OSDE investigation of Epic Charter Schools reveals major issues; Hofmeister to recommend probationary status

OSDE investigation of Epic reveals flawed attendance data, poor transparency, millions in misallotted public funds

Hofmeister will recommend probationary status for school

OKLAHOMA CITY (June 21, 2022) – An extensive investigation into Epic Charter Schools by the Oklahoma State Department of Education (OSDE) has uncovered significant problems, including dubious attendance data that may have resulted in $780,000 in improperly obtained state funds and the improper disbursal of more than $8.5 million in bonuses to school administrators. The investigation was prompted by a complaint made against Epic in December 2021 by a former member of Epic’s governing board, Community Strategies Inc.

State Superintendent of Public Instruction Joy Hofmeister said she will recommend in the coming weeks that the State Board of Education place the virtual charter on probation and require it to undergo comprehensive corrective action. Findings in the OSDE report will also be shared with law enforcement to determine if further action is warranted.

While the OSDE could not substantiate some complaints made by the former Community Strategies board member, the investigation revealed serious problems in:

• Governance,
• Enrollment and attendance reporting, and
• Improper, unapproved and excessive payments to administrative staff.

Concerns raised in this probe are in addition to those highlighted by State Auditor and Inspector Cindy Byrd in a 2020 audit of Epic. That state audit, requested by Gov. Stitt and Superintendent Hofmeister, found widespread evidence of fraud and mismanagement that resulted in the State Board of Education recouping more than $9 million and the OSDE assessing more than $10 million in fines to Epic.

Moreover, the historic lack of oversight, deceptive practices and mismanagement of taxpayer funds led to the OSDE recommending that Epic’s accreditation status be adjusted to “Accredited with Probation.” Although the State Board ultimately rejected Hofmeister’s recommendation to put Epic on probation at that time, the OSDE demanded in late 2020 that Community Strategies take corrective action across more than 15 areas of noncompliance. In response, Community Strategies proceeded with extensive reforms that included cutting ties with Epic’s founders and assurance that the virtual charter’s governing board would provide strong oversight.

But Hofmeister said the OSDE investigation found that major problems persist.

“It is clear that serious challenges remain. For the sake of the thousands of Oklahoma families and students who depend on Epic, it is critical that things be made right,” she said. “The OSDE investigative report starkly illustrates that Community Strategies and Epic must focus on developing and improving processes and procedures that are efficient, transparent and follow the letter of the law. The students of Epic deserve an excellent education and the taxpayers of Oklahoma need Epic to fully comply with the law.”

Enrollment and attendance reporting

Among the most alarming issues are those involving enrollment and attendance procedures. Accurate attendance reporting is not a new problem for Epic. Prior to 2018, the virtual charter reported 100 percent attendance for all its students. In response, the state Legislature passed a law in 2018 requiring statewide virtual charter schools to adopt attendance policies under legislatively established guidelines. That was followed by a law in 2020 mandating that a virtual charter student who does not complete an instructional activity in a 15-consecutive-day period must be withdrawn from the school. Once a student is dropped from the rolls, the district no longer receives funding for that student.

The OSDE’s examination of Epic’s student attendance data revealed troubling patterns of students being absent 14 consecutive days, “present” for the 15th day and then absent for another 14 consecutive days. In the 2020-21 school year, there were 6,720 instances of this 14-1-14 pattern among 4,819 unique students. By contrast, there were no instances of this 14-1-14 phenomenon in the two prior school years.

According to Epic, an algorithm was created as a result of the change in law, so that student instructional activities are allocated across a period of time even though the student may not have completed any instructional activity on the day marked present. “With the vast number of students with the 14-1-14 pattern, it appears Epic may have intentionally designed the algorithm in such a way that a large number of students were never absent on the 15th day, were not dropped from enrollment and Epic continued to receive funds for these students,” stated the OSDE report.

OSDE investigators requested the coding of the algorithm used in Epic’s student information system to record student attendance, but Epic could offer only limited information, claiming the full code and algorithm are the product of a third-party vendor.

“No one at the district could explain how a specific student’s record of completed instructional activities would be converted into the student’s attendance records after being run through the algorithm – it is a ‘black box,’” wrote OSDE investigators.

