State Agency - NASACT



TOPIC: Charter SchoolsOFFICE: AuditorSTATE: NMDATE: 09/23/2014QUESTION / ISSUE: Under New Mexico state law, charter schools and their local and state chartering authorities are required to receive an annual financial audit “in accordance with generally accepted auditing standards and rules issued by the state auditor.” In recent years, the inclusion of charter schools as component units in the audit reports of their chartering authorities has caused some consternation amongst those authorities. While the oversight authority of chartering authorities over charter schools is limited in certain respects, under GASB agencies that meet the criteria to be a component unit of the primary government must be included with the audited financial statements of the primary government. Therefore, certain chartering authorities in New Mexico have become increasingly concerned that poor opinions and audit findings received by charter schools detrimentally impact the authorities’ financial audit reports. Certain legislative education committees in New Mexico are seeking to reform state law to address this issue and have asked the New Mexico State Auditor to assist them. We are requesting the following information to better understand how other states deal with this issue. How are charter schools in your state authorized? Are they authorized by local school districts or by a state board/department of education? What is the governance structure of charter schools in your state, i.e., do they have separate governing boards that are appointed or elected?Do the charter schools meet the criteria to be reported either as a component unit of a local school district or the state board/department of education? Do the charter schools typically issue stand-alone financial statements? Does your state law require that charter schools issue stand-alone financial statements?Do the authorizing authorities/agencies of the charter schools have any responsibilities under state law to monitor the charter schools’ annual financial audit reports? Are there any mechanisms or penalties for charter schools that receive poor opinions or audit findings?StateCommentsAlabamaAlabama does not have charter schools. There has been some talk over the years about establishing them; however, attempts to pass the legislation have been unsuccessful.ArizonaArizona allows the following governmental entities to authorize charter schools: State Board of Education, State Board for Charter Schools, state universities, community colleges, and local school boards. All of these entities, except the state boards, may also operate charter schools. Those that operate charter schools may authorize those schools themselves or have them authorized through another authorizer. Most charter schools in Arizona are authorized by the State Board for Charter Schools and operated by independent nonprofit or for-profit organizations.Every charter school is required to have a governing board. The governing board is separate from the authorizer, unless the authorizer is also the operator. If the authorizer is also the operator, in most cases it is the authorizer’s governing board but it can be separate. For governmental operators, the elected governing boards are also the charter school governing board. Otherwise, the charter school’s governing board is appointed by the operator in accordance with the school’s charter.Charter schools do not meet the criteria to be considered component units of their authorizer, but may meet the criteria to be a component unit of its governmental operator (which, as noted above, could be the same as its authorizer). If Government-operated charter schools are separate legal entities, they meet the criteria for being a component unit. If not legally separate, they are part of the primary government.Every charter school is required to have an annual audit; however, stand-alone financial statements are not required. Most government-operated charter schools do not issue stand-alone financial statements.The state boards have oversight of the annual financial audit reports of the charter schools they authorize. The Auditor General’s Office has oversight of the annual financial audit reports of charter schools authorized by the state universities, community colleges, and local school boards; however, those authorizers may also monitor their authorized charter schools’ audit reports. All authorizers may revoke a school’s charter for various reasons, including poor audit opinions and audit findings. The state boards have a formal process for doing so. The Auditor General’s Office may not revoke a school‘s charter, but may be able to request that the State Board of Education withhold state funding from a school for noncompliance with the Uniform System of Financial Records for Arizona Charter Schools (USFRCS), an accounting policies and procedures manual prescribed by the Auditor General’s Office and the Arizona Department of Education. The State Board of Education is not required to withhold state funding. Further, state statute allows an authorizer to exempt its charter schools from compliance with the USFRCS. If the authorizer has provided a charter school with such an exemption, the withholding of state funding for noncompliance with the USFRCS is not applicable. GeorgiaThey can be authorized by either a local school district or by Georgia’s State Charter Schools Commission.Per the Georgia Department of Education, “Charter schools are governed, not by a local board of education, but by an autonomous non-profit board of directors, and they receive flexibility from certain state and local rules and regulations in exchange