Reason to question state audit of Epic

[Guest post by Jonathan Small]

I’m a CPA with many years’ experience in government finances and I have had the opportunity to review the recent state audit of Epic Charter Schools as well as separate responses from Epic. An objective review reveals the performance of the audit has glaring flaws.

According to state law, the office of the State Auditor and Inspector (SAI) is required to review all audits of public schools. When deficiencies are found by the SAI, the office is required to notify the school board of statements of deficiencies. There’s no indication that the SAI’s previous reviews ever found any deficiencies at Epic, so the SAI’s new claims of improper financial accounting at Epic are tantamount to an admission of neglect or incompetence by SAI—if those claims are true. But it appears many claims of financial abuse are unfounded.

The audit’s problems include a de facto recommendation that Epic violate state regulations on calculation of retirement contributions of teachers, even though Epic has provided documents from the Oklahoma Teachers Retirement System that showed the school made the calculations correctly.

The audit went way beyond its scope to call for a ban on for-profit operation of charter schools, echoing the platforms of socialist U.S. Bernie Sanders, former Vice President Joe Biden, and the Democratic Party platform.

One SAI staffer significantly involved in the audit has previously admitted to lacking basic accounting knowledge, such as understanding the principle of “assets = liabilities plus equity.”

When Epic expanded its model into California, that state’s regulators asked for documentation that demonstrated Epic’s financial soundness. That documentation included a bank statement showing millions of dollars of cash on hand. SAI declared that providing such information was the equivalent of using state funds as collateral—yet Epic entered into no such agreements. The funds shown on that bank statement never secured any loan whatsoever. They only provided financial documentation at the request of California officials.

Neglecting best practices, the SAI didn’t include Epic’s full responses to the allegations in its report, nor thoroughly review calculations with Epic before releasing the allegations. The failure to abide by such standard auditing procedures is another red flag.

The SAI has since taken more than seven weeks to produce workpapers from the “special audit” and provide full support for some of the audit’s most salacious claims, including that Epic and the State Department of Education misclassified millions in administrative salaries.

Put simply, the audit omits much relevant information and ignores documents that undermine its most headline-grabbing claims, and SAI officials appear to be dragging their feet in facilitating a thorough review of their work product.

That pattern of behavior gives Oklahomans reasons to doubt the audit’s veracity.

An honest review of the state audit of Epic Charter Schools raises many questions. But those questions are centered around the validity and seriousness of the audit process, not on Epic.