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State educators are seeking criminal charges against the executives of a charter school operation after an audit found they had misused at least $25.6 million in public education money, including $2.6 million for personal expenses.Top of Page
The audit found that executives of the now-closed California Charter Academy used public funds to pay for personal watercrafts, travel, health spa visits, Disney-related merchandise and more. Two employees even paid their income taxes with $42,000 in school funds.
"The magnitude of waste of precious education funds outlined in this audit is appalling," state schools Superintendent Jack O'Connell said Thursday as he released an audit of the charter.
In an effort to recover the misspent funds, O'Connell directed the Education Department's lawyers to file a multimillion-dollar bankruptcy claim against the school and its management company, the Educational Administrative Services Corp.
O'Connell sent the 107-page audit to state Attorney General Bill Lockyer and local prosecutors in San Bernardino and Orange counties, where the school had headquarters, so that they could pursue charges.
From 1999 until it went out of business last year, the California Charter Academy was the state's largest charter school operation, with more than 4,557 students in kindergarten through 12th grade, and more than 7,000 adults enrolled.
Its founder and chief executive, Steven Cox, formed the for-profit management company to run the vast network of satellite campuses across the state, including several in the Bay Area. Three Southern California school districts authorized four separate charter contracts with the company, each earning percentages of the state funding but providing little fiscal or academic oversight.
Cox personally received more than $1.1 million in public education funds between 1999 and 2003, the audit found, and diverted an additional $549,000 into subsidiary ventures such as Xtreme Motor Sports, Hautlab Music Group, Maniaque Marketing and Maniaque Development.
An additional $1.2 million went to hire members of Cox's family and to "grant them generous retroactive pay increases," according to the audit prepared by the state's Fiscal Crisis Management Assistance Team, which was created by the Legislature to audit California's public schools.
The audit identified several areas of "potential criminal wrongdoing,'' including misappropriating public funds for personal use, providing false claims to obtain public funds, and converting private schools to public schools -- a practice made illegal to prevent private schools from receiving thousands of dollars per pupil in public funds.
The audit found that Cox had not only converted several private schools to public, but had also opened at least 15 campuses outside of newly established geographic boundaries, violating a law that took effect on July 1, 2002. In all, the audit found that the California Charter Academy claimed at least $23 million of public funding for campuses that were ineligible for the money.
Cox was given a chance to respond to the audit but did not, the auditors said. A response would have become part of the report.
O'Connell, meanwhile, said he would follow the audit's recommendation to seek legislation to tighten the oversight rules for charters, which are autonomous public schools.
It was the promise of freedom from the myriad rules governing public schools that first prompted some educators to embrace the idea of charters.
Since charters became legal in California in 1992, education officials and charter proponents alike have come to appreciate the importance of oversight. That's because unscrupulous operators have found ways to inappropriately profit from public coffers, to teach religion at public expense, and to trick parents into paying tuition.
"We in the charter movement decry this kind of abuse and believe we need to continue to police schools like this,'' said Leadership Charter School founder Mark Kushner, who sits on the California Charter Advisory Commission and is its immediate past chairman.
The commission was formed in 2002 to ensure that home-study charters -- including the California Charter Academy -- spent most of their public money on instruction.
Since then, the state had docked the California Charter Academy up to 30 percent of its funding for failing to comply. The loss of state funds may have contributed to the school's decision to close in 2004.
Two years earlier, The Chronicle reported on one California Charter Academy campus where about 60 students were learning Creationism in an Oakland church under the guidance of adults who lacked teaching credentials. The article also revealed that the charter had acquired many new students from schools that the state said were illegally converted from private schools.
Despite several new laws to tighten oversight of charters, the audit highlights the continued vulnerability of public education funds to unscrupulous charter operators.
It's a reality that the charter school movement has come to recognize and actively oppose.
"Clearly we need a higher level of accountability on the school districts that authorize charter schools," said Gary Larson, spokesman for the California Charter School Association, whose members include about 350 of the state's 510 charters schools.
The audit can be seen online at www.cde.ca.gov/sp/cs/ac/documents/csccaaudit.pdf.