SPECIAL REPORT
In our article published last night, we delved into possible motivations behind OCPAC President Bob Linn’s attack on State Auditor & Inspector (SAI) Cindy Byrd…that his ranting over his Open Records Request (ORR) for files from the Oklahoma State Department of Health (OSDH) audit performed by the SAI prior to Byrd taking office is likely a ruse for his real motivation: to discredit the SAI in hopes of casting doubt on the veracity of the office’s audit of Epic Youth Services (EYS) and Epic Charter Schools (ECS).
As of publication time this morning, Linn has yet to issue a response.
In this article we will examine whether the SAI investigative audit of Epic was justified, and whether SAI Byrd was accurate in her assessment that EYS represented the “the largest example of public fraud in the history of the State.”
As we mentioned yesterday, while reading this we ask you to ponder this question:
“Did Bob Linn know about all of this…and if so, why did he try so hard to defend the actions of Epic Youth Services?”
Before we get started, it would be helpful to your understanding if we first gave some background on the purpose of the Office of State Auditor & Inspector so as to understand the role they play in ensuring the taxpayer’s money is being spent properly…in particular the type of investigative audits like Governor Stitt ordered of Epic.
The Purpose of Audits
The purpose of state audits is to examine a body of evidence to determine if established procedures, laws, and regulations governing state agencies has been followed; and if not, to make certain recommendations to ensure compliance with those regulations going forward.
When the SAI is asked to conduct an investigative audit by the Governor, it is done to determine whether there is sufficient evidence of potentially criminal wrongdoing to warrant the State’s criminal investigation agencies (OSBI, Attorney General, etc.) conducting investigations of their own.
As SAI Cindy Byrd mentioned last night in her presentation to a meeting of OK2A (Oklahoma Second Amendment Association), the auditor’s office does not regularly audit public schools. They only do so when requested by the Governor.
This was the case with the investigative audit of Epic Charter Schools (ECS) and Epic Youth Services (EYS). EYS was the for-profit Education Management Organization (EMO) for ECS until the new board of ECS terminated their contract following the OSBI investigation.
With that in mind, what follow is a summary of the EYS scandal that resulted in the OSBI investigation that has since been turned over to the Attorney General’s Office, who recently turned it over to the Oklahoma County DA’s office.
The information below is taken directly from the audit performed by the SAI at the request of Governor Stitt. The entirety of the SAI’s Epic audit is available here:
Epic Charter Schools Investigative Audit – Part One
Before we get to the Epic scandal, however, it is important to understand the background of its founders, Ben Harris and David Chaney, and what education management organizations (EMO) are designed to do.
Education Management Organizations – Corruption or Capitalism?
EMOs are for-profit companies that charter schools contract with for services necessary to perform their mission, such as financial, legal, IT, curriculum, and other various program needs. EMOs are not, in and of themselves, corrupt.
However, as is the case any time private businesses contract with state agencies, they come under more intense scrutiny simply because the money changing hands is not private money…it’s taxpayers money that the state agencies are tasked with using properly.
Harris and Chaney had significant experience in helping other entities to start charter schools through their work for an EMO. According to a September 5th, 2010 article in The Tulsa World, “Harris, 35, is an expert on virtual charter schools. He worked on the applications of a dozen schools in Florida, California and Arizona for Bricktown-based company Advanced Academics Inc.”
During their work with Advanced Academics, they would help establish charter schools and in return the charter schools would contract to spend a percentage of their state-appropriated funds to hire Advanced Academics as the school’s EMO to help manage the school and provide technology resources.
Harris’ wife, Elizabeth VanAcker, sat on one of the non-profit organizations based out of Florida that applied for no less than 7 charter school applications for virtual charter schools to the State of Florida. Each of those applications for charter proposed contracting exclusively with Advanced Academics to be their EMO.
In 2003, both Harris and Chaney obtained jobs with the Florida Department of Children and Families, with Harris rising to become the agency’s Deputy Secretary. According to the Tulsa World article, Harris’ time with the agency was fraught with scandal:
In July 2004, a whistle-blower investigation revealed that Harris had accepted trips, dinners and other favors from companies looking to contract with the social services agency.”
