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When Charter Schools Look More Like Organized Crime Than Public Education:Collusion between American Leadership Academy and their auditor leaves millions unaccounted for(Full report at )Arizonans for Charter School Accountability (ACSA) believes that the American Leadership Academy (ALA), with the assistance of their long time auditor Joel D. Huber, have systematically and secretly utilized tax funds, student activity fees, bus fees, food service revenue, athletic program revenue, and public donations for the benefit of the charter owner rather than the schools, in violation of ARS. 13-1818. Auditor Joel D. Huber has also failed to disclose any related party transactions made by ALA 2012-2017 on both annual audits and IRS 990 submissions, calling into question the veracity of every aspect of audits conducted by his firm.ACSA has filed numerous complaints with the Arizona State Board of Accountancy regarding Joel D. Huber’s failure to disclose related party transactions and misstatement of school revenue at ALA. The Arizona State Board for Charter Schools has received multiple complaints from ACSA regarding ALA’s consistent failure to disclose expenditures for supplies, student support, instructional support, plant operations, food service, extracurricular activities and athletics. New information provided by two ALA 2017 IRS 990 submissions prompts us to believe systematic fraud has been perpetrated by ALA and Joel D. Huber. The annual audits performed by Joel D. Huber failed to disclose millions in local revenue collected by ALA and Mr. Huber failed to disclose ALA’s rental payments and land purchases made to owner Glenn Way in 2017. Apparently there has been a management contract with ALA Management Inc. since 2011 ($23 million in 2017) that Mr. Huber has never reported on audits or 990’s. The Attorney General needs to conduct a complete audit of ALA financial records 2011-2017. (2012-2017 ALA audits and 990 submissions are the basis of this complaint - ALA 2018 audits and 990’s are not yet available to the public)Misstatement of ALA RevenueALA has failed to disclose revenue or expenditures on Annual Financial Reports (AFR) for several school programs from 2012-2017.ALA has an ongoing lunch program operated by an outside, unrelated vendor, Sedexo USA. ALA has not disclosed any revenue or expenditures for food service 2012-2017. ALA disclosed, for the first time, food service revenue of $1,488,534 and expenditures of $942,700 on their 2018 Annual Financial Report. Similar revenue and expenses should have been reported 2012-17.ALA charges parents for bus transportation. ALA claimed on their 2017 Bond application that fees collected for bus transportation have averaged $41.81/pupil over the prior five- year period:Transportation Fees “The Borrower has historically received Local Revenue derived from the collection of student transportation fees. The Borrower’s historic PPOR from this source was $41.81 averaged over the preceding three years. A PPOR assumption of $46.69 averaged over the five years included in the Projection was used in calculation of revenue from this source, accounting for 0.61% of all revenue received over the period covered by the Projection.”ALA had approximately 6000 students in 2017 @ $41.81/pupil = $250,860 in unreported revenue from transportation fees. This is consistent with the $264,586 in transportation fees ALA reported, for the first time, on their 2018 AFR. Prior to that, no transportation fee revenue has been reported on AFR’s. ALA spent $881,690 in state funds for transportation in 2017 with no accounting for bus fees charged parents.Student Activities: ALA has an extensive AIA high school sports program in each high school and offers dozens of other extra curricular activities. ALA reported on their 2012 AFR that student activities revenue was $482,542, with an enrollment of 3,113 equaling $155.00/pupil. In 2017 ALA reported student activities revenue of only $431,736, with an enrollment of 6,046 equaling $71.41/pupil. These numbers are highly inconsistent with other charter schools engaged in high school AIA sports. ALA has never reported any expenditures for extra curricular activities or athletics on their AFR’s 2012-2017. ALA reported in their 2018 AFR of collecting just $104,589 in school activity fees but received $2,859,579 in “donations and fees from other district”, whatever that might be. ALA continued to claim $0 expenditures for extra curricular activities and athletics on their 2018 AFR. The nearly $3 million in fees and donations reported in 2018 are probably closer to actual revenue that should have been reported 2012-2017.ALA auditor Joel D. Huber has failed to disclose revenue from food service and bus fees on audited financial statements and 990 forms 2012 – 2017.In 2017, Joel D. Huber failed to disclose $1,009,082 in “donations” reported on the 2017 AFR as local income on both the 2017 audit and the 990 form. Joel D. Huber over-stated state and federal revenue on the 2017 audit and 990 form by $909,082 based of both 2017 AFR disclosures and Arizona Department of Education payment records.It is likely that ALA has received significant unreported revenue from transportation fees, food service, extra curricular activity fees, and athletic program income but Huber’s 2017 audit and 990 submission reported total local revenue as just $433,638. Local revenue reported on the 2017 AFR totaled $1,440,818, three times what Huber reported on the 2017 audit and 990. ALA has not submitted an audit for 2018, but their 2018 AFR reported total local revenue as $4,864,968 by finally including bus fees, food service, and more accurate extra extra-curricular and athletics fees. If $4.8 million is an accurate accounting of local revenue, it is ten times more than has been reported by ALA in the past. It appears that Joel D Huber worked with the management of ALA to hide