An investigation of 13 charter schools by the Philadelphia controller's office found conflicts of interest, nepotism, poor recordkeeping, and dubious hiring practices, contracts and salaries.
"It is abundantly clear that taxpayer money is at risk," says a final draft of the document, which was obtained by The Associated Press.
The report faults the school district for "minimal" oversight and recommends stronger safeguards at the local and state level to reduce opportunities for fraud. A district spokesman was not immediately available for comment.
Charter school supporters are concerned the report could undermine the credibility of schools, which have been touted by local and federal officials as a way to transform the nation's worst-performing schools.
"The great majority of charter schools are well run and accountable for public dollars, and those good operators have a strong stake in making sure the problems are cleaned up," said Nelson Smith, president and founder of the National Alliance for Public Charter Schools.
The 14-month probe comes on the heels of news that a charter school cafeteria had been doubling as a nightclub on weekends, an arrangement that has since ended. That school was already part of the investigation.
Philadelphia' 71 charter schools serve about 33,000 students. The schools receive about $290 million in public funds annually but operate independently of the local school board, a degree of autonomy meant to encourage innovation.
The controller's report describes a dysfunctional relationship between charter schools and the district, which authorizes the schools and ostensibly monitors them.
More than 80 percent of charter school files kept by the district were incomplete, missing items such as the charter agreement itself and proof of insurance, according to the report. The district did not issue required annual compliance summaries on the schools, have any record of communication with school trustees, nor review their financial disclosure statements, the report says.
Investigators found numerous charter schools with unusually high salaries for CEOs; "rubber stamp" trustee boards; failure to comply with the state's right-to-know law; and shady leases with nonprofits tied to school executives.
"These arrangements bring into question whether the leasing agreements were negotiated at arm's length and how the leasing costs were determined," the report says.
The report's recommendations include establishing an independent audit system and policies on conflict-of-interest, nepotism and fair-market value.
Controller Alan Butkovitz said previously that the investigation was prompted in part by the recent probe of a city charter school by the U.S. Attorney's Office. That case sent two school officials to prison last year, essentially for taking kickbacks; a third committed suicide during the investigation.
The Obama administration is pushing the creation of more charters as one way to transform the worst-performing schools. City Superintendent Arlene Ackerman is turning over nine poorly-performing schools this fall to outside providers, which are expected to make them charters.
Smith, the national alliance president, has not seen the report but said it seems to reinforce the importance of dedicated authorizing boards with rigorous methods for granting and renewing charters.
"We know how to run effective charter schools with adequate controls for the handling of public funds and public accountability for performance," Smith said. "The linchpin for much of this is the authorizer."
State Sen. Jeffrey Piccola, Republican chairman of the Senate Education Committee, wants to amend the Pennsylvania charter school law to require management training for charter school operators and establish a state charter school office with audit powers.
"We have to focus on accountability to give charter schools the credibility they need to serve Pennsylvania students," said Piccola, who is holding a hearing on the issue Friday.
Butkovitz has said the report is based on public documents and some data voluntarily supplied by the schools and district. It contains detailed appendices on 10 schools; three were redacted at the request of the U.S. Attorney's Office, which is continuing its own investigation.
The report expressed support for the concept of charter schools, describing them as having "some significant successes" and offering a choice to parents "who feel traditional schools are not responsive to their needs."
