By Conrad Dudderar
Yukon business and community leaders learned about an intensive state audit alleging financial mismanagement by Epic Charter Schools’ co-founders.
Oklahoma State Auditor & Inspector Cindy Byrd shared details of the investigative performance audit during a Sept. 8th luncheon at 10 W Main Events.
“There is no such thing as ‘government-funded’ – it is all taxpayer funding,” said Byrd, Oklahoma’s 13th state auditor and inspector. “A school is never designed to benefit private interest.”
In a 30-minute presentation to Yukon Chamber of Commerce members, Byrd described how Epic’s co-founders had allegedly funneled state and federal taxpayer money through their private for-profit company.
“How did two business owners walk away with $81 million in taxpayer dollars as their income and an additional $141 million under the guise of ‘student learning’ funds?” Oklahoma’s first female state auditor asked.
Byrd questioned whether there was inadequate legislative oversight over the past six years of Epic and its management company. She referred to co-founders Ben Harris and David Chaney’s strong political influence through campaign donations and lobbying efforts.
The Oklahoma State Bureau of Investigation has been investigating Epic for more than six years.
In summer 2019, the OSBI issued separate search warrants accusing co-founders Harris and Chaney of fraud, embezzlement, forgery, and racketeering.
“In response, the founders spent $2.5 million, in a two-month period, in public school funds from tax dollars on TV commercials and social media ads to overcome the negative press,” Byrd related.
That didn’t stop Gov. Kevin Stitt from requesting the State Auditor & Inspector’s Office in July 2019 to conduct an investigative audit of Epic Charter Schools and all its related entities.
Part one of the state audit report was issued Oct. 1, 2020 “to warn the public and the legislators that millions of federal and state taxpayer dollars were being directed to personally profit two owners of an education management company,” Byrd said.
These audit findings were released last fall to “sound the alarm there was $125 million in questioned costs and an estimated $100 million going out in fiscal year 2021.”
As a result of the audit, the State Board of Education has issued fines and fees to Epic Charter Schools totaling about $21 million.
While Harris and Chaney have not been fined directly, both men are subject of open criminal investigations.
“The audit has been handed over to all levels of law enforcement – both state and federal,” Byrd pointed out.
In her Yukon Chamber presentation, Oklahoma state auditor described key findings of her office’s audit.
Chaney and Harris, in 2005, founded the for-profit management company “Epic Youth Services LLC.” In 2011, established and founded Epic Charter Schools – but they are not the owners.
Epic is a public school and “100% funded through taxpayer dollars,” Byrd explained.
Epic Charter Schools contracted with Epic Youth Services LLC, the private education management company, for consulting services. It was confusing – on purpose – to have both named “Epic”, Byrd noted.
Chaney and Harris created a non-profit 501c3 named “Community Strategies” to govern the school and receive state funding appropriations.
To fill Epic’s governing school board, they “hand-picked” five longtime friends they could trust and would never question their decision-making, according to Byrd. Traditional public schools elect their board members while charter schools appoint them.
“It was Harris and Chaney, as the private company, that ran the school board meetings,” Byrd opined. “They only met four times and year and voted on financial matters that had already been made.”
The board approved an operating agreement that allowed Epic Youth Services to collect 10% of all state and federal dollars received by Epic Charter Schools.
However, the operating agreement did not identify exactly what goods and services this management company was going to provide to the school for this 10% fee.
The agreement also allowed the private company to manage a “student learning account.” They collected $1,000 per student per school year from the school’s general fund to deposit into their private account.
“Harris and Chaney created a structure where their private company received 30% of all the school’s public dollars – and complete control of the school,” the state auditor alleged.
The operating agreement placed all the school’s educational and financial decisions into the hands of the private management company’s owners, she added.
Since these accounts were their private funds, it was not subject to government oversight. Not even the state auditor’s office could verify whether the dollars placed in the accounts were being used for what they were intended to – by law and by contract.