millions in revenue and expenses for transportation fees, food service, extra-curricular activities and athletic programs by failing to report this income on both annual audits and IRS 990 submissions 2012-2017. ALA has, in essence, been running these programs “off the books” without disclosure of revenue or expenses, apparently for the financial benefit of the owners - facilitated by the lack of disclosure provided by their auditor.Huber failure to disclose related party transactions:Joel Huber has failed to disclose any related party transactions at ALA from at least 2012 - 2017 on annual audits or IRS 990 submissions. Related party relationships became evident in 2018 when ALA received a $192,000,000 bond to buy schools they were leasing from various SchoolHouse Development companies. It was discovered that SchoolHouse Development is owned, in part, by ALA founder Glenn Way and that he benefitted by over $37 million in the sale. Further investigation revealed that the $8,726,554 ALA paid in rent in 2017 went to the SchoolHouse Development companies owned by Glenn Way. Way collected over $27 million in rent from his charter schools 2012-2017 that was never declared as a related party transaction. He then sold the schools to his charter company for an additional $37 million profit in 2018.ALA submitted a 2016-17 990 form on July 3, 2018 that was completed by a new auditor, Bart W. Forrest of Forrest & Company out of California. Mr. Forrest listed a multitude of related party transactions that had never been revealed before by Joel Huber, including a $23 million contract with ALA Management Services, Inc., a firm owned by Glenn Way, to provide personnel and management services that began in 2011 and the purchase of land from Mr. Way for $3.6 million. This was in addition to $8.6 million in rental paid to firms owned by Mr. Way. Overall, firms owned by Glenn Way received $31.8 million of the $39.4 million in total expenditures in 2017 according to the Forrest & Company 2017 990:The ALA 990 was amended on August 4, 2018 when a new 990 form was submitted by Joel D. Huber. All financial numbers are identical in the two 990 forms, but Mr. Huber changed the Part IV related party disclosure page by hiding all but one related party transaction:Huber’s 2016-17 990 now states that ALA’s only related party transaction is the 2011 personnel and management agreement for $23,159,188 with Glenn Way’s ALA Management Services, Inc. Huber does not disclose rent paid to Way’s real estate firms or the property purchased from Way as related party transactions. Huber goes on to declare that Glenn Way and other ALA board members received substantial payment from ALA Management Services Inc.:Joel D. Huber’s failed to disclose on both annual audits and 990 submissions 2012-2017 that over 80% of ALA funds were being diverted to companies owned by Glenn Way, including all facilities rental, personnel, and management services. Huber finally revealed that three ALA board members, including Way, received six figure salaries from the related party management company - payments he did not disclose on the 2017 audit submitted to the Charter Board.ALA has displayed a systematic pattern of lying about revenue streams and failing to disclose who exactly is benefiting from the revenue of the school. ALA refuses to report where money is being spent in numerous areas – food service, extra curricular activities, athletics, student support, instructional support, and non-instructional supplies. ALA has gone to great lengths to separate themselves from the related party companies that received over $30 million in state funds in 2017 alone. The audits performed by Joel D. Huber have contributed to this pattern of dishonestly by misstating local revenue and hiding related party transactions rather than accurately conveying how the charter holder is utilizing state funds, parent fees and donations. The Charter Board completely depends on the veracity of charter annual audits to determine all aspects of financial and operational compliance – to the point that there has never been an independent state audit of a charter school. ALA’s auditor, Joel Huber, is responsible for dozens of charter audits around the state – all of which must be called into question based on the deceptions that are rife throughout his ALA audits 2012-17.The Charter Board’s policy of notifying charter holders of wrong doing and accepting corrections is completely inadequate in this case. Tens of millions in unaccounted public funds at ALA cannot be explained or recovered unless a complete and accurate audit of their financial records is performed by an unbiased state auditor. To prevent future abuse, the Charter Board should conduct random state audits of charter schools to put audit firms on notice that their work might be actually be scrutinized. The Arizona State Board of Accountancy has been contacted regarding the actions of Joel Huber. The Attorney General has an obligation to investigate charter holders that are misappropriating public funds under ARS 13-1818. Misuse of over $25,000 is a class 4 felony under this law. ALA has potentially misappropriated millions. A complete financial audit is called for._______________________________________________________________________________________________________________________Appendix 1 ALA 2017 Audit – Statement on rental expenditures that fails to disclose related party receiving rental paymentsAppendix 2 ALA 2017 AFR Revenue page 1Appendix 3 ALA 2018 AFR Revenue page 1Appendix 4 ALA 2016-17 990 statement of revenueAppendix 5 ALA 2017 Audit Revenue and ExpensesAppendix 6 ALA 2017 AFR Expenses (Yellow= no expenditures shown)Appendix 7 ALA 2017 State Equalization Payments Appendix 8 - Board of SchoolHouse TE LLC that manages Portfolio Charter Fund XVII , the firm that sold property to ALA for $3.6 million in 2017 ................
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