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Audit slams Horizon Charter Schools, calls for more policy, oversight

Parts of lease agreement described as 'gift of public funds'
By: Jon Schultz, Journal Staff Writer
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CHANGES ON THE HORIZON

The Horizon Charter Schools governing board received a presentation on the independent audit that came after the controversial closure of its Accelerated Learning Academy in Rocklin and Lincoln.  Here’s a list of some recommendations issued by the auditor.

* All contracts/agreements more than $25,000 get board approval

* Establish a repayment plan of funds borrowed from its primary charter to its secondary one

* Updates to employee handbook; revise board policies in staffing and compensation

* Staff training in general accounting practices

* Establish policy for vacation payouts

 

PAST COVERAGE OF HORIZON CHARTER SCHOOLS

The midyear closure of a popular Horizon Charter Schools program in Placer County displaced hundreds of students, angered parents and sparked questions about what led to the sudden problems with one of the longest standing charters in California.

The Journal and its Gold Country Media partners launched an effort to shed light on the state of Horizon and charter schools in general. The series concluded March 5.

Part 1: How Horizon’s $800,000 investment, other facilities went awry

Part 2: A snapshot of Horizon’s financesa closer look at its CEO

Part 3: Horizon issue reveals oversight is a delicate balancing act

Part 4: A charter success story

Part 5: Comparing charter schools to traditional public schools

The independent audit of Placer County-based Horizon Charter Schools revealed three lease agreements for sites in Rocklin, Auburn and Elk Grove required “excessive, if not illegal” levels of prepayment and characterized it as “at best a gift of public funds.”

That’s just one finding of many that gave pause to the auditors, who had been retained by Horizon after the recent mid-year closure of one of its popular programs.

Presented at Thursday’s special board meeting, the audit also made “shocking” discoveries in the area of payroll and personnel, some related to vacation payouts that fell outside of existing policy and raises not approved by the board during a time of layoffs and cutbacks.

“It’s just what we want to have in terms of information,” Horizon CEO Craig Heimbichner said, “and move forward and renew in every sense of the word.”

The October 2012 shuttering of its Rocklin site and ultimately the entire Accelerated Learning Academy, or ALA, resulted in uproar and allegations of financial and ethical wrongdoing from parents of displaced students. Including K-2 children in Lincoln, 305 former ALA students disenrolled from Horizon.

Much of auditor Terri Ryland’s message urged Horizon’s governing board to implement more policies and increase its oversight role for the school funded more than 99 percent by public money. Projected revenue for Horizon’s two charters this fiscal year is $19.5 million.

“I know the environment is different in a charter, and you want to be more hands off and creative and that kind of thing, but you’re the board and it’s public money,” said Ryland, of Granite Bay-based TRR School Business Consulting. “That’s really the one thing that the board should do is be responsible for setting policy and direction.”

Average Daily Attendance, or ADA, funding makes up a majority of Horizon’s revenue, and it comes from a variety of public sources, such as local property taxes and the state general fund, nearly two-thirds of which comes from income taxes.

ADA money follows students, so where the enrollment goes, so too does the funding.

Founded in 1993, Horizon Charter Schools is the 15th oldest charter in California with multiple programs throughout Placer, Sacramento, El Dorado, Sutter, Yuba and Nevada counties with enrollment of around 2,700 students. Horizon has two programs in Auburn where 250 K-12 students meet at a site on Blocker Drive.

Horizon’s two charters, the one of its namesake and Partnerships for Student-Centered Learning, are both up for renewal this spring by Western Placer Unified School District, the authorizing agency tasked with oversight.

Western Placer requested Ryland present her findings at its Tuesday school board meeting.

“They do have a lot of concerns, and they want to make sure that Horizon is moving forward and they can be comfortable renewing the charter petitions,” said Ryland, who had been recommended by Western Placer and the Placer County Office of Education.

 

Costly lease problems

Ryland called for Horizon’s board to implement a policy requiring its approval of any contract or agreement larger than $25,000 after the school entered long and expensive sublease agreements with Group Access, a management and IT services company, for sites in Auburn, Rocklin and Elk Grove.

Former Horizon Chief Business Official Cliff Bautista, who Horizon “moved to full retirement” in February, had been the lone signatory on those leases that ranged from 65- to 125-month terms costing $556,000 in annual payments on top of tens of thousands worth of support services.

The Rocklin site at 290 Technology Way had the longest term, cost the most and included more than $800,000 worth of tenant improvements Bautista signed off on, which ultimately turned into a loss as the bank repossessed the site this year.

Classes for ALA students and another program had been meeting there until the October closure after neighbors complained to Placer County about traffic and safety problems during drop off and pickup times. Attendance had surpassed what the business license for the site had allowed.

Despite a spot on each board agenda reserved for approval of contracts exceeding $50,000, board approval had not been obtained for the leases, which the Ryland called “sloppy in execution.”

