AUSTIN – Texas charter schools have reaped $26 million in undeserved state money by filing incorrect student attendance reports, according to state financial records.

The Texas Education Agency, which oversees public education in the state, is working to recover $17 million of the $26 million from nearly half of the charters now operating in Texas. TEA records show that 20 schools went out of business before the state could recover its money, leaving taxpayers holding a $9 million bag of debt.

These charters collected state funds either by inflating the number of students in their classrooms or by making accounting mistakes.

Lisa Dawn-Fisher, a top TEA official, said traditional school districts make attendance reporting errors, too. But charters make them to a greater extent.

Charters often don't have experienced staff or strong oversight and, unlike traditional public schools, they cannot generate revenue through property tax hikes or bond elections, according to TEA officials.

"There is a kind of perverse incentive for a charter school in financial distress to look at [attendance inflation] as a way to get more money," said Dr. Dawn-Fisher, deputy associate commissioner for school finance. "If they can't get the warm bodies in the building, they may feel an incentive to falsify records."

TEA officials say they look for suspicious attendance figures at charters, but their regulatory system relies on self-reporting from the schools. TEA puts monitors at schools only after serious problems have been identified.

The current $26 million debt comes from 93 of the 211 charter operators in Texas. The amount equals the average state funding for about 4,800 students at roughly $5,400 per student.

State funding for charter schools has grown from just under $10 million to more than $646 million in 11 years.

Advocates say most charter schools are run by dedicated employees providing a good choice for students who don't fit into traditional school systems

"Unfortunately, the public just hears about a very small percentage that's done something poorly, just like with public schools," said Katie Howell, executive director of the Resource Center for Charter Schools.

When legislators first approved charters in 1996, many supporters argued that relaxing regulations for schools would spark innovation in the classroom. The competition was supposed to make regular schools better.

The state started racking up attendance problems from the beginning.

Lynacre Academy, a South Dallas charter school that abruptly closed its doors two months ago, provides the most recent example.

A TEA audit released in 2006 discovered $750,000 worth of overpayments to the school because of attendance inflation over two years. Lynacre also owes $49,000 for other reporting errors.

Auditors had trouble piecing together school records to perform their review, but they have not accused Lynacre officials of intentionally misreporting student attendance.

After Lynacre closed, 73 students scrambled to find new schools in the middle of the school year. The school had met minimum requirements and been ranked academically acceptable by the state in the years before it closed.

"We have to be more diligent," said state Sen. Florence Shapiro, R-Plano, chairwoman of the Senate Education Committee. "If you are intentionally defrauding the state on attendance numbers, what else is going on in the classroom?"

Campus closures

John Dodd knew attendance inflation when he saw it.

Mr. Dodd took over as president of Dallas-based Honors Academy in 2001. He found rampant attendance fraud and was forced to close five of 12 campuses.

Nearly 200 employees were fired, were laid off or voluntarily left the charter.

"It was a culture, a mind-set that was in place," he said.

Mr. Dodd said some teachers wrote absences in pencil so administrators could erase the notations and mark students as present. Some administrators encouraged students to enroll by promising to mark them present each day as long as they showed up once a week.

Honors Academy overhauled its financial policies, then took two years to repay the state $3 million. Mr. Dodd said his experience shows that strong control can help a charter school succeed.

But critics say TEA hasn't done enough to stop the kind of false reporting that happened at Honors Academy.

Dave Perry, a former school principal, quit Honors Academy because of attendance inflation problems in 2002. He also had worked for Renaissance Academy, another Dallas-area charter school that shut down owing nearly $3 million to TEA largely because of inflated attendance reports.

"There is no proactive oversight on this," Mr. Perry said. "Every place I looked, I knew they were fiddling with attendance. The problem stemmed from the fact that there was no one at TEA who questioned the numbers."

TEA officials say they are trying to stay on top of the problem. The agency recently launched a new program to train charter employees on school accounting procedures.

Officials say they review attendance reports to look for suspicious figures and perform audits to track down problems.

When fraud is suspected, TEA works with law enforcement agencies, but most cases never reach that level. TEA simply requires the charters to pay the money back.

Accidental errors

TEA officials say their investigations have revealed that most errors – those made by charters or traditional schools – are accidents caused by inexperienced workers, complicated attendance rules or bad accounting software.

"There are certainly situations where you wonder how it could be anything but intentional," said David Loseke, a TEA auditor who performs attendance audits of all school districts, including charters. "Proof is hard to come by."

Most Texas school districts receive per-student funding each year based on attendance projections from the previous year. The districts report the real data at the end of the year to settle any differences.

Students can choose to attend a charter school at any point during the year, creating more ups and downs in attendance than at regular schools.

Therefore, TEA makes charters report attendance figures every six weeks. So, theoretically, the state's monthly payments are based on real numbers – not projections.

Problems with charter attendance reports run the gamut. Some don't report absences throughout the year. So, the state gives them money as if every student showed up each day. Others count students long after they dropped out. And some schools report too many students in special education and other programs that generate extra state funding.

Some schools don't file paperwork on time. So, TEA pays them based on estimates in earlier reports that showed too many students. TEA has the authority to stop payment if a school files paperwork late, according to TEA spokeswoman DeEtta Culbertson.

TEA officials say they can't know how much of the current $26 million debt results from attendance inflation vs. other reporting errors until final reports come out in May. They stress that some errors come from factors beyond a charter's control.

Some charters could get money back from TEA at the end of the year. Recent data shows that roughly 100 charters stand to get back a total of $4.4 million because of reporting problems.

No one really knows whether the charter school debt might be more than $26 million.

TEA doesn't audit schools on a regular schedule – only when someone brings a problem to the agency's attention or when a school's own outside audit raises questions.

Dr. Dawn-Fisher said TEA catches attendance errors when a school's periodic reports filed throughout the year don't match up to a year-end report. A school that systematically filed bogus reports would be harder to catch, she said.

"If a charter school is willing to falsify every report they have to support a lie, it would be hard for us to find," Dr. Dawn-Fisher said. "But I don't think that is what we've found."

Long-standing debt

TEA staff members generally collect overpayments within a year, but some charters carry debts over several years.

Lynacre Academy in Dallas didn't pay back any of its debt for two years before it closed, according to TEA records.

Gulf Shores Academy, a Houston charter, has owed TEA money for attendance reporting mistakes for several years. Its debt to the state now stands at more than $8 million. TEA filed a court motion to revoke its charter in 2006, but the case is tied up in court, and the state hasn't gotten any money back.

TEA officials say state law makes it hard to close a charter school except for obvious health and safety violations. The law says the state can revoke a charter for academic or financial problems, but it requires a lengthy history of documentation to support the decision.

State Rep. Harold Dutton, D-Houston, Gulf Shores' lawyer, said the school amassed the debt from technical reporting errors, not fraud.

Jack Ammons, a former school superintendent who works with troubled charter schools on behalf of TEA, said he believes charters can succeed – but only with strong supervision.

"If taxpayers knew how much of their tax money was going to charter schools and what the actual return on their tax money was in some charter schools, they would see that the Legislature address the whole charter school concept," he said.
Troubled schools

Charters awarded since 1996: 273

Charters closed since 1996: 62

Active charters in September 2007: 211

Active charter campuses in September 2007: 374

Charter school enrollment in 2006-07: 81,107

Debt from closed charter schools: $9 million

Debt from open charter schools: $17 million

SOURCE: Texas Education Agency