High Standards for Financial Stewardship Are Essential for Charter School Success
Wednesday, December 21, 2016 | Safal Partners
Simply put, charter school governing boards and authorizers need to take responsibility for strong oversight of financial matters. This means appropriately overseeing a school’s financial operations, including responsible budgeting, financial controls, and procedures, as well as preventing, identifying and remedying fraud.
While this may not sound controversial, too often, discussions of charter school quality start and end with academic accountability. Fostering strong student outcomes is the reason schools exist, but public schools must also be competent stewards of public funds. Charter schools, for all of their autonomies and individuality, are no exception.
Most charter schools are stand-alone, independent schools that are not part of a network. For the governing board of an individual charter school, mastering financial oversight can be intimidating. While a growing segment of the charter sector is run by networks, these schools have additional challenges in oversight.
Most charter schools do a reasonably good job of attending to financial matters, but there are too many examples of inattention, incompetence, and schools crippled by outright fraud. It is the responsibility of charter school governing boards, as well as the authorizers who approve and oversee these schools, to ensure finance is a strength and a support for the school, not a distraction or a disaster. Even a relatively small charter school is also a business that manages millions of dollars of public monies. Boards must oversee budgets, expenses, financial controls, and audits. Authorizers must insist on strong financial practices from the outset at every school they oversee. They should also require consistent reporting of fiscal data that is sufficient to warn them of any emerging financial problems.
Fortunately, there are now resources that can help boards and authorizers do their jobs better. The National Charter School Resource Center (NCSRC), with financial support from the U.S. Department of Education, recently published a pair of toolkits on charter school financial practices, emphasizing strong oversight principles and best practices for preventing and dealing with fraud. One of the toolkits is designed for use by governing boards and the other for use by authorizers State education agencies (SEAs) and charter school support organizations (CSOs) can help provide additional, often localized resources as well.
Both of the NCSRC guides devote considerable space to identifying the elements of strong financial oversight by boards and authorizers. Key elements include:
- Budgeting conservatively and consistently updating the budget to reflect changes throughout the year, including when enrollment does not meet projections and revenue is lower than expected.
- Regularly monitoring the key financial ratios for school revenues, liquidity, and debt.
- Making sure that the board has the proper level of financial literacy to make critical decisions.
- Forecasting a longer-term financial plan for the school that takes the next five years into account.
Independent charter schools must devise strong policies and practices to ensure financial viability. Charter schools that are part of a network may have the ability to rely on established systems that have been applied and proven in other schools. But the network model has its challenges as well. Over-reliance on network-level expertise and decision-making can leave a charter school vulnerable and its board in the dark about fiscal circumstances and problems.
Strong schools ensure that the board stays knowledgeable about budgets, challenges, audits and other financial matters and retains oversight authority over the network’s operation of their school — holding it accountable for transparency and effectiveness.
Contending with fraud, keeping it from taking root, investigating indications of its presence, and addressing the consequences is also essential. Key elements include:
- Adopting strong financial controls like the segregation of duties and checks and balances.
- Creating policies and procedures that protect against conflicts of interest and foster accountability.
- Regularly looking for warning signs of fraud in the school’s financial records and fiscal practices.
- Immediately responding to any allegations of fraud and investigating further.
Such prudent financial stewardship is not only possible, it is essential. A failure to ensure strong practices at the board and authorizer levels renders schools weak and children ultimately vulnerable. The charter school community must treat this issue as one of primary importance and embrace a level of accountability that reflects a seriousness of purpose and commitment to families.