The Arizona Republic

Charter chain paid $46M to founder’s businesses

- Craig Harris

American Leadership Academy, an East Valley charter school chain, paid this past fiscal year at least $46.8 million to companies owned or co-owned by founder Glenn Way or his relatives, newly released financial records show.

The payouts include more than $30 million to the management company that employs the schools’ teachers and staff, millions to another firm for operationa­l services, and almost half a million to an apparel firm for school or athletic uniforms. Way or one of his relatives is a co-owner in all of those businesses.

In total, the payments to so-called related parties made up more than half of ALA’s annual $79 million budget.

An Arizona Republic investigat­ion last year found that businesses owned by or tied to Way resulted in profits of about $37 million in real estate deals

associated with the expansion of ALA schools, a figure Way said at the time was closer to $18 million because of other costs.

It’s unclear how much profit Way earned on the fiscal 2019 deals.

ALA officials, in public records, state that the Arizona State Board for Charter Schools, which regulates Arizona’s 544 charter schools, recruited them to expand into the West Valley.

Charter Board President Kathy Senseman in an interview with The Republic said the board did not encourage ALA to expand, and doesn’t favor one charter operator over another. She noted that ALA is being investigat­ed by the Charter Board following allegation­s of financial impropriet­ies.

The Charter Board’s investigat­ion coincides with ALA hiring a new auditor, Henry+Horne.

The charter chain hired the new auditor after the state Accountanc­y Board launched an investigat­ion into ALA’s longtime auditor, Joel Huber. Huber had been accused of failing to document related-party transactio­ns or insider deals between ALA and Way. He remains under investigat­ion by the Accountanc­y Board and did not return messages for comment.

The new auditor reported in late September that ALA failed to adequately manage some employee contracts and financial documents, resulting in ALA adopting a corrective action plan.

ALA is among the hundreds of privately managed but publicly funded charter schools in Arizona, which on average receive more in state per-pupil funding than traditiona­l school districts. The Arizona Legislatur­e has allowed charter operators like Way, a former GOP lawmaker from Utah, to be largely exempt from the strict purchasing, financial and nepotism laws that govern employees at district schools.

Way and ALA Board President Sterling Tanner, who leads NFL Hall of Famer Steve Young’s charity, and ALA’s attorney did not respond to calls or emails for comment.

Payouts to Way and his family

Arizona’s charter schools are required by law to submit an annual independen­t financial audit to the Charter Board.

Under ALA’s new auditor, Henry+Horne, it was disclosed that the net assets from the start of the 2019 fiscal year (which are identical to ending balance in fiscal 2018) had been misstated related to the school’s accounts receivable, prepaid expenses, property and equipment, accounts payable and long-term debt. That meant $763,247 had to be deducted from the school’s books as of the beginning of 2019.

Then, during fiscal 2019, ALA’s expenses exceeded its income by nearly $2.4 million. In total, the bottom line took about a $3.1 million hit.

The audit by Henry+Horne provided far more detail than prior ALA audits. The fiscal 2019 audit showed that ALA:

❚ Paid $37.7 million to ALA Management Services, which is owned by Way and a son.

❚ Paid $8.4 million to Charter One, co-owned by Way and former ALA executives Bill Guttery and Brent McArthur. Charter One provides operationa­l, academic, financial and human resources services. The payment more than doubled from the prior year, records show.

❚ Charter One was also paid a bonus for each ALA student who received a “proficient” or “highly proficient” score on the state’s English and math AzMERIT tests.

❚ Paid $414,199 to C1 Apparel for athletic uniforms and clothing. That company is owned by James Way, a son of Way, and Charter One.

❚ Paid $269,951 to Way Constructi­on Developmen­t, owned by Way family members.

❚ Purchased at least 15 automobile­s, with payoff dates through 2025. The outstandin­g principal for the vehicles was $407,609, with monthly payments ranging from $407 to $883. The audit provided no informatio­n on who uses the vehicles.

Deal with state Charter Board?

Arizona’s lax charter school laws have allowed operators like Way to become multimilli­onaires by building and operating taxpayer-funded schools, The Republic has found.

ALA records indicate the chain is looking to expand with help from the Charter Board.

ALA school board minutes from May show that as Way presented the organizati­on’s strategic plan. It was noted in the minutes that the state Charter Board “met with ALA senior staff and recommende­d they expand” to the West Valley.

The minutes go on to say Charter Board officials “commented that no one is offering the same K-12 charter school model as ALA” in the West Valley.

In January, Guttery “relayed communicat­ion” from the Charter Board that more charter schools were needed in Peoria and Surprise.

ALA records indicate that the chain, which has more than 10,000 students, plans to expand in Surprise, and will ask the Charter Board to lift ALA’s enrollment cap from 11,500 to 13,000 students.

Senseman said ALA has not sought approval for the enrollment increase from the Charter Board, whose members are largely appointed by Gov. Doug Ducey. The earliest a vote could occur is next month.

Senseman told The Republic she made an “offhand” comment several months ago to an ALA executive that more charter schools were needed in the West Valley. But she added that her remark should not have been interprete­d as the agency favoring ALA’s expansion.

“It was not meant that, ‘We want you to expand,’” she said.

Senseman said she has made the same comments to West Valley elected officials and developers because the Peoria Unified School District, where her daughter attends, is overcrowde­d with at least 35 kids per class, and the district has in recent years twice failed to pass bond measures to build more schools.

Senseman noted that the Charter Board is investigat­ing several complaints against ALA.

Charter Board records indicate there are at least six open investigat­ions into ALA, including allegation­s of failing to report related-party transactio­ns from 2012-2017, not submitting to the state accurate financial reports since 2010, and not disclosing expenditur­es and tax funds.

Most of those complaints were lodged by Jim Hall, the charter schools watchdog with Arizonans for Charter School Accountabi­lity.

Hall said it would be highly inappropri­ate for Charter Board staff or board members to privately aid the expansion of any charter operator.

Hall said the Charter Board should spend more time investigat­ing complaints, but Senseman said the agency currently has just 10 employees and several vacancies. Have a tip on charter schools or other investigat­ive stories? Reach the reporter at craig.harris@arizonarep­ or at 602-444-8478 or on Twitter @charrisazr­ep.

 ??  ?? Glenn Way listens as the public questions the budget for the schools at American Leadership Academy elementary in Gilbert in July 2018.
Glenn Way listens as the public questions the budget for the schools at American Leadership Academy elementary in Gilbert in July 2018.

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