Performance Audit ______
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PERFORMANCE AUDIT ____________ School District of Philadelphia’s Oversight and Monitoring of District Authorized Charter Schools Philadelphia County, Pennsylvania ____________ April 2016 Dr. William Hite, Superintendent Ms. Marjorie Neff, SRC Chair School District of Philadelphia School District of Philadelphia 440 North Broad Street 440 North Broad Street Philadelphia, Pennsylvania 19130 Philadelphia, Pennsylvania 19130 Dear Dr. Hite and Ms. Neff: We conducted a performance audit of the School District of Philadelphia (District) to determine its compliance with certain relevant state laws, regulations, administrative procedures, and best practices specific to the District’s oversight and monitoring of the charter schools it authorizes (relevant requirements). Our audit covered the period July 1, 2011 through June 30, 2015, with updates through January 22, 2016, as applicable. Our audit was conducted pursuant to Section 403 of The Fiscal Code, 72 P.S. § 403, and in accordance with Government Auditing Standards issued by the Comptroller General of the United States. Our audit found that the District complied, in all significant respects, with relevant requirements. However, we identified matters unrelated to compliance requirements, including areas where the District could improve upon efficiency and effectiveness and further utilize best practices, as detailed in the four audit findings within this report. A summary of the results is presented in the Executive Summary section of the audit report. These findings include recommendations aimed at the District and the Pennsylvania Department of Education (PDE). Additionally, it is important to note that after the end of our fieldwork but before the release of this report, a significant court decision was released relevant to this audit. The Pennsylvania Supreme Court held on February 16, 2016 in W. Philadelphia Achievement Charter Elementary Sch. v. The Sch. District of Philadelphia et al. that the suspension powers of the School Reform Commission (SRC) set forth in Section 696(i)(3) of the Public School Code (PSC), 24 P.S. Section 6-696(i)(3), is unconstitutional as it violates the non-delegation rule of Article II, Section 1. Specifically, the state Supreme Court decided that the SRC’s special powers under the Distressed School Law constitute an unlawful delegation of legislative authority. As such, any and all references to the SRC’s power to suspend provisions of the PSC and related regulations during our audit period should be reviewed in light of this critical decision issued in early February 2016. Our audit findings and recommendations have been discussed with the District’s management and the Charter Schools Office (CSO), and their responses are included in the audit report. We believe the implementation of our recommendations will improve the District’s oversight and monitoring of its authorized charter schools and facilitate continued compliance with legal and administrative requirements. We appreciate the District’s cooperation during the audit. Sincerely, Eugene A. DePasquale April 7, 2016 Auditor General cc: School District of Philadelphia SRC Members Table of Contents Page Executive Summary .................................................................................................................... 1 Background ................................................................................................................................. 3 Findings and Observations .......................................................................................................... 9 Finding No. 1 - Legal Challenges Have Impacted the District’s Ability to Manage Charter School Costs and Perform Vital Oversight Responsibilities ..................................................................................... 9 Finding No. 2 - The Charter Schools Office Faces Unintended Consequences from the Cigarette Tax Law .................................................................. 23 Finding No. 3 - PDE Withheld $15 Million from the District’s State Funding Without Providing the District with an Opportunity to be Heard ......... 32 Finding No. 4 - The District Should Improve Its Monitoring Efforts Over the Charter Schools It Authorized ............................................................... 41 Appendix A: Audit Scope, Objectives, and Methodology ......................................................... 53 Appendix B: School Performance Profile Scores of Charter Schools Authorized by the District (Unaudited) ............................................................................................... 56 Distribution List .......................................................................................................................... 60 Executive Summary Audit Work The Pennsylvania Department of the or for knowing how many years a case may Auditor General conducted a performance linger in the court system. The resources, audit of the District to determine its time, and costs involved with these legal compliance with certain relevant state laws, battles place additional strain on the regulations, administrative procedures, and District’s finances and hinder its attempts to best practices specific to the District’s improve charter oversight (see page 9). oversight and monitoring of the charter schools for which it authorizes. Finding No. 2: The Charter Schools Office Faces Unintended Consequences Our audit scope covered the period from the Cigarette Tax Law. In July 1, 2011 through June 30, 2015, with September 2014, the General Assembly updates through January 22, 2016, as enacted the Philadelphia “Cigarette Tax applicable. Law,” which provides additional tax revenue to supplement city public school funding. Audit Conclusion and Results Provisions in the tax law require the District and the SRC to accept new charter school Our audit found matters unrelated to applications and give denied applicants a compliance requirements, including areas right to appeal denials pursuant to the where the District could improve upon Charter School Law (CSL). The District efficiency and effectiveness and further had not been required to accept applications utilize best practices, as detailed in the four or grant appeals to denied applications audit findings. pursuant to the Distressed School Law. The review of new applications and the required Finding No. 1: Legal Challenges Have public hearings process for new applicants Impacted the District’s Ability to Manage has required legal counsel, which has added Charter School Costs and Perform Vital to the District’s legal costs. Furthermore, as Oversight Responsibilities. The District’s the number of operating charter schools role as a charter authorizer has resulted in increases, so does the District’s oversight uncontrollable and unpredictable legal costs, responsibilities, charter school tuition costs, as well as legal complications over the past and potential legal costs, all of which have several years. Constant litigation impedes significant impacts on the District the District’s attempts to manage charter (see page 23). school growth, improve its financial position by controlling charter school tuition Finding No. 3: PDE Withheld $15 Million payments, and heighten charter school from the District’s State Funding Without oversight by implementing policies aimed at Providing the District with an keeping the District more informed about its Opportunity to be Heard. During the operating charters. Continual appeals 2012-13 through 2014-15 school years, PDE extend cases for several years. The District deducted $15 million from the District’s has no way of planning for charter lawsuits state subsidy payments for charter school resulting from its decisions as an authorizer tuition payments requested by District School District of Philadelphia Performance Audit 1 authorized charter schools that remain disputed and unresolved. PDE’s failure to address and resolve these disputed amounts is, in part, due to its changing procedures over the past four years and a lack of clarity in the CSL and PDE’s dispute process regarding charter school tuition withholdings and the handling and timing of disputes (see page 32). Finding No. 4: The District Should Improve Its Monitoring Efforts Over the Charter Schools It Authorized. The SRC authorized 86 charter schools to operate within the District during the 2014-15 school year. Because the District did not have sufficient staffing and resources to adequately perform and document routine oversight measures, the District was unable to properly verify the extent of its monitoring efforts over District authorized charters receiving hundreds of millions of dollars in charter school tuition payments. In addition, the District was unable to determine if all of its charter schools were operating efficiently, effectively, and in accordance with their charter agreements. By not conducting and/or documenting routine oversight of its charter schools, the District is not following best practice standards of a quality authorizer (see page 41). School District of Philadelphia Performance Audit 2 Background Charter School Law In 1997, the Pennsylvania CSL was enacted, allowing for the establishment and maintenance of charter schools. Charter schools are independently operated public schools designed to provide students with unique and innovative educational alternatives to the traditional public school. In 2002, the CSL was amended to create provisions specific to cyber charter schools that provide online