While no charges were ever filed following an investigation by the Florida Department of Law Enforcement, that investigation did find that, “both Harris and Chaney were involved in a number of questionable contracts awarded to vendors that appeared to circumvent the state’s bidding process.”
One of Harris’ contacts for one of the questionable contracts was none other than his wife, VanAcker, who worked for both Florida State University’s Institute of Health and Human Services, and a company called Edmetrics…who created Epic Charter School’s initial website for Community Strategies, Inc. – the non-profit organization created by Harris and Chaney that started Epic Charter Schools.
It should be noted at this point that EMOs have come under immense scrutiny nationwide, to include criminal investigations, for mismanagement and embezzlement of public funds intended for the charter schools that end up funding for-profit organizations*.
*For an extensive report on some of those investigations, read Chartered-for-Profit, published by the Network for Public Education.
The Epic Youth Services Scandal
In 2005, Harris and Chaney founded Community Strategies, Inc., a non-profit organization. While they never sat on the board of directors, they did fill all 5 board members seats with their close personal friends. In the same year, the duo also founded Epic Youth Services, another Oklahoma-based EMO similar to Advanced Academics.
Six years later in 2011, Community Strategies, Inc., with Harris still listed as the non-profit’s registered agent, applied for and received a charter from the Oklahoma Virtual Charter School Board to start Epic 1-on-1 Charter Schools (ECS). The operating agreement of Community Strategies, Inc – now the governing board for Epic Charter School – mandated that ECS hire EYS as the schools EMO…a company fully owned by Harris and Chaney.
While one could certainly call the nature of the relationship suspect at best, and downright unethical at worst, it didn’t necessarily violate any existing state laws. At the time, virtual charter schools were very much a “Wild West” type of environment, not too dissimilar from the MMJ environment, where the industry was outpacing the regulatory body’s ability to govern it.
The problems with the relationship between ECS and EYS came in the nature of the contract between them.
As mentioned in the SAI audit, the contract had three troubling aspects to it. First, the contract called for ECS to pay EYS a yearly fee of 10% of the “total revenue” received by the school from the state every year for EYS services. That 10% far exceeds the statutory 5% cap on administrative expenses for schools with more than 1,500 students as outlined by 70 OS § 18-124 (schools with between 500-1,500 students may spend up to 7% on administrative expenses).
Second, the contract did not specify what goods and services the 10% fee was paying for. While 70 OS § 18-124 (A) allows schools with deduct expenditures for legal services from their administrative costs when calculating their total percentage of spending, since the contract did not specify or itemize exactly what services ECS was receiving there was no way to prove that the school was within statutory limits.
According to 70 OS § 18-124 (A), any school found exceeding the statutory limit, “shall have the amount which exceeds the five percent (5%) withheld the following year from the Foundation and Salary Incentive Aid for the school district.”
(Note: the current governing board of ECS, in a valiant attempt to undo the damage done by the school’s founders, has complied with this statute and agreed to forgo $20M in state funding over the next two years…an extraordinary step that should be applauded.)
Section D of 70 OS § 18-124 outlines what costs are deemed legitimate administrative expenditures:
- Staff for the board of education;
- The secretary/clerk for the board of education;
- Staff relations;
- Negotiations staff;
- Immediate staff of the superintendent, any elementary superintendent or any assistant superintendent;
- Any superintendent, elementary superintendent, or assistant superintendent;
- Any employee of a school district employed as a director, coordinator, supervisor, or who has responsibility for administrative functions of a school district; and
- Any consultant hired by the school district.
However, without a detailed itemized contract there was no way for ECS to prove they were in compliance with state law.
Third, and perhaps the most controversial, Harris and Chaney wrote into EYS contract with ECS that EYS was to manage a “student learning fund account.” Learning funds were accounts of between $800-$1000 per student that the parents were able to use to purchase non-faith-based curriculum (remember, ECS is a public school) or pay for extra-curricular activities such as sports, music, etc.
