________________ Auditors used a variety of terms for the infrac ons they discovered and where applicable, we tried to combinesimilar infrac ons. Here are some de ni ons of some of those accoun ng terms:

Late AuditAccording to Minnesota Statute 123B.77, all school districts and charter schools must submit their audited

nancial data for the preceding scal year to MDE by Nov. 30 of each calendar year. Also, the schools mustprovide a copy of the completed nancial audit report to the dept by Dec. 31.

Limited Segrega on of Du esA system of internal control contemplates separa on of du es such that no individual has responsibility toexecute a transac on, have physical access to the related assets, and have responsibility or authority to recordthe transac on.

Prepara on of Financial StatementsSmall schools some mes have audit rms prepare their annual nancial report. The lack of internal resourcesavailable to prepare the annual nancial statements is considered a de ciency.

Annual Financial Repor ng Under GAAPIf the school does not have an internal control policy in place over annual nancial repor ng, the poten alexists that a material misstatement of the annual nancial statements could occur and not be detected by theschools internal controls.

Bank Reconcilia onSchools must prepare bank reconcilia ons that reconcile to the general ledger.

CollateralMinnesota Statute 118A.03 requires that public deposits in excess of deposit insurance must be protected bya bond or collateral which, when computed at its market value, shall be at least ten percent more than theamount of the excess deposits.

Oversight over Federal Aid RequirementsFederal aid is paid out as the school submits the relevant expenses incurred though the state or federaloversight agency. Therefore, for expenditures reimbursed by the U.S. Department of Educa on, the school isresponsible for submi ng reports of incurred eligible expenditures.

Budget DetailThe school must approve a detailed budget for each scal year.

Employee AdvancesAll school expenditures must have a public purpose and the school must have speci c, implied, or expressedauthority for costs to be a legal expenditure. As such, dona ons or loans to individuals are not allowed underMinnesota law.

Lack of Documenta on of Employee Pay RatesEmployee contracts should clearly document approved salaries. The lack of this subjects the school to a higherrisk that fraud or error could occur and not be detected in a mely manner.


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Payroll Transac onPayroll transac ons must be correctly calculated.

Con ict of Interest Transac onsState statutes, the IRS, and good business prac ce requires that the governing body and management beaware of con ict of interest transac ons that could compromise the boards nancial integrity.

Adequate Accoun ng SystemSchools must maintain a comprehensive and accurate general ledger as well as use accoun ng so wareapproved by MDE.

Documenta on of Compliance with Lease Laws & Regula onSchools must maintain proper documenta on of the formal ac ons of the charter school board mee ngs.

Material Audit AdjustmentLack of internal controls means the possibility for some misstatements in areas such as intergovernmentalrevenue, tui on revenue, capital assets, cash, equity, accounts payable.

Improve Manual Journal EntriesSchools must have formal review policies for journal entries.

Legal ComplianceMinnesota Statute 471.38 requires a declara on rela ng to each payment the governmental unit prepares.The declara on provided for is su cient if in the following form: I declare under the penal es of laws that thisaccount, claim or demand is just and correct and that no part of it has been paid.

Designa on of DepositoriesMinnesota Statute 118A.02 requires that each of the schools depositories of public funds be designated by thegoverning body, or by its treasurer or chief nancial o cer.

Adjus ng Journal EntriesSchools should have controls in place to prevent and detect a material misstatement in the nancialstatements in a mely manner.

Signi cant Journal EntriesSchools should maintain a good system of internal control for recording and processing entries material to the

nancial statements.

Electronic Funds Transfer PolicyMinnesota Statute 471.38 requires that schools have policies in place or controls to address all the electronicfunds transfer requirements.

Designa on of AuthorityMinnesota Statute 471.38 requires charter schools to annually delegate authority to make electronic transfersto a designated business administrator.

UFARS ComplianceMinnesota Statute 123B.77 requires the audits of all school districts to include a determina on of compliancewith the Uniform Financial Accoun ng And Repor ng Standards (UFARS).


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General Disbursement Transac onsSchools must be able to prevent or detect a misstatement in general disbursements.

Lack of Suppor ng Documents/Control for ExpendituresSchools must have adequate suppor ng documenta on for all disbursements.

Inadequate Documenta on of the Components of Internal ControlSchools must have adequate documenta on of the components of internal control.

Lack of Prompt PaymentMinnesota Statute 471.425 states schools must pay government bills on me and pay extra interest whenpayments are late.

Oversight Over Federal Aid RequirementsFederal aid is awarded to schools based on needs. Schools must submit the relevant expenses incurred.

Lack of GovernanceSchool boards should maintain control of ma ers concerning their school and not delegate complete control to

the execu ve director.

Documenta on of Credit Card ChargesSchools must maintain adequate suppor ng documenta on for credit card purchases.

Child Nutri on ClusterSchools must provide properly approved free and reduced meal applica ons.

Documenta on of Compliance with Lease Laws and Regula onsSchools must maintain proper documenta on of the formal ac ons of the charter school board mee ngs.Without this documenta on, there is no proof the school complied with provisions of laws, regula ons,

contracts, and grant agreements.

Payment of InvoicesMinnesota Statute 471.425 requires charter schools to pay each vendor obliga on according to the terms of each contract within 45 days a er the receipt of the goods or services or the invoice for the goods or services.

Insu cient RecordsMinnesota Statute 15.17, requires the school to preserve all records necessary to a full and accurateknowledge of their o cial ac vi es.

Budget Approval ProcessMinnesota Statute 123B.77, states prior to July 1 of each year, the governing board of each district shallapprove and adopt its revenue and expenditure budgets for the next school year. Expenditures of funds inviola on of this subdivision shall be considered unlawful expenditures.

Coding of Revenues/ExpendituresMinnesota Statute 6.65 requires the audits of all school districts to include a determina on of compliance withthe Uniform Financial Accoun ng and Repor ng Standards.


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Cash Receipt Documenta onSchools must maintain internal controls to require proper documenta on of cash receipt transac ons.

Inadequate Capital Asset RecordsSchools must maintain an inventory asset list so auditors know what assets belong to the school.

Receipts Deposited TimelySchools must have internal controls that would require mely deposit of receipts. MethodologyThe informa on gathered in this report was found in nancial audits that charter schools are required to leyearly with the Minnesota Department of Educa on and stored at its headquarters in Roseville. Schools arerequired to hire private auditors to conduct the reports. When an auditor nds an infrac on, the school must

le a Correc ve Ac on Plan which must be approved by MDE.

In June and July 2009, Minnesota 2020 made electronic copies of all the 2007-08 nancial audits and examinedthem to nd what auditors de ned as infrac ons. There are fewer than 10 audit rms that conducted theaudits, and while all the audits followed the same format, there were some vagaries in their descrip on of

infrac ons. Where applicable, we combined like items.

Its important to note that accessing this public data is not simple. While all school districts are requiredto submit a nancial audit to the Minnesota Department of Educa on each year, these documents are notavailable online. Physically examining public MDE documents is a cumbersome, me-consuming process.

This year, Minnesota 2020 scanned each charter school nancial audit and is making them available online. Weencourage MDE and other organiza ons to follow our lead and provide documents in a more easily accessibleformat.


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