for a higher level of accountability”.Several of the charter schools that are authorized by the local school district are reported as blended or discretely presented component units of the local school districts based on the GASB 39/61 decision matrix. In many instances the local school districts serve as the fiscal agent for these charter schools. The charter schools authorized by the Georgia State Charter School Commission, do not meet the component unit criteria because of the state funding following the actual FTE of the student. These charter schools are separate non-profit organizations.Georgia’s State Charter Schools Commission, through statute and adopted policies require each state charter school to issue stand-alone financial statements. Additionally, the Commission requires an annual audit of the financial statements by October 1 following the fiscal year end which has to be submitted to the Commission.The Georgia State Charter Schools Commission by statute has the duty to monitor all state charter schools and to adopt appropriate governing policy. The Commission’s Policy 691-2-.03 requires the following:Monitoring in General. All state charter schools will be monitored by the State Charter Schools Commission of Georgia (SCSC) to determine the charter school’s attainment of its performance goals and operational compliance, which will include academic and financial performance. The SCSC staff shall prepare an annual report for the SCSC chairperson that includes details regarding each state charter school’s academic performance and operational compliance.The State Charter School Commission can terminate a charter school if the school is in violation of the provisions of O.C.G.A. 20-2-2068. Financial performance is a reason the Commission can terminate a charter which will close a Charter School.HawaiiAlthough Hawai‘i has had charter schools for nearly 20 years, the system has operated with little or no oversight. Over the past couple of years, Hawai‘i’s charter school system has been undergoing a major overhaul. Early this year, our office followed up on a previous audit and documented many of the policies and procedures of this new system. I reviewed that follow-up report and pulled the sections that I think address your questions.Hawai‘i’s charter school system is composed of the Board of Education, the State Public Charter School Commission, and charter schools and their governing boards. The State Public Charter School Commission is the statewide authorizer that reviews charter applications; approves or denies charter applications; contracts with applicants; oversees public charter schools; and decides whether to authorize, renew, deny renewal of, or revoke charter school contracts. The commission’s duties include negotiating and executing sound charter contracts with each approved public charter school; monitoring, in accordance with charter contract terms, the performance and legal compliance of public charter schools; and determining whether each charter contract merits renewal, nonrenewal, or revocation. The commission is also required to submit to the Board of Education and Legislature an annual report summarizing, among other things, the academic and financial performance of all charter schools it oversees. In turn, each charter school overseen by the commission must submit an annual report to assist the commission in gathering complete information about each school. The annual report must include the status of the charter school’s compliance with annual performance targets, as determined by the charter contract.Each charter school has a governing board, whose members are elected by the school community. The board is party to charter contracts with the commission and responsible for the financial, organizational, and academic viability of the charter school and implementation of the charter.Reported as a component unit of the state Department of Education.Charter schools are required to submit the following financial reports to the commission, which are reviewed and analyzed by the commission’s financial performance manager and an analyst to monitor whether charter schools are meeting their projections:Budget (submitted in June)—reviewed to determine a school’s projected revenues and expenses. The financial manager contacts the school it is shows a projected deficit;Unaudited financial statements (submitted in October)—entered into the commission’s financial framework. The financial manager prepares a consolidated charter school income statement that is submitted to the Departments of Education and Accounting and General Services;Audited financial statements (submitted in November)—re-entered into the commission’s financial framework; the school is rated as meeting, not meeting, or falling far below standards;Quarterly reports—quarterly re-entered into the commission’s financial framework to determine a preliminary rating. The reports measure how schools are performing during the year and help identify trends; andCash flow forecast for the year—school estimates of actual and projected cash flows for the year help the commission identify cash flow problems.At the end of the school year, the financial performance manager assigns a rating to each school. The manager also collects enrollment data from the DOE for per-pupil spending assessments and reconciles the data with enrollment numbers submitted by each charter school.If the commission finds deficiencies in a school’s performance or legal compliance, the commission and school will follow an intervention protocol, which is included in the charter contract. Intervention may be initiated if the commission finds that a school