Control Issues in Charter Schools: An Examination of NYS Comptroller's Audits.

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Abstract

Charter schools are unique quasi-public organizations that can present distinctive financial audit issues for the regional firms they typically engage to examine their financials. Even firms that specialize in school district audits may lack experience with charter schools, which have very different governance issues and fraud risks. Charters are a controversial topic in education and politics because of the public funding they receive, so there is wide interest in their financials from political groups, local communities, and authorizing bodies. This research provides an overview of the nature of charter schools in New York State (NYS) including funding, governance structure, and audit requirements, followed by a discussion of how these characteristics create unique audit issues for CPAs who may be unaccustomed to examining charters.

We examine 53 internal control audits of charter schools in NYS conducted by the State Comptroller’s Office over the past six years and summarize the common control deficiencies uncovered. These audits reveal that charter schools often experience internal control issues related to their contracts with sponsoring organizations, conflicts of interest with board members, issues related to the lease or purchase of building space, and student residency and billing issues. CPA knowledge of the distinctive internal control issues faced by charter schools will help to assess their potential impact on the financial statement audit.

Authors

• Marie Blouin, Ithaca College

• Ronald J Huefner, SUNY-Buffalo