A new report  from Tennessee’s Division of State Audit  has ominous implications for a newly-created education program in North Carolina. The report details the gross financial mismanagement of Tennessee’s Achievement School District (ASD) – a plan that turned control of low-performing schools to private charter school operators. North Carolina passed its own version of the ASD program this summer, with Governor McCrory quietly signing the controversial bill three weeks ago .
Tennessee’s ASD program began as part of the state’s plan for utilizing its federal Race to the Top grant. Under Tennessee’s program, schools in the bottom 5% on state accountability measures were removed from the control of their local school district and placed under the purview of the ASD. The ASD then contracted with private charter management organizations (CMOs) to run the schools. Despite substantial additional investment, Tennessee’s ASD schools have fallen far short of their initial goal to reach the top 25% of performance within five years. Instead, the ASD program has had “little to no effect” on student performance .
North Carolina’s ASD program  is based on the Tennessee model. Under North Carolina’s model, the ASD will assume control of up to five low-performing elementary schools beginning in the 2017-‘18 school year. The day-to-day operation of these schools will be turned over to one or more CMOs. Unlike Tennessee’s ASD program, North Carolina’s ASD schools will not benefit from any additional investments. Despite assurances from bill sponsors that North Carolina’s ASD program is an improvement on the Tennessee model, an analysis of the program shows that North Carolina’s program is susceptible to the same weaknesses that have led to failure in Tennessee .
The recently released report  from the Tennessee Division of State Audit reveals further weaknesses to the ASD model that are likely to impair North Carolina’s ASD. The report found:
- Inadequate controls over several key human resources and payroll processes: The ASD failed to “establish processes over key human resources and payroll functions, including segregating duties; maintaining personnel files; verifying education credentials; documenting time and attendance; completing performance reviews; documenting approvals of bonuses and pay raises; and exiting employees.”
- Inadequate internal controls over its expenditures, travel claims, and purchasing card purchases: Credit card and travel spending occurred without approval and was reimbursed despite inadequate documentation. The audit found inappropriate spending on alcohol, luxury transportation, and meals for friends.
- The ASD failed to perform fiscal monitoring of its direct-run schools and charter management organizations: The ASD staff failed to ensure that federal education funds were used in accordance with federal regulations.
The audit avoided providing specifics on a fourth finding related to “internal controls,” citing an exclusion to the Tennessee Open Records Act that protects sensitive information about security problems with information systems.
Previous audits of Tennessee’s ASD had already “included findings concerning federal grant noncompliance” and identified “$721,000 of federal questioned costs.” Additionally, “CMOs failed to submit supporting documents, such as invoices and time and effort documentation to support payroll distributions, to ASD as support for their reimbursement requests.” The financial situation deteriorated to the point that the state Department of Education had to take over control of the ASD’s “fiscal and federal processes,” firing the ASDs financial staff.
These audit findings do not bode well for North Carolina’s ASD program. While North Carolina’s ASD will be located administratively under the State Board of Education, the ASD Superintendent, rather than DPI, is responsible for “the supervision, management, and operation of elementary schools that have been selected as achievement schools.” The law does not require the ASD Superintendent to have any experience in financial management. And while the law provides $400,000 for “salary and benefits for the ASD Superintendent, staff, and other expenses associated with the ASD,” it fails to provide the State Board of Education with the authority to establish any new positions. Tennessee’s ASD dedicated at least six staff members to overseeing financial operations.
If problems arise, it is unclear whether DPI will have the capacity to step in and assume financial control. DPI has experienced multiple rounds of budget cuts  in recent years that have hampered hiring efforts in the agency’s Financial and Business Services office.
As previously noted , Tennessee’s program has run into problems due high student mobility, inexperience in serving students with special needs, and lack of community support. This audit report adds financial mismanagement to the list of the ASD model’s pitfalls. Unfortunately, North Carolina’s ASD law contains no protections from these pitfalls, and is in many cases weaker than Tennessee’s plan. Luckily, the 2017 session offers the General Assembly a second chance to reconsider its decision to plow ahead with the initiative, or to substantially overhaul and strengthen the program to address its many severe weaknesses. In light of this new and damning evidence, the case for re-thinking the plan is now overwhelmingly strong.
Kris Nordstrom is an Education Policy and Finance Consultant who works with the North Carolina Justice Center’s Education and Law Project .