Audit Faults Chain of Charter Schools

A state audit of a chain of independent study charter schools, known as Options for Youth and Opportunities for Learning, has found widespread accounting problems and conflicts of interest and recommends that the Department of Education try to recover up to $57 million in overpayments.

Aimed at students who have dropped out of traditional high schools, the campuses serve about 15,000 teenagers through 40 storefront sites across the state, including 11 in the Los Angeles area.

School officials disputed most of the findings and defended the academic success of their programs. But they said they would continue cooperating with the state.

The nonprofit Options and for-profit Opportunities were founded and are still operated by John and Joan Hall, former Hollywood High School teachers. The Halls also operate several private businesses that sell materials and services to the schools.

Five years ago, the schools created a separate charity with $10.8 million in reserves built from state funds. The Pathways in Education charity, run by the Halls’ daughter, Jamie Hall, has spent little of its money on educational services -- a major point of contention in the audit.

Auditors, who looked at three years of school operations ending in the spring of 2005, also questioned the Halls’ combined salaries of more than $600,000 a year, which, they said, “may be excessive given the amount of work that they do.” And they singled out one expense -- an $18,000 staff party at Disneyland -- as an example of unrestrained spending.

The audit was launched more than a year ago by state Supt. of Public Instruction Jack O’Connell and was conducted by the Fiscal Crisis and Management Assistance Team.

In releasing the audit Wednesday morning, O’Connell said he was “deeply disturbed with many aspects of the ... audit report -- its descriptions of nepotism, excessive compensation and mixing of businesses that are privately run with public schools that are controlled by the same individuals.”

He said he would refer the audit to Atty. Gen. Bill Lockyer and “work vigorously to ensure that the state is reimbursed.” Lockyer spokesman Tom Dressler said only that the office “will review the audit and take appropriate action after the review.”

Students at Options and Opportunities schools do most of their work at home and typically meet with teachers twice a week. According to state records, student scores on achievement tests and the high school exit exam at Options and Opportunities are above average for alternative high schools but far below those of traditional schools.

The schools and related businesses were the subject of a Times article in February, which found that only 11% of the students who left Options and Opportunities during the 2003-04 school year graduated from them. Nearly all of the rest dropped out, were expelled or transferred to other schools, according to the schools’ records.

O’Connell conceded that practices highlighted in the audit might be legal, and he said he would work with the Legislature to “close the loopholes.” He also urged the eight California school districts that have issued charters to Opportunities and Options schools “to look long and hard at the practices described in this report and to follow all recommendations in the audit report.”

Charter schools are independently run but publicly funded. They are intended to spark innovation and raise student achievement.

Officials with the Burbank Unified School District, which holds the charter for many of the schools in the Los Angeles area, did not return calls seeking comment.

The Los Angeles Unified School District has turned down requests to charter the schools.

O’Connell said he had created working groups to examine conflict-of-interest questions and to look at ways to serve students if any of the charters were forced to close. Otherwise, no immediate action was announced.

About half of the $57 million in questionable expenditures stemmed from the Halls’ practice of counting each teacher as nearly two -- 1.92 -- full-time positions, which allowed them to serve more students and ultimately collect more state money.

Stevan Allen, a spokesman for Options and Opportunities, said the practice is common in California charter schools and is a legitimate way to compensate for the schools’ longer days and year-round schedules.

O’Connell has said each teacher should be counted as only one full-time position. The auditors, however, did not agree. They said that Options and Opportunities probably is entitled to claim more, but that the 1.92 figure was excessive.

The issue is at the heart of a lawsuit filed in Los Angeles Superior Court in mid-February by the schools against the state Department of Education.

Kerry Mazzoni, a former California education secretary and now a consultant to the Halls, said that the lawsuit is continuing and that there have been parallel talks with the state to forge a compromise. “We are in negotiations on the issue,” she said.

Mazzoni noted that all of the funds received by Options and Opportunities were approved by the state and have been regularly audited by the chartering school districts. She also said most of it has already been spent. “It’s not money sitting in a bank account someplace,” she said.

As for the Pathways charity, Mazzoni said that the money has been essentially frozen because of uncertainty raised by the audit, but that there are plans to use it for educational purposes. “We do have a desire to use the money to support at-risk students,” she said. “It just has been a very difficult time for the organization.”

School officials also defended the $18,000 Disneyland party, which they said was an attempt to build camaraderie in a scattered workforce, and said the cost turned out to be less than $50 per staff member.

Mazzoni, Allen and school staff members who spoke at the news conference frequently expressed frustration with state officials.

“There were repeated requests for guidance” on issues raised in the audit, Mazzoni said. “Over this period of years, the department never told OFL or OFY what they needed to do to address the concerns, so OFL and OFY did their best to meet the requirements without guidance.”