Much of this money was used by parents to pay for fees for their children to participate in the various homeschool associations throughout the state such as the OKC Storm Athletic Association (basketball, volleyball, track & field, etc.), the OKC Patriots Football Team, the OKC Broncos Baseball Team, and the Oklahoma Homeschool Band and Strings. This has been a sore spot for many parent-led homeschooling families as it brings public school dollars into the private homeschool organizations.
The money for these accounts came from ECS general funds and was deposited into a private bank account that Harris and Chaney had sole control over. Then Harris and Chaney tasked themselves to manage the learning funds on behalf of the school.
(Note: of the fifty subpoenas the SAI has issued in the course of their investigation, the subpoena for the learning funds accounts is the only one that remains tied up in Oklahoma County District Court. There was a hearing on this subpoena in 2020. SAI is still waiting Judge Natalie Mai’s ruling. This fact will become important later.)
The “learning funds” accounts was in addition to the 10% administrative fee required by ECS Operating Agreement. This raised the total amount of state-appropriated funds EYS received from the school to a whopping 30%. Both the learning funds, as well as, the administrative fees were deposited into two separate private accounts controlled by Harris and Chaney.
This meant that 30% of the schools funding was, according to the State Auditor, “locked down from any type of government oversight, and no one, not even our office, has ever been able to verify that the dollars placed into these accounts are being used for what they were intended for by law and by contract.”
The Cover-Up
Harris and Chaney were able to get away with all of this through a series of clever moves that, viewed in hindsight, appear to be made to deliberately cover-up their money-making scheme.
First, they hired Josh Brock – from Cushing – to serve as the CFO of both ECS and EYS. This meant that the person both writing and signing the checks from ECS to EYS was not only the same person, but also answered directly to Harris and Chaney. (Remember Brock’s name…it will come up again later)
Second, they hired a CPA by the name of Charles Crooks – also from Cushing – to serve as the school’s internal auditor. Crooks is a licensed CPA, Audit & Tax Partner with CBEW Professional Group, LLP. It was these internal audits presented to the ECS board of directors that assured them year after year that nothing was no malfeasance with their 10% administrative fee or learning funds account.
Note: we are NOT alleging that Mr. Crooks did anything improper…merely that it was his reports that allowed Harris and Chaney to convince the board everything was in compliance.
Third, from 2011-2019 Chaney served as the Superintendent of ECS…chosen by the school’s board of directors, who were appointed by Harris and Chaney.
When you put all of the pieces of the puzzle together, you have:
- Harris and Chaney created the non-profit (Community Strategies, Inc.) which applied for, and received, the public charter for ECS. At the same time, Harris and Chaney created an EMO called EYS;
- Harris and Chaney appointed the board of directors for Community Strategies, Inc., which then served as the governing board for ECS;
- Harris and Chaney wrote into the operating agreement for Community Strategies that the non-profit would contract with EYS as the to-be-named charter school’s EMO;
- Harris and Chaney wrote into the contract with EMO that EYS would receive an administrative fee equal to 10% of the total funding ECS received from the State – well in excess of the 5% statutory limit;
- Harris and Chaney also wrote into the contract with ECS that EYS would manage $1,000/student learning funds;
- Both the 10% administrative fees and moneys for the learning funds were deposited into a private account that Harris and Chaney had sole control over;
- Harris and Chaney hired one man – Josh Brock – to serve as the CFO for both the school and EYS. They were able to do this because Harris was also serving as the school’s Superintendent at the same time;
- Harris hired Mr. Crooks as the school’s internal auditor. These audits convinced the board of directors there was no malfeasance;
- The combined learning funds and administrative fees totaled to 30% of all funds ECS received from the state.
In short, Harris and Chaney had literal and de facto control over the school – the source of revenue via public funds sent from the state – and EYS, which provided the full management for the school.
Just “Two guys making a profit” or Criminal Behavior?
While Bob Linn has repeatedly characterized this as “two guys providing a great service to the state, at lower costs, and getting very wealthy off of it”, the truth is far more complicated.
