California Tightens Charter School Regulations Post Scandal

Empty classroom with desks, chairs, windows, and chalkboard.

The A3 Education scandal has triggered California to implement extensive new safeguards against charter school fraud.

At a Glance

A3 Education scandal led to significant misuse of $400 million in state funds.
Sean McManus and Jason Schrock pleaded guilty, agreeing to repay $37 million.
New recommendations focus on stringent oversight, audit obligations, and transparency.
A statewide Office of Inspector General is proposed for fraud detection and prosecution.
Inspector General duties would include creating a fraud risk management program.

Background on the A3 Education Scandal

In the most severe case of charter school fraud in California’s history, A3 Education orchestrated an extensive misuse of $400 million in public funds. The scandal involved fabricated student enrollment figures to obtain state funds, with the scheme’s masterminds, Sean McManus and Jason Schrock, eventually pleading guilty. They have agreed to repay $37 million, but the damage to public trust remains significant.

McManus and Schrock, along with nine co-defendants, were indicted, pleaded guilty, and faced sentencing. State Controller Malia Cohen emphasized the importance of trust, accountability, and transparency in the fiscal and audit functions within charter schools. The case’s exposure has prompted immediate action to plug oversight gaps and prevent future abuses.

A sweeping new report recommends more than two dozen legislative and policy changes to address weaknesses in California’s charter school laws that have been highlighted by recent cases of charter fraud and abuse https://t.co/G5EWKO2bbE

— CSBA (@CSBA_Now) March 21, 2024

Multi-Agency Charter School Audits Task Force Recommendations

In response to the scandal, the Multi-Agency Charter School Audits Task Force released a report with 20 recommendations aimed at bolstering anti-fraud measures across California’s charter school system. These suggestions include enhanced auditing practices, better oversight, conflict of interest scrutiny, and annual financial audits.

Among the key measures are the proposal to raise authorizer fees to 3% of charter school revenue and restrict small districts from authorizing large charter schools. Additionally, establishing a statewide Office of Inspector General is recommended to investigate and prosecute financial fraud in education.

Impact on Future Charter School Operations

Proposals also include the creation of a fraud risk management program and mandatory training for charter school board members. Clear procedures for reporting suspected fraud, including a statewide hotline, are among the immediate actions recommended. Enhanced auditing processes require auditors to flag significant enrollment variations and mandate training for school financing.

“Even the smallest authorizer spending 20 minutes in the school could have and should have found this. If it’s a brick-and-mortar school, go visit at least a couple of classrooms,” Eric Premack, executive director of the Charter Schools Development Center in Sacramento, said. “And if there’s no students in the classroom and no teaching going on, you know you have a problem. In an independent study program, go in, look at the enrollment list. And then say, ‘I want to see this kid’s work.’”

The report emphasizes tightening oversight for non-classroom-based charter schools, which have been the focal point of most fraud cases. As the current moratorium on new non-classroom-based charter schools expires in 2026, ongoing discussions on future regulations are crucial.