is non-compliant with applicable laws, rules, policies and procedures, and terms and conditions of the contract; or fails to meet performance expectations set forth in the Performance Framework.The intervention protocol, which outlines the process, will enable the commission to take timely and appropriate action to notify schools about performance and compliance concerns and provide schools a reasonable opportunity to remedy such problems. Upon finding a school’s performance or legal compliance unsatisfactory, the commission issues a deficiency notice to the school. The notice states with specificity the deficiency; the applicable regulatory, performance, or contractual provision(s) not met; the expected remedy, including whether a corrective action plan is required; and the timeframe by which the commission expects the school to remedy the deficiency or submit a corrective action plan.The organizational performance manager is responsible for issuing notices of deficiencies to charter schools, with the assistance of the other framework managers. If the school does not satisfactorily fix its deficiencies, the commission will issue a warning notice before initiating revocation proceedings in accordance with state law, and applicable administrative rules.Idaho (OPE)We did a small study last year, which you might find useful: law allows the following entities to authorize a charter school:A local school district that operates grades K through 12An intermediate school districtThe board of a community collegeThe governing body of a state public university The authorizing body and the charter school founder must negotiate a charter that meet criteria established in state law. The authorizing entity is charged with the responsibility of oversight of the charter school. Each charter school must have a board, the members of which may either be appointed or elected.No, due to the nature of the contract between the authorizer and the charter school board, charter schools are not reported as a component unit of either the authorizing entity or the State of Michigan.Yes, state law requires charter schools to issue stand-alone financial statements. State law allows the authorizing entity to revoke the contract with the charter school if the authorizing entity determines that the charter school failed to "meet generally accepted public sector accounting principles and demonstrate sound fiscal stewardship."Minnesota (OSA)While the Minnesota Office of the State Auditor does limited work with charter schools, I did attach our state statutes that answer most if not all of your questions. I hope that you find this information helpful.MissouriPlease see "Frequently Asked Questions: Charter Schools" on the Department of Elementary and Secondary Education (DESE) website at , as well as Section 160.400.8, of the Revised Statutes of Missouri (RSMo), available on the Missouri General Assembly website at answer to question 1.This office has not formally analyzed charter schools under the GASB's financial reporting standards for component units. However, based on our research and observations, we can state the following:A charter school is a legally separate entity (a nonprofit corporation) with its own governing board. Neither the DESE nor the sponsor organization (usually a college or university or a local school district) appoints the board members. The sponsor and the charter school do enter into a legally binding agreement detailing the formation and governance of the school. Also, the sponsor receives state funding (.5 percent of the charter school award) to compensate for the costs of serving as sponsor and, as discussed in the response to question 5, performs certain monitoring activities.Charter schools are not treated as component units in the most recent financial statements of two frequent sponsors--the University of Missouri (Columbia and Kansas City campuses) and the University of Central Missouri, as well as the financial statements of the city of St. Louis public schools, which also sponsor at least one charter school.Yes, see Section 160.405.4(4), RSMo.The DESE requires charter schools to submit audited financial statements for review by that department. The only mechanism or penalty for poor audit results is potentially increased financial monitoring through disbursement of funds on a reimbursement (rather than an advance) basis (referred to as a Cash Management Plan by the department). Also, the sponsor is responsible for monitoring a school's compliance under Section 160.405, RSMo, including fiscal monitoring at least each renewal period, and may revoke sponsorship if public funds are in peril.NevadaCharter schools are formed pursuant to the provisions under state law (NRS 386.490 to NRS 386.649). Per NRS 386.515, a charter school may be formed under the sponsorship of three different entities.Local school districts must seek authorization form the State Department of Education to sponsor charter schools. The board of trustees of a local school district may sponsor a charter school within the boundaries of their district after receiving such authorization. A college or university within the Nevada System of Higher Education may also sponsor charter schools upon authorization by the State Department of Education.The State Public Charter School Authority sponsors charter schools whose applications have been approved by the State Public Charter School Authority. Per NRS 386.525, prospective charter schools submit applications to the proposed sponsor (listed above) for review and approval. Per NRS 386.549, charter schools have separate governing boards that are given such reasonable and necessary