“The three GA (Group Access) leases were not only expensive and long-term, but they required excessive, if not illegal, levels of prepayment or deposits,” according to the audit.

Deposits totaling about $300,000 had been paid in advance by Horizon to Group Access, according to the report, however prepayment of goods or services is not allowed by school district accounting guidelines.

“This pre-funding of GA’s cash flow is at best a gift of public funds,” Ryland wrote.

“Why are we paying for something that we don’t owe, and, as it turned out, did not receive the services for?” Ryland said to the board. “And that’s of course the sad part there.”

Longer-term leases typically have termination clauses incase programs relocate or close, but these ones did not, she found.

“Obligating a local educational agency for long-term payments should not be taken lightly and should, at a minimum, involve open disclosure and public board discussion,” Ryland wrote.

Rhonda Chance, Horizon’s human resources director, said she does not believe the audit is “completely accurate” in its representation of her department and the business office.

“The report implied that things were done underhandedly or inappropriately because they were done without board approval,” Chance said. “However I must remind you that these items did not require board approval.” 

Horizon had been current in all three of its sublease agreements with Group Access, but Group Access stopped passing the money on to the property owners, according to the audit. After that discovery, Horizon began bypassing Group Access and paying rent directly to the landowners of its Auburn and Elk Grove sites, the audit said. Horizon also no longer contracts IT services from Group Access.

In that process, Horizon discovered it had been paying markups of its rent between 12 and 74 percent to Group Access, costing the charter an extra $86,000 per year in payments for the Rocklin location alone, according to the audit.

“Given the terms of the leases, the markup of the payments, the prepayment penalties, the unnecessary legal and management fees, the secretive nature of the documents and the improper permitting by the ‘professional’ broker,” Ryland wrote, “Questions are raised about the propriety of the relationship between the lone charter school party to these agreements (Bautista) … and the owner/broker for Group Access, Bill Brockmeyer.”

Bautista and Brockmeyer were not present at the meeting to respond, and the audit did not include a response from them.

In a March interview with the Journal, Bautista said Horizon had no reason to distrust Group Access and its ability to provide the school with a building, as it had successfully done so in Auburn and Elk Grove.

“There was no reason for me to believe that Group Access would do something that wasn’t legit for us to get a building,” he said.

 

‘Shocking’ findings about vacation pay, personnel matters

Some of the “shocking” findings in the payroll and personnel section of the audit also centered around Bautista.

According to the employee handbook, an employee “is paid all accrued but unused vacation at the employee’s base rate of pay at the time of his or her termination,” but the audit found vacation payouts totaling $120,000 made to a group of eight “confidential and management” employees in the past two years. That is “essentially violating” the only written document on the matter.

When Bautista officially retired in June 2012, he received a $12,500 retirement incentive but did not cash out his accrued vacation as required in the handbook. He continued on as a “retiree employee” and gave himself a 50 percent raise to $83 an hour from $56 an hour.

“While he obtained the signature of the CEO for this one-year contract, he did not disclose that the rate indicated … was not his former rate of pay, misleading the CEO (who had been promoted October 2011) into thinking it was just a continuance of his prior position,” Ryland wrote.

Upon moving to full retirement in February, Bautista paid himself his prior vacation balance of $24,000 or 405 hours, which was greater than the level allowed to accumulate per the handbook, according to the audit. That amounted to an “overpayment” of $3,825, it said.

“But we don’t have policy. We have the employee handbook – not necessarily being closely followed there,” Ryland told the board. “That just kind of leaves a trail that doesn’t feel good.”

Some of the other employees taking untimely vacation payouts would use them to force their balances below the maximum allowed to be accrued, “and thereby augment their earnings.”

The audit also pointed to professional growth “stipends” totaling $13,500 given to employees for taking a class, yet there are no established criteria for the caliber or duration of the classes.

Raises for “a handful” of employees had been given during the past several years in a time of salary cuts and workforce reductions, and they did not “appear to be board-approved, casting doubt on their legitimacy,” according to the audit.

The audit also found several issues with Horizon’s financial reporting practices and recommended staff receive training on general accounting principals. Horizon is seeking to switch the firm that prepares its annual audit.

Horizon’s charters are in “a solid financial position,” enrollment is healthy and a separate audit of ADA found there to be no over-reporting of attendance, Ryland wrote. The school is already working on making some of the policy changes, including responding to a list of corrective actions issued by Western Placer.

Ryland agreed with Board Vice President Angela Henning that Horizon is in good hands with Heimbichner and Chief Academic Officer Cynthia Wood heading forward.

“We’re used to change,” Henning said. “We’re all lifelong learners, so I think it’s possible for us to clean this act up.”

 

Jon Schultz can be reached at jons@goldcountrymedia.com. Follow him on Twitter @Jon_AJNews