In the reports filed with OESC (Oklahoma Employment Security Commission) from 2010-2018, EYS had zero employees outside of the company’s two owners. You read that right. EYS was paid 30% of all state-funds that ECS received for work that they did not have the employees to do.
So, who did all of the work that the for-profit EYS was contracted to do, including managing the disbursement of the learning funds?
The answer? The employees of ECS that were paid out of the remaining 70% of state funds that the school retained after paying EYS for the same work.
This begs the question, if Harris and Chaney knew that the state-paid employees of ECS were going to be doing the work EYS was being paid for (because EYS did not have the capacity to perform the work due to have zero employees), then what work or services were Harris and Chaney knowingly taking the money for? Regardless of what work or services they were being paid for (if it was indeed anything at all), it was not the work or services for which the money was authorized for.
This practice wasn’t just limited to EYS business in the State of Oklahoma. As the SAI audit revealed, and as the next article will detail, EYS was receiving payment from Epic California for the same services that ECS was paying them for. (We will discuss Harris and Chaney’s California ventures in a later article.)
This is where Harris, Chaney, and now Brock’s behavior goes from being unethical into what very well maybe criminal.
SAI Byrd has mentioned in a speech to the Oklahoma County GOP, including the audit’s findings, that Harris and Chaney’s behavior “could be considered embezzlement.” If so, then this would justify the OSBI launching their own investigation following the completion of the SAI’s audit.
To understand what Byrd meant by this statement, let’s take a look at how embezzlement is defined in Oklahoma law. 21 OS § 1451 (A)(1) defines embezzlement as:
(A) Embezzlement is the fraudulent appropriation of property of any person or legal entity, legally obtained, to any use or purpose not intended or authorized by its owner, or the secretion of the property with the fraudulent intent to appropriate it to such use or purpose, under any of the following circumstances: (emphasis added)
-
- Where the property was obtained by being entrusted to that person for a specific purpose, use, or disposition and shall include, but not be limited to, any funds “held in trust” for any purpose.
This would mean that any funds received by EYS for the “administrative services” that Harris and Chaney knew EYS had no capacity to perform, and that they knew would be performed by ECS (remember, Harris is the Superintendent of ECS) could fall under the embezzlement statutes listed above.
To be clear, it is unknown at this point what charges will be brought by the Oklahoma County DA’s office, who recently received the case from the AG. However, according to multiple speeches made by current SAI Cindy Byrd, these allegations are far too series for charges to not be brought.
In fact, during a Q&A following her speech last night to OK2A a member of the audience asked Byrd when charges were going to be filed against Harris, et al. Her response was, “very soon”.
Remember how we said at the top of this article that the entire purpose of SAI Investigative Audits was to determine if there was grounds for the State’s criminal investigative agencies to conduct their own investigations? Give the evidence above, it’s hard to see how they could ignore it.
What’s Bob Linn’s Excuse?
Given all of this above, one must ask the questions, “Why did Bob Linn have a problem with the SAI doing the job she is required by law to do?” Furthermore, “Why has Bob Linn not excoriated Governor Stitt for ordering the audit of Epic? Did he expect the SAI to be derelict in her duty and refuse the Governor’s order for the audit? If she did refuse to perform the audit, would Linn have blasted her for failing to do the job we elected her to do? Wouldn’t that be tantamount to the same accusations he’s been leveling at the SAI Office for the OSDH audit…that the Auditor’s office didn’t do their job?”
It all begs the question, “What is Bob Linn so afraid of?” Considering the evidence from the SAI audit certainly warranted a further criminal investigation, why does he not want the truth to be known? Does he have deeper connections to Epic than he’s told the public…or the board of OCPAC? Is he worried that a criminal investigation may implicate him in some way? To coin a phrase that he has used against Byrd, “What is Bob Linn hiding?” Why does he not want the auditor to simply do the job she was hired to do?
In the next article, we will detail how Harris, Chaney, and Brock extended their scheme beyond the borders of Oklahoma into California, and even attempted to take it to Texas.
As for Mr. Linn, we leave you with this:
“For nothing is secret that will not be revealed, nor anything hidden that will not be known and come to light.” Luke 8:17 (NKJV)
