DePasquale issues critical audit of Aspira Inc. and its charter schools

This article was originally published in The Notebook. In August 2020, The Notebook became Chalkbeat Philadelphia.

Auditor General Eugene DePasquale issued a highly critical audit of Aspira Inc. charter schools on Wednesday, finding a ballooning debt, poor or nonexistent documentation of financial transactions, repeated violations of the Sunshine Act, money that is unaccounted for, and other irregularities.

The Latino community organization manages five schools, including a cyber school, that enroll more than 4,000 students. Two, Olney High and Stetson Middle, are former District schools. The operating agreements for three of those schools have expired – two in 2015 and one in 2016 – and the remaining two are set to expire at the end of next month.

The School Reform Commission voted in December 2017 to begin the process of nonrenewal for Olney’s and Stetson’s charters, but the schools remain open. Hearings that are required before a final vote can be taken have not been scheduled, and the schools’ ultimate fate is almost certain to be decided by the new Board of Education, which will be seated July 1.

The cyber school is authorized by the Pennsylvania Department of Education, and although its charter expired in 2015, its renewal has not been acted on.

Attorney Ken Trujillo, who has been representing the organization, said that many of the issues raised by DePasquale had been addressed since 2016.

“Many of the recommendations … had already been put in place,” he said. “Many of them we agreed would be positive for the organization.”

He noted that DePasquale “made no findings of criminalities, misuse of funds, no finding of anything that impacts [the organization’s] integrity or the positive impact of the schools.”

DePasquale found that the individual schools’ boards had essentially ceded their governance responsibility to the management company. Over three years, the company managed $150 million in taxpayer money, but none of the individual charters had their own CEO or business manager overseeing expenditures.

Aspira’s fund balance plummeted from $7.7 million in 2014 to a deficit of $419,000 in 2016. In fiscal years 2014, 2015 and 2016, four of the five schools ran deficit budgets, overspending $5.3 million.

And although their overall revenue declined in those years due to smaller per-student reimbursement amounts dictated by the charter school law, its annual management fees nearly doubled, from $7 million in 2015 to $13 million in 2016.

Trujillo said the management costs were primarily to pay the salaries of the schools’ support staff, including maintenance and cafeteria workers, who work for Aspira and not the individual schools.

The audit found that “poor organizational structure, weak management agreements, and lack of board oversight allowed Aspira Inc. to control all schools’ revenues and expenditures – including payments to itself – with little documentation to support charges to the schools.”

The auditor also could find no paper trail or board authorization for a payment to a former administrator of $210,000. It was likely the result of a lawsuit filed by the administrator, who said she was terminated for supporting a sexual harassment complaint by one of her subordinates against Aspira CEO Alfredo Calderon, who remains the executive director.

Trujillo said that the payment was made by Aspira’s insurance company and that there was “no expenditure of public funds.”

DePasquale’s issue “was that the payment was not approved in a public session,” Trujillo said. “I think it should have been voted on in a public session.”

In 2015, Aspira Inc. changed its structure to make top administrators employees of the management company instead of the individual schools, the audit said, making it “impossible to determine whether public funds are being used to pay senior administrators or other employees of the management to settle lawsuits.”

Aspira Inc. also used anticipated revenues and its assets – its buildings – to secure its debt, but then didn’t pay down the debt, DePasquale found. And the individual schools, in their required financial statements, did not disclose the buildings’ use as collateral. Aspira Inc. owns the buildings and leases them to the individual schools, but didn’t use the lease payments to pay down the debt, the audit said.

In its formal responses to the auditor general’s findings, Aspira Inc. acknowledged “the School Boards can do a better job of documenting transactions.”

As for the ballooning debt, Aspira Inc. attributes it primarily to “the decline in funding levels for public education.”

“In the case of Aspira Inc., the total control of finances and lack of accountability can best be described as the fox guarding the henhouse,” DePasquale said in a press release. “When management companies operate with little to no oversight, the potential is escalated for fraud, waste, and abuse of the public funds intended for students in the schools they manage. At no time should administrators or other staff employed by the private management company approve their own company’s invoices and transactions.”

Trujillo said that the organization’s financial picture has “dramatically improved” in the last two years, to the point where it will “have the ability to refinance that debt and remove any obligation on the schools.”

The “fox in the henhouse” characterization “is an offensive picture to paint in people’s minds when at the same time he is saying that Aspira did nothing that violated the law.”

DePasquale said that the audit “once again sadly illustrates the desperate need to change Pennsylvania’s charter school law, which is the worst in the nation.”