The Massachusetts charter school law, M.G.L. c. 71, §89, authorizes the Massachusetts Board of Education to grant charters to Commonwealth charter schools and Horace Mann charter schools, both of which are public schools managed by boards of trustees. This report concerns the Somerville Charter School (hereinafter, "the School"), which is a Commonwealth charter school. A Commonwealth charter school is a public school that operates independently of any school committee under a charter granted by the Board of Education. Since it was chartered in 1996, the School has contracted with SABIS Educational Systems, Inc. (hereinafter, "SABIS Inc."), a private, for-profit company, for comprehensive educational and management services.
The School, located in Somerville, was among 24 Commonwealth charter schools included in a study undertaken by the Office of the Inspector General in March 1998 pursuant to Chapter 46 of the Acts of 1997. In November 1999, the Office issued a report, A Management Review of Commonwealth Charter Schools, November 1999 , identifying weaknesses in the contracting practices, procurement procedures, and financial management of some schools. Such weaknesses could undermine the schools' ability to achieve their educational objectives and jeopardize the interests of state taxpayers whose dollars fund charter schools. The report findings regarding the School included the following:
- The School's management contract with SABIS Inc. contained no performance requirements measuring students' academic achievement, contained a compensation provision that posed unwarranted risks to the School and the taxpayers, did not accurately reflect the School's actual compensation arrangement with SABIS Inc., and contained provisions that could restrict public use of educational curricula and other intellectual property developed with public funds.
- The School's substantial financial obligations to SABIS Inc. could render the School excessively dependent on SABIS Inc., reduce the School's contracting leverage, and create liabilities for the Commonwealth's taxpayers.
- The School exhibited warning signs of financial problems that, if uncorrected, could threaten the School's future viability.
- The School reportedly failed to take timely actions to correct internal control deficiencies identified by their independent auditors.
- The School's written procurement procedures did not require advertised competition for purchases of supplies, services, or equipment.
The Office initiated the review presented in this report in November 1999. This review was conducted in accordance with generally accepted government auditing standards. The purpose of this review was to conduct a more detailed examination of certain aspects of the School's operations previously identified by the Office as potential sources of risk. During the course of this review, the Office obtained documents from the School and from SABIS Inc. covering the period of May 1996 through November 1999. The Office appreciates the cooperation provided to the Office by the School, SABIS Inc., and the DOE.
Under the charter school law, charter school trustees are "public agents" with ultimate responsibility for the school. The law provides:
The board of trustees of a commonwealth charter school, upon receiving a charter from the board of education, shall be deemed to be public agents authorized by the commonwealth to supervise and control the charter school.
In 1995, the Executive Office of Education (EOE) issued a legal memorandum to charter schools providing a comprehensive overview of the statutes and regulations affecting the governance structure of charter schools. This legal memorandum emphasized that a Board of Trustees is responsible and accountable for ensuring that the charter school operates in accordance with the charter school law and regulations and in accordance with the representations made in the charter school application.
Charter school trustees are also required to fulfill certain fiduciary obligations or duties that apply to members of all boards of directors, whether their organizations are private or public. These duties are generally referred to as the "duty of care" (sometimes called the duty to be informed) and the "duty of loyalty." Because the Board of Trustees has statutory and fiduciary responsibility for oversight and control of the School, the findings and recommendations provided in this report are directed to the Board.
The detailed meeting minutes maintained by the Board of Trustees depict a committed and concerned board that has, since the School's inception, participated actively in decisions affecting the educational functions and programs of the School. However, the Office's review disclosed that the Board has not provided adequate oversight of the School's business operations. As the following findings show, the Board's contractual arrangement with SABIS Inc. has not enabled the Board to control, safeguard, or even obtain full information regarding the School's finances.
The Board of Trustees has given SABIS Inc. excessive control over the school's operating funds.
The Board has allowed SABIS Inc. to deposit School funds in an operating account under SABIS Inc.'s exclusive control.
The Board has given SABIS Inc. excessive control over the School budget.
The School's management organization has impeded Board oversight of the SABIS Inc. contract and full Board access to essential School documents and information.
The Board of Trustees has inappropriately ceded responsibility to SABIS Inc. for selecting and engaging the services of the School's auditor.
The surplus provision contained in the School's 1996 contract with SABIS Inc. is disadvantageous to the School.
The Board's Finance Committee Chair and the Director of the School appear to hold conflicting views of loan agreements between the School and SABIS Inc.
Although the Board maintained detailed minutes of its regular meetings, it did not maintain records of its executive sessions.
The Board of Trustees of the Somerville Charter School has been entrusted with the responsibility of operating a public school serving more than 700 children. The Commonwealth has invested more than $16 million in the School since 1996. Like other charter school boards of trustees, the School's Board of Trustees is comprised of unpaid members of the community who volunteer to devote time and effort to the worthy goal of improving educational opportunities for children. The meeting minutes kept by the Board show that the Board members have devoted substantial time and effort in service to the School since the School was founded in 1996.
It should also be recognized that charter schools in Massachusetts and elsewhere have been evaluated primarily on the basis of the academic progress of their students and have been given wide latitude in establishing their internal operating procedures. While the Department of Education's small charter school office has provided assistance to charter schools, it has not provided detailed information to charter school boards of trustees concerning their statutory and fiduciary obligations. Moreover, charter applicants and charter schools applying for renewal of their charters have not been required to demonstrate that they are capable of instituting and maintaining efficient, effective business systems and practices.
Nevertheless, strong, effective Board governance is essential to the School's long-term capacity to achieve its educational mission and to protect the interests of its students, their parents, and the taxpayers whose dollars fund the School. Accordingly, the Inspector General offers the following recommendations to address the issues raised in this report:
The Board of Trustees should hire its own staff to oversee the School's business operations, including the contract with SABIS Inc.
The Board of Trustees should consider managing the School's business operations with its own staff when the School's 1996 contract with SABIS Inc. expires in 2001.
If the Board of Trustees elects to continue to contract for management of the School's business operations, the Board should:
Obtain the benefits of market-driven competition by using the best value contracting methods of M.G.L. c. 30B to obtain competitive proposals from qualified management contractors,
Discontinue the practice of allowing the management contractor to retain all surplus School revenues, and
Ensure that the new contract enables the Board to exercise appropriate oversight and control over School resources and operations.
The Board of Trustees should oversee the preparation and execution of the School's annual budget.
The Board of Trustees should select, contract with, and oversee the School's independent auditor.
- The Board of Trustees should seek guidance regarding its fiduciary duty and establish procedures to comply with the requirements of the open meeting law.