In its final report on its assessment of charter and education management organizations, the Office of Inspector General (OIG) has found that charter school relationships with Charter Management Organizations (CMOs) pose "a significant risk to Department program objectives,” and that the Department of Education is ill-equipped to evaluate and mitigate such risk.

From July 2011 to March 2013, investigators looked at 33 charter schools in six states to arrive at its conclusions.

"Specifically, we found that 22 of the 33 charter schools in our review had 36 examples of internal control weaknesses related to the charter schools’ relationships with their CMOs (concerning conflicts of interest, related-party transactions, and insufficient segregation of duties),” the report says.

The report defines CMO as "any organization that operates or manages one or more charter schools, whether under contract or as charter holders, without regard to the profit motive of the organization.”

Key Findings:

• All six of the states selected could not provide consistent funding data on CMOs for various reasons.
• All six states selected except for one (Michigan) had problems providing data on how many state students were enrolled in CMOs in given years.
• In 17 charter schools, the OIG found 24 cases of "conflicts of interest, related-party transactions, and insufficient segregation of duties that, if unmitigated, present significant financial risk to Departmental programs and could put charter schools at risk of closing.”
• In 8 of these 17 schools, the OIG identified "11 examples of relationships between charter school employees, board members, CMO officials, or vendors that presented potential conflicts of interest.”
• In 13 of the 33 charter schools, the OIG found examples of a lack of accountability over public funds—including an instance of a CMO CEO writing himself checks totaling about $11 million without charter school board approval.
• After reviewing several criminal cases involving CMOs, the OIG concluded the cases, coupled with its own findings, "are indicative of CMOs having too much control over charter school operations without management and oversight."

On the Department of Education’s Lack of Oversight into Charter School Relationships with CMOs

• The Department was found to not have "a risk model that included criteria indicative of the risks unique to charter school relationships with CMOs” at all, leaving responsibility to state and local education agencies instead.
• Still, "the Department did not assess how SEAs (State Education Agencies) were monitoring the relationships between charter schools and CMOs.”
• Meanwhile, SEAs in all six states were found to not "include specific steps geared to examine CMO relationships at charter schools."

As a result of its findings, the OIG released a series of recommendations for how to proceed in order to minimize the risks it identified.

To start, it recommends that the Department of Education provide guidance to SEAs on how to monitor risks associated with CMO relationships to charter schools. Now that the OIG has clarified the risks involved, it recommends that the Department take a leadership role in mitigating these risks.

It notes that in the years after its investigation, the Department has issued several guidances clarifying how offices can conduct risk-based monitoring and the like. It urges that the Department expand on this to create a formal oversight group to "determine the most appropriate manner to conduct an analysis and assessment of the risks to Department programs posed by charter schools with CMOs.”

It also recommends that legislation be developed "that would clearly identify the governance responsibilities of the Department and SEAs with respect to the roles, responsibilities, and expectations of the administration and oversight over grants provided to charter schools, specifically with regard to the risks associated with CMOs.”

Read the full report: http://www2.ed.gov/about/offices/list/oig/auditreports/fy2016/a02m0012.pdf

Nicole Gorman, Senior Education World Contributor