powers, not conflicting with the Constitution and the laws of the State of Nevada, as may be requisite to attain the ends for which the charter school is established and to promote the welfare of pupils who are enrolled in the charter school. Per NRS 386.549, charter schools must specify in their application the method for nominating and electing the persons who will govern the school.No. The charter schools are not reported as component units of the local school district or the Department of Education.Yes. State law (NRS 386.540) and regulations adopted by the Department of Education (NAC 387.775) require each charter school in the state to issue annual audited financial statements.Per state regulations (NAC 387.780), the State Department of Education is responsible for reviewing each charter school’s annual audit report. The Department’s review must evaluate whether the charter school complies with applicable statutes and regulations and identify violations of statute and regulation reported therein. Per state regulations (NAC 387.780), within 60 days of receipt of their annual audit, the governing body of a charters school must advise the State Department of Education what action has been taken to prevent recurrence of each violation of law or regulation or to correct each continuing violation. The State Department of Education is responsible for evaluating the corrective action plan submitted by the governing body. If the governing body fails to submit a plan, or the State Department of Education determines the plan is not being complied with, the Department must, through the State Office of the Attorney General, seek a writ from a court of competent jurisdiction to compel compliance.North CarolinaCharter schools are authorized through the State Board of Education (“State Board”). NCGS § 115C-238.29D. In particular, the North Carolina Charter Schools Advisory Board reviews applications and makes recommendations to the Board. Application requirements and contents are set out in NCGS § 115C-238.29B. North Carolina charter school board members are recruited or elected volunteers. Before a charter school opens, the founding members usually define how the initial members of the founding board will be selected, how subsequent members will be added, and the length of term, board size, and expectations for conduct.No charter schools in North Carolina operate under the auspices of a local school system. Therefore, all North Carolina charter schools operate independently of the public school system. However, all North Carolina charter schools remain accountable to the State Board for ensuring compliance with applicable laws and provisions of their charters. NCGS § 115C-238.29E.By law, North Carolina charter schools are required to meet “generally accepted standards of fiscal management”. (NCGS §115C-238.29G(a)(2)). This includes providing stand-alone financial statements. The primary responsibility for the fair presentation of financial statements rests with the reporting management of an organization. Accordingly, a process must be affected by a school’s management and other personnel and designed to provide reasonable assurance regarding the achievement and maintenance of the generally accepted standards as listed, for example, in the Charter School Financial Guide.North Carolina charter schools are subject to the financial audits, audit procedures, and audit requirements adopted by the State Board for charter schools. The State Board is authorized to terminate, not renew, or seek applicants to assume the charter if an audit determines a failure to meet the generally accepted standards of fiscal management. NCGS §115C-238.29G(a).OhioIn Ohio, only LEAs (local school districts), JVSs (Joint Vocational Schools) and ESCs (Educational Service Centers) may authorize conversion schools. There are also a number of school districts, including joint vocational school districts, and educational service centers that are eligible to authorize start-up schools. All other authorizers (e.g., any of the thirteen state universities and a qualified tax-exempt entity under section 501(c)(3) of the IRC under certain conditions) are eligible to authorize only start-up schools. These entities must submit applications to the Ohio Department of Education (ODE) and be approved to authorize in Ohio. Pursuant to recent legislative changes, ODE will also be subjecting these authorizers to a quality review process whereby the bottom-ranked 20% of authorizers will be non-renewed. A non-renewal allows the authorizers to continue authorizing their existing community schools but prevents them from opening new community schools in Ohio. The Ohio Department of Education also has authority to authorize certain community schools in munity schools, often called charter schools in other states, are public nonprofit, nonsectarian schools that operate independently of any school district but under a contract with an authorized sponsoring entity that is established by statute or approved by the State Board of Education. Community schools are public schools of choice and are state and federally funded. Each school has a governing board that is appointed.Refer to question 2 above. Community schools in Ohio do not qualify as component units of local school districts, etc. They are independent, primary munity schools in Ohio are statutorily required to file annual financial reports with the Auditor of State’s Office which are prepared using generally accepted accounting principles.Among other duties, authorizers in Ohio are required to monitor and evaluate the academic and fiscal performance, organization and operation, and the legal compliance