Recent cases in Milwaukee and Florida involving the misuse of funds have raised questions about how accountable school choice programs are for their use of public tax dollars and charitable donations. Media accounts of these isolated incidents imply that fraud and fiscal mismanagement are somehow a byproduct of the private sector's involvement in school programs. Yet the public school sector has persistently been burdened with ongoing incidents of financial mismanagement and cases of large-scale fraud.
In California alone, the legislature has approved millions of dollars in state bailouts for districts that have experienced huge budget shortfalls due to fraud, corruption, and fiscal mismanagement. Last year, Oakland Unified became the most notorious example of such mismanagement after the state took over the district and approved a record $100 million state bailout.
The state is currently investigating whether Oakland officials changed budget numbers to make projections match year-end actuals, artificially inflated enrollment, and illegally shifted money earmarked for specific programs to the general fund, along with funds from a voter-approved construction bond issue. The state review will also investigate allegations that district employees paid as overseas recruiters took kickbacks from teachers they hired in the Philippines and whether money was stolen from funds meant for school cafeterias and student organizations.
Since 1991, it has cost California taxpayers almost $220 million to bail out seven public school districts because of financial mismanagement and fraud:
- $60 million (pending); Vallejo Unified, 2004
- $100 million; Oakland Unified, 2003
- $2 million; West Fresno Elementary, 2003
- $1.3 million; Emery Unified, Emeryville, 2001
- $20 million; Compton Unified, Los Angeles County, 1993
- $7.3 million; Coachella Valley Unified, Riverside County, 1992
- $28.5 million; Richmond Unified (now West Contra Costa Unified), 1991
Despite the assurance that public schools are held accountable for the proper use of taxpayer funds, school administrators who mismanage public funds actually suffer few consequences. As Chris Thompson reported in the East Bay Express (Oakland) last year:
"One of the most infuriating problems in public education is the absolute lack of public accountability for system administrators. Berkeley superintendent Jack McLaughlin spent his district $6 million into the hole, and where is he now? He serves as superintendent of education for the state of Nevada.
"J.L. Handy bankrupted the Compton school district, and what happened to him? The Emeryville school board hired him and let him destroy their district as well.
"Walter Marks forced the West Contra Costa district to beg Sacramento for a $29 million bailout and soon thereafter the Kansas City school district hired him as its new superintendent."
And while California might be the most generous state with taxpayer bailouts, public school fraud is not unique to the Golden State. In 2004, newspapers were filled with stories of blatant fraud involving school districts. Some representative examples include:
In New York, the chief financial officer for Roslyn schools, who was forced to retire and make restitution after allegedly embezzling $250,000 from the district, may have stolen as much as $1 million during her four years on the job.
In the Fort Worth School District, Superintendent Thomas Tocco is still running the district even after a contractor and school district administrator stole $10 million. Tocco learned about problems involving the district's contracting in 2000, after an internal audit showed management hadn't reviewed invoices to make sure they matched up with the work that was done. Tocco and the board president discussed the audit, but the rest of the trustees didn't learn about it for 16 months. In the interim, the contractor, Ray Brooks, won $2 million more business from the district.
In Lancaster, Pennsylvania, Superintendent Ricardo Curry has resigned and is the subject of federal, state, and local investigations into illegal hiring practices. He paid his unqualified girlfriend, sister, and brother-in-law thousands of dollars in consulting fees for work they often did not even attempt to perform. For example, his girlfriend, Tamara DeShields, was paid $1,500 per day for consulting work in 2001 and 2002 for the Office of Teaching and Learning.
In 2003, the FBI completed an investigation into the Harrisburg School District that was launched when a teacher discovered 1,000 laptop computers purchased with federal grants had never been delivered. The federal government charged the district's former information technology director and the head of a Dauphin County computer firm with running a $1.9 million kickback scheme.
In Oakland, Michigan, Superintendent James Redmond was charged with felony embezzlement that included running a nonprofit organization, the Mind's Institute, that benefited from large no-bid contracts with the district.
Several school board members in East Detroit are awaiting trial for their participation in a large school district embezzlement scheme.
At the federal level, a 2004 report from the General Accounting Office confirmed that the e-rate program, which each year provides schools with $2.5 billion in subsidies for Internet services, has been fraught with fraud and abuse. Federal e-rate administrators and school districts around the nation have failed to monitor their e-rate contracts. Some examples:
The Chicago Public schools have more than $5 million in e-rate computer equipment sitting in a warehouse, even though e-rate regulations require the equipment be installed in the same year as the district receives the grant.
In San Francisco, school officials discovered a $68 million networking project by a private company would actually cost less than $18 million if done by district technicians.
A New York company was charged with eight counts of federal crimes after the firm bought expensive equipment beyond what the schools could pay for, then created phony invoices for its own reimbursement.
An $18 million e-rate project in Ysleta was ended after federal auditors discovered the firm contracting with the Ysleta schools had precluded other Internet companies from the bidding process.
Any school, private or public, that is supported by public tax dollars should meet strict financial standards and face serious consequences for fiscal malfeasance. At present, schools in the private sector are quickly reprimanded and often shut down when fiscal improprieties are discovered, but public schools are not. A truly accountable publicly funded school system would require that all public funds be safeguarded with equal vigor.
Lisa Snell is director of education and child welfare at Reason Foundation. She formerly taught speech courses at California State University, Fullerton.