$700K in voucher funding misspent
Audit: State failed to eye parents’ spending habits
Arizona parents have made fraudulent purchases and misspent more than $700,000 in public money allocated by the state’s school-voucher style program, and state officials have recouped almost none of that money, a new Auditor General report has found.
The findings are the latest blow to a program that Republicans have touted as a model for school choice that has been replicated nationwide, but has faced serious questions about lax financial oversight.
The audit, released Thursday, found that the state Department of Educa-
tion, charged with administering and regulating the program, repeatedly failed to flag accounts at high risk for fraud.
That allowed parents whose children were enrolled in the Empowerment Scholarship Account program to make numerous improper purchases on state-issued debit cards, even after the accounts should have been frozen or closed.
The voucher money loaded on those debit cards is intended to cover specific education expenses, such as private or religious-school tuition, home-school expenses and education-related therapies. Parents receive 90 percent of the money that would have otherwise gone to their local public school districts.
The program began as a way to help parents of children with special needs find the educational services best suited to their kids. In 2017, Republicans in the Legislature expanded the program to make all of the state’s 1.1 million publicschool students eligible to use tax money for private school tuition.
A grass-roots group of parents and public-education advocates who oppose the expansion collected tens of thousands of signatures to refer the law to the ballot as Proposition 305.
A “yes” vote on Proposition 305 keeps the newly expanded program in place. A “no” vote rolls back the 2017 expanded law.
State schools Superintendent Diane Douglas said the misspending of the voucher money is the result of decisions by the Republican-controlled Legislature to deny her department money needed to properly administer the program. Douglas said lawmakers resist properly funding oversight because they want a private entity to oversee it.
“If you’re not willing to put the resources into the oversight, then it doesn’t happen appropriately,” Douglas told on Monday.
She said her staff has “done a phenomenal job with the lack of resources.”
She criticized the audit for glossing over the Legislature’s failure to properly fund oversight.
A key Republican senator, Bob Worsley, did not discount Douglas’ assessment in a separate interview.
“My guess is just that the (Republican) caucus — my caucus — has been, probably, overly enthusiastic about ESAs, and vouchers in general, and therefore anything that would ... make it more difficult, it would not be a high priority for them,” said Worsley, of Mesa.
Worsley said it is neither fiscally sound nor ethical for lawmakers to inadequately fund oversight of the program.
“In our capacity, we should be making sure the taxpayer dollars are going for what taxpayers intended, even if it’s your pet project ... but I’m probably a lone voice in my caucus on that front,” he said.
The Auditor General found some parents used the ESA cards for transactions at beauty supply retailers, sports apparel shops and computer technical support providers. Auditors also found repeated attempts by some parents to withdraw cash from the cards, which is not allowed and can result in getting kicked off the program.
The audit also concluded education officials did not properly monitor parents’ spending, even after questionable purchases were denied, including on music albums deemed noneducational, Blu-ray movies, cosmetics and a transaction at a seasonal haunted house.
One of those parents had multiple denied transactions at travel websites but later misspent more than $10,000, which the department didn’t identify for four months, the audit found.
Another parent tried to make 433 transactions, totaling $136,000, that were denied. Still another parent tried to withdraw cash and then misspent $4,700 over 18 days.
Three parents who had been kicked off the program misspent $5,900 because education officials did not deactivate their state-issued debit cards.
In all, auditors found more than $700,000 worth of transactions at unapproved retailers in fiscal 2018, representing more than 900 transactions.
The state failed to recover almost all of the money that was inappropriately spent.
The Department of Education sent 142 collection cases to the attorney general totaling about $500,000, the audit said. Only two of those cases were closed and only $11,000 has been repaid in full. Some payments could have been made on the 140 cases that remain open, the audit stated.
Jeff Gove, a performance audit manager for the Auditor General’s Office, said he can’t give a total amount of the misspending over a certain time because that was beyond the follow-up audit’s scope.
He said the $700,000 in transactions at unapproved merchants was found by the Auditor General’s Office, and the
$500,000 in collections was reported by the Attorney General’s Office.
“There may be overlap between the two of them, there may not be,” he said.
Douglas railed against the lack of funding that is provided by the Legislature for oversight of the program.
“The team at ADE does a phenomenal job of oversight of that program with virtually no resources,” Douglas said. “That is the response we gave to the Auditor General, and they refused to include it in their report.”
Douglas questioned why auditors left that information out and called the audit “so specious as ever been issued by the auditor general.”
Gove, of the Auditor General’s Office, said the latest audit was a follow-up to its 2016 audit, which had no recommendations on the Department of Education’s “funding, lack of funding, or staffing resources or anything like that.”
Under the law, 4 percent of the program’s funding is supposed to go to the department to administer and oversee the program. This year, the department is getting about 2 percent, which amounts to $1.2 million.
Douglas said the full 4 percent is needed to properly oversee the program. She said $5.7 million is sitting in a fund that is allocated for program oversight, but the Legislature has not authorized the department to spend that money.
The new audit follows the 2016 report from the Auditor General, which found $102,000 in misspending over six months. Little of that money was recovered.
Some parents pocketed the ESA money and sent their children to public schools. Others bought materials using their state-issued debit cards and then immediately returned them and put the refunded money on gift cards.
In 2014, a payment to a health clinic led education officials to believe ESA money had been spent on an abortion.
Diane Brown, executive director of the public interest research group Arizona PIRG said public officials must be held accountable for mismanaging public money and programs.
“Across the board, decision makers should expect any program with taxpayer money is held to the same standards of transparency, accountability and an intolerance for waste and abuse,” she said.
The latest audit covers the period before the program was to expand, said Dawn Penich-Thacker, a spokeswoman for Save Our Schools Arizona.
Next week, voters will decide Proposition 305, a massive expansion of the ESA program allowing all of Arizona’s 1.1 million public-school students to qualify to use it — with the program capped at 30,000 students.
The program could be six times larger — it now serves about 5,600 students at a cost of about $62 million.
Jenny Clark, a spokeswoman for Yes on Ed, which supports the ESA expansion, declined to discuss the audit over the phone and sent a statement saying the audit shows voters should expand the program.
“Although the Department of Education has been slow at enacting the recommendations from a 2016 report, the alleged misuse of ESA funds is still under 1 percent,” she said. “Compared to other government programs, this is incredibly low.”
Penich-Thacker, whose group gathered signatures to put Prop. 305 on the ballot, said it’s appalling that the state knew about egregious misspending but was unable to stop it.
“We can’t find bad apples if we are not even interested in looking,” Penich-Thacker said. “These are things, eight years in, we should have a handle on. To imagine massively expanding a broken system seems to me to be completely irresponsible.”
“In our capacity, we should be making sure the taxpayer dollars are going for what taxpayers intended, even if it’s your pet project ... but I’m probably a lone voice in my caucus on that front.” Rep. Bob Worsley R-Mesa