of the community schools they authorize.OklahomaThe sponsor of a charter school in Oklahoma can be the board of education of a school district, the board of education of a technology center school district, a higher education institution, the State Board of Education (only when the purpose is to provide education services to youth in the custody or supervision of the state), or a federally recognized Indian tribe.Charter schools in Oklahoma have their own separate governing board. The makeup of the governing board is not prescribed by statute, but it is required to be outlined in the charter school’s application for sponsorship.As far as I know they do not. I review all school audit reports in our state and I have never seen a charter school included as a component unit in the sponsor’s financial statements. Charter schools in our state issue their own statements. Schools in our state have the option to file GASB 34 statements or a regulatory cash receipts and disbursements statement.Charter schools in Oklahoma are required to issue stand-alone financial statements. The State Department of Education is required by state statute to withhold state aid to any charter school that is late filing their audit. State aid will be withheld until the audit is filed with the state board of education. Audit requirements are required by statute to be listed in charter school sponsor contracts.As stated above, the State Department of Education is required by statute to withhold state aid to any charter school that is late filing their audit. In addition, the State Auditor is required to make a formal inquiry for any school audits not received within 11 months of the end of the fiscal year. If the audit is not received after the formal inquiry, the State Auditor must formally demand the audit within 30 days. However, the State Auditor’s office does not have any mechanism to enforce these demands. The only enforcement mechanism is the withholding of future state aid by the state board of education. In addition, the state board of education will withhold making federal reimbursements until late audits are received. If audits disclose that state monies have been illegally apportioned to, or illegally disbursed or expended by, a charter school or any of its officers or employees, the state board of education shall make demand that the monies be returned to the State Treasurer. If the monies are not returned, the state board of education shall withhold the unreturned amount from subsequent allocations of state funds otherwise due. The state board of education shall cause suit to be instituted to recover for the state any monies illegally disbursed or expended, if not otherwise recovered. The state board of education also reviews all A-133 audit reports and will withhold questioned costs in excess of $600 from subsequent federal reimbursements. All penalties are assessed on the charter school. State statutes stipulate that charter schools should list fiscal and oversight responsibilities in their sponsor contract and no responsibilities shall be delegated to a sponsor school district unless the sponsor agrees to assume responsibilities. Sponsor contracts must include the requirement for annual audits and sponsor contracts can be terminated for non-compliance with laws related to fiscal management or audit requirements.OregonCharter schools were established by the Oregon State legislature around 1999 as 501(c)(3) nonprofit organizations. The enabling statutes are Oregon Revised Statutes Chapter 338 at the following link: . This chapter of law is not exhaustive. You'll find many answers by reading it. Charter schools are required to have a sponsor. That sponsor is almost always the local school but I believe that recently a few have been established by the State Board of Education who has oversight responsibility for all Oregon schools.Each charter school has its own independently elected board of directors.Yes. Until recently all charter schools met GASBS 14 criteria for inclusion as component units of the sponsoring school districts. However, the GASBS 61 amendments to GASB 14 has resulted in fewer determinations by the independent auditor for inclusion as component units.Charter school law requires annual financial statement audits of each charter school. These are stand-alone financial statement reports. Audits are performed through contracts with independent CPA firms and must be performed in accordance with GAAS. However, in Oregon we allow OCBOA cash and modified cash basis financial statements although most choose to present the financial statements in accordance with GAAP.The Oregon Department of Education is the responsible authority for charter schools and is required to adopt the rules necessary to carry out those laws. Funding from the state to charter schools is the responsibility of the Department of Education which distributes funds from the State School Fund. I do not know if the Department of Education has the authority to penalize or has ever withheld funds from charter schools for modified opinions or findings. PS: In addressing financial reporting matters, the issues in New Mexico between charter schools and schools districts is similar to Oregon and I believe for similar reasons. However, I believe that over the years charter schools have learned to accept GASB'S reporting requirements to some degree. GASB 61 may further diffuse this issue some.We currently have about 125 active charter schools in Oregon. Annual audits are required by law and performed by independent CPAs. Copies of the audit reports are filed with the Board of Education and our office.TennesseeIn Tennessee, local boards of