The commission overseeing public charter schools needs to be more proactive in its oversight of schools’ finances and compliance with state regulations, a new report by the state auditor concludes.

The report — described as a study, not an audit — criticizes the state Public Charter School Commission for failing to recognize and act on early signs of financial distress at the now-shuttered Halau Lokahi Public Charter School, which lost its charter in March due to insolvency.

Tom Hutton

Executive director, Public Charter School Commission

“Using the case of Halau Lokahi as a guide, we determined that the financial data schools must currently submit to the commission can indicate possible financial stress,” the report said. “In the case of Halau Lokahi, however, we found that human error and inexperience among commission staff contributed to their inability to recognize and interpret the available information early enough to possibly help avert the school’s financial collapse. We also found a need for clearer instructions within the charter contract to ensure the commission’s expectations are met regarding school performance.”

Charter schools are primarily funded with taxpayer dollars through per-pupil allotments — approximately $6,500 per student this year — but are independently run under contracts, or charters, with the state. They are supposed to bring innovation to public education, and report to their own governing boards, with oversight by the commission.

Spotty enforcement

The state’s 34 charter schools educate more than 10,400 children. The level of oversight imposed by the commission has been a point of contention between the agency and schools that contend the commission routinely infringes on their autonomy.

Last school year alone, the auditor’s report said, “schools were required to address nearly 50 compliance tasks by providing reports or information to commission staff. However, the commission staff’s inconsistent enforcement of some but not all compliance requirements does not fulfill the commission’s statutory responsibilities.”

The commission staff, for example, would rely on charter schools to self-report their compliance with statutory requirements, such as criminal history checks on school employees, and compliance with governing board appointments, the study said.

In a prepared response included in the report, commission Chairwoman Catherine Payne, a retired public school administrator, said, “On the one hand, the commission must approach its relations with charter schools with some degree of trust in their representations and awareness of the principle of relative autonomy that is the essence of charter schooling. … At the same time, it must be acknowledged candidly that the commission’s work to put even some basic accountability safeguards in place has engendered considerable resentment and resistance among some charter schools.”

Tom Hutton, the commission’s executive director, acknowledged many of the shortcomings outlined in the report but added that the commission is still fairly new.

“The commission had inherited a system with a great many deep and long-standing problems, and we were really building the airplane in the air — and to an extent we still are a couple years later,” he said in an interview. “That doesn’t mean that there is not valid constructive criticism in the report. We definitely appreciate and accept that. In hindsight it’s very clear that we gave (Halau Lokahi) the benefit of the doubt for much too long.”

The Kalihi school’s money troubles came to light at the end of the 2013-14 school year, when it ran out of money and stopped paying its staff and rent. It ended that year with a $502,000 deficit, and the attorney general’s office has been investigating alleged misuse of public funds and theft by the school’s former co-founder and director. (The commission is scheduled to discuss a proposed settlement of the school’s outstanding debts at its monthly meeting Thursday.)

Halau Lokahi was one of state’s first charter schools. It was launched in 2001, when there was little monitoring of charters. An overhaul of the charter law in 2012 tightened oversight, and schools are now required to meet academic, financial and operational goals. The law also established the commission with a statutory mission to authorize “high-quality” charter schools.

‘Hard lessons’ learned

The Auditor’s Office said it initiated the study in part because of the financial failure of Halau Lokahi. It also looked at the financial health of four other schools, and while none was found to be in immediate financial danger, the report highlighted “indications of potential financial risk that merit monitoring by the commission.”

“We do want to reassure the public that there were hard lessons for the entire system to learn, and those lessons have been learned, and there is an awful lot that we have been and are continuing to do to address the things that came to light as a result of this experience,” Hutton said.

He added that there are bright spots in the system, including strong academic performance by some schools.

Under the state Department of Education’s Strive HI school accountability rankings this year, four of the 10 highest-performing high schools and two of the 10 highest-performing middle schools are charter schools — including the top scorers in both divisions: Voyager Public Charter School and Myron B. Thompson Academy. Charter schools also outperformed the state as a whole on the eighth-grade and 11th-grade ACT college-entrance exams, and posted higher college-going rates, according to the commission’s recently released annual report.