Consequently, the OSDE does not have sufficient information to verify whether the bizarre attendance patterns are an intentional skirting of the law, a coincidence or inconsistency. While Epic officials could not explain the algorithm and coding attributed to a third-party vendor, the OSDE lacks the authority to issue subpoenas for that material. For this reason, the OSDE intends to provide the information it has gleaned to law enforcement agencies able to conduct a more thorough review.

In addition to the aforementioned 2020 law, regulations prohibit a school from counting a student on its enrollment records until the student is physically present at school or, in the case of a virtual charter, when the student completes an instructional activity. Statute defines what may count as an instructional activity. As is the case with the truancy process, the OSDE discovered similar inconsistencies in Epic’s enrollment data.

The OSDE identified 4,569 Epic students in the 2020-21 school year who were marked absent (no instructional activity completed) on their first date enrolled. For these students, there were on average 8.5 days between the first day of enrollment and the date when the student was first marked as completing an instructional activity. In total, Epic certified data that added 39,045 days of membership that – according to its own certified enrollment and attendance data – should not have been counted. This results in approximately $780,000 of state funds being misallocated to Epic. It is worth noting that this amount merely reflects what the OSDE found investigating a single data-reporting pattern in a given school year; it is possible additional reporting problems exist in other school years.

Related issues found include:

• From the 2019-20 school year to the 2020-21 school year, total absences increased from 18,275 to 647,624 (a 3,443.8 percent increase).
• For the 2020-21 school year, nearly 9 percent of all students enrolled in Epic (6,436 students) were absent more than half of the time they were enrolled. Almost 5 percent (3,399) were absent more than 75 percent of the time they were enrolled.

Improper award and reporting of compensation to employees

OSDE investigators were able to confirm the concerns of a former Epic internal auditor who had discovered questionable treatment of public funds, specifically “extremely large and unapproved bonuses that exceeded employee contracts without board approval” and in “clear violation of board policy that expressly requires the proration of bonuses for partial-year employees.”

Perhaps the most glaring alleged illegality involves bonus payments that Epic made to administrators on June 7, 2021. No evidence exists that more than $8.5 million in bonuses were approved by Epic’s governing board, as required by state law. According to senior leaders at Epic, it was believed that the superintendent had the authority to approve and order the bonus payments. Subsequently, three members of Epic’s staff (including the superintendent) determined bonus amounts and directed they be paid. In addition to being a violation of state law, this act was directly contrary a resolution that Community Strategies had adopted less than a year earlier requiring the school to present and garner approval from the governing board for all financial transactions.

In addition to the payment of unauthorized bonuses, some employees received bonuses that exceeded amounts allowable in their contract, also a violation of state statute. These bonuses included $67,500 that Epic Superintendent Bart Banfield approved for himself and $34,167 for his wife, also an Epic employee. Another employee received a bonus that was 600 percent more than the amount of the employment contract; that employee had worked at Epic for only 35 percent of the school year for which the bonus was paid.

Governance

The OSDE investigated the Complainant’s allegations of violations of state law regarding competitive bidding of contracts and the Open Meeting Act, improper terminations of school staff and involvement of the board in day-to-day activities of the district, and Title IX.

The OSDE found numerous instances in which Community Strategies board members have taken on an inappropriately outsized role in daily operations of Epic. Interviews with district staff unveiled a culture of disharmony, uncertainty and fear in the workplace. Compounding matters is that board members appear to lack the training for understanding school finance, operations, ethics and legal compliance needed to effectively govern Epic.

Due to its collective inexperience and significant turnover over the past 18 months, Community Strategies has struggled to comply with state and federal laws and regulations. While the OSDE investigators concluded that the board’s policies largely comply with applicable laws and regulations, the board and district consistently have failed to follow their own policies. The OSDE found violations of Community Strategies’ own procurement policies, including executing compliant contracts and competitive bidding, as well as potential conflicts of interest with vendors.

The OSDE also believes violations of the Open Meeting Act have occurred, including the requirement to post timely agendas and provide legally sufficient language.

“It is unfortunate and disappointing that Epic, despite a number of positive changes made, remains an entity fraught with poor transparency and questionable practices,” Hofmeister said. “Meaningful engagement of students seems less important to Epic than ensuring high numbers of kids remain on the rolls to keep funds flowing. I am hopeful the State Board of Education will recognize the severity of these problems and that Epic’s leadership will act urgently on the recommendations laid out in the investigative report.”

The full report is available to view online.