education, the Achievement School District (ASD), and the Tennessee State Board of Education (TSBE) may authorize charter schools. The majority of charters are authorized by local boards of education.The circumstances under which each entity may act as an authorizer are determined by Tennessee law. A local board of education may authorize any qualified charter school applicant that seeks to be located within the boundaries of the school district.The ASD may authorize charter schools within the jurisdiction of an existing school district. The ASD may either recruit charter operators to open a new charter school or convert an existing traditional public school that has been identified as a priority school. ASD-authorized charter schools must serve students zoned to attend or enrolled in schools that are eligible to be placed in the ASD. The ASD operates as authorizer of the charter school for the duration of the charter agreement, which is for a period of ten years. The charter school may return to school district control at the end of the ten-year charter contract if specific academic goals have been met. The TSBE hears appeals from charter school applicants who have been denied by local boards of education. Upon review, the TSBE may uphold the district decision to deny the charter application. The TSBE’s decision is final, though the applicant may re-apply to the district in a subsequent application cycle. Should the TSBE overturn the district denial, the TSBE may direct the school district to approve the application, in which case the school district must act as authorizer to the charter school applicant. To date, the TSBE has received 49 appeals. Of those, the Board has affirmed a district’s decision to deny an application 38 times, and remanded 11 applications back to the districts for approval.In 2014, Public Chapter 850 expanded the role of the TSBE beyond hearing charter schools’ appeals. The TSBE now serves as an authorizer in cases where the board rules in favor of a charter school applicant seeking to open a school in a district with at least one priority school. Prior to this change in law, the TSBE could only act as authorizer if a school district sought to sponsor a charter school. As of 2014 The TSBE has yet to authorize a charter school.The governing body of a charter school is the organized group of persons who will operate a public charter school or schools by deciding matters, including, but not limited to, budgeting, curriculum, and other operating procedures for the public charter school and by overseeing management and administration of a public charter school. The governing body is appointed or chosen by the sponsor of the charter school. Charter schools shall be operated by a not-for-profit organization with an exemption from federal taxation under 501(c)(3) of IRS code. No charter shall be granted to a for-profit corporation.Charter schools are public schools, operating under the oversight of their authorizer. The majority of charter schools in Tennessee are authorized by local boards of education (school districts). Charter school students’ scores on statewide assessments are included within the total district score.Authorizers must collect an annual budget, report, and audit from each charter school detailing the following:progress of the school towards achieving goals outlined in its charter.any information the district must report to the state such as employee salaries, licensure, and highly qualified status .financial records of the school, including revenues and expenditures.detailed accounting, including the amounts and sources, of funds other than those funds received under 49-13-112(a) (note: public funds, i.e., local, state, and federal revenue). The funds shall include, but not be limited to, any funds received from sources under 49-13-112.The comptroller of the treasury is authorized to audit any books and records, including internal school activity and cafeteria funds, of any charter school…when the audit is deemed necessary or appropriate by the comptroller of the treasury.Authorizers may revoke a school’s charter if the school fails to meet generally accepted standards of fiscal management.UtahCharter schools are first reviewed and approved by the State Charter School Board. They forward their recommendations to the State School Board who then approves the charter school. There are a handful that were authorized first by the local school district and are part of the school district, but those are more the exception. Most charters are stand-alone entities operating as non-profits.Each charter school is required to have a school board. The boards are usually anyone who will volunteer to fill the spots or nominations. They are not elected or appointed.With the few exceptions of the charters created by school districts, each charter is a stand-alone entity and not reported under any other government. Each is considered a separate school district. Most report as non-profit entities. Those rare few created by a school district will report as a component unit of that school district, but still issues their own statements.All charter schools, even those few created by and part of a school district, are required to issue stand-alone financial statements.The State Charter School Board is required/responsible for monitoring the annual financial reports and findings if applicable. They have set up various criteria that are monitored and if a school fails varies criteria they are put on a corrective action plan. If over time, they continue to fail, the Board has the authority to close the school. ................
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