NO ACCOUNTABILITY, NO TRANSPARENCY
In her Yukon presentation, Byrd described the lack of oversight and transparency by Epic’s co-founders.
Chaney and Harris contracted with Joshua Brock to be chief financial officer for both the school and their private company. Serving simultaneously as CFO, treasurer and encumbrance clerk for all Epic schools, Brock had check-writing privileges on all accounts.
Besides being co-owner of Epic Youth Services, Chaney in 2011-19 also served as Epic Charter Schools’ superintendent.
“As superintendent, was Chaney looking out for the best interest of the school or was he looking out for the best interest of his company,” Byrd asked.
“It appears Harris, Chaney and the CFO Brock handled all the financial transactions and were probably the only three who knew what was really going on behind the scenes.”
Between 2015-21, Epic Charter Schools paid Epic Youth Services some $81 million through the 10% management fee. Another $141 million dedicated for student learning went into the private management company’s private account.
All with “no accountability and no transparency,” Byrd told the Yukon luncheon audience.
The state auditor’s office found about $8.3 million in overpayments to the Epic learning fund based on student enrollment.
GETTING IN COMPLIANCE
Chaney and Harris’ management company spent considerable funds through public relations and lobbying efforts to combat the negative findings of the Epic audit.
In April, Byrd spoke about the state audit with a group of more than 400 education leaders. Her presentation “went viral” on social media and news coverage was extensive.
“It was a wake-up call,” Byrd said. “The school was not benefitting from this hired company.”
School leadership abruptly kicked Harris and Chaney out of their 50 Penn Place offices.
The State Virtual Charter School Board took the audit seriously. A settlement agreement in April prompted changes to Epic’s structure and operations to allow the school to continue.
“The purpose of an audit is always to get an entity back into compliance,” Byrd explained. “And that is what this settlement agreement forced this school to do.”
Original board members resigned and were replaced by highly qualified “empowered” governing school board members, Byrd explained. They included a forensic accountant, retired U.S. attorney, successful business owner, and elected representatives of student families.
“They are no longer in the shadow of Ben Harris and David Chaney,” Byrd said.
The new board hired its own CFO, treasurer, encumbrance clerk, financial superintendent, and internal auditor. Previously, Brock held all these positions.
Epic also agreed to keep all learning fund dollars in a public account starting July 1.
“This does not exonerate that company (Epic Youth Services) for the nearly $140 million they took for this learning fund that they never accounted for,” Byrd noted.
The Oklahoma Attorney General’s multi-county grand jury issued a 25-page report on May 6 that warned “public funds are being diverted under the cloak of secrecy by a private, for-profit company.”
The report urged the Epic governing board to “recognize its fiduciary duty to taxpayers and extricate itself from its incestuous relationship with a private company profiting on the backs of students.”
The grand jury report validated the state investigative audit and the legitimacy of its findings. It was a call to swift and immediate action by decision makers.
On May 26, Epic’s school board terminated its multi-million contract with Epic Youth Services.
“The school finally realized the profit goals of Harris and Chaney were in direct conflict with the school’s mission to serve children,” Byrd said. “In fact, Harris and Chaney’s (actions) placed the school in both legal and financial trouble.”
By no longer paying a management fee, Epic Charter Schools is expected to see a 20% increase in per-student funding – thus saving about $40 million this school year.
Epic’s newly appointed school board recognizes that tens of millions of dollars are available to invest in their students and the school’s needs.
When for-profit education management companies commit fraud and embezzlement, the result typically ends badly for the school – but often is forced to shut down.
Not the case with Epic, Byrd said proudly.
“Epic Charter Schools today, under its new school board, is stronger and transparent,” the state auditor said. “The mission is about the students, not making a profit.”
The Oklahoma State Auditor & Inspector’s Office audits government entities to ensure public funds are spent properly. The office conducts about 300 audits per year.