California charter school task force formed in wake of fraud case

California State Controller Malia Cohen has agreed to chair a task force to establish audit criteria and best practices to detect and curtail charter school fraud following a case that cost the state hundreds of millions of dollars.

Cohen said she stepped forward when she learned of the prosecution of the San Diego charter school that had fake students on its rolls — resulting in the state providing $400 million in revenues for non-existent students. The state hopes to recoup $215 million, according to a release from the controller’s office.

A more stringent audit of the school could have prevented the fraud from reaching the dollar value it did, the case revealed.

The task force formation was driven by an order signed Thursday by San Diego County Court Judge Robert C. Longstreth. The first meeting will be held in October.

Cohen will lead the taskforce in conjunction with the San Diego District Attorney’s Office, and William Robert Ayres, the successor receiver in the People v. Sean McManus case, no. SCD266439-01, San Diego Superior Court.

“I could not in good conscience allow this matter to proceed through the judicial system without offering my office’s assistance in drafting guidelines,” Cohen said. “To do otherwise would be to neglect the confidence placed in my office to safeguard taxpayers’ dollars.”

Sean McManus and Jason Schrock, and nine co-defendants, including a school superintendent, were charged in 2019 for a scheme that involved enrolling fake students in their online charter schools, A3 Education, and collecting public money for those students. Over a several-year period ending in 2019, McManus and Schrock’s schools collected roughly $400 million in revenue, prosecutors from the San Diego District Attorney’s Office said. 

As part of McManus and Schrock’s plea deal, they agreed to turn over all remaining cash and assets owned by A3 and its subsidiary companies. So far, that includes at least $215 million that will eventually make its way back into state coffers.

Cohen, who was sworn into office as state controller on Jan. 2, was not a party to the litigation, but once she learned of it, she directed her counsel to intervene in the matter, according to the controller’s office.

The state controller said she offered to take on this task because one of her office’s duties is to develop guidelines for school district audits.

The investigation into the fraud case involving A3 Education found the fraudsters were able to get away with their actions for some time, because “of the inadequacy of the audit services performed by the online charter schools’ auditors,” the controller’s office said in a release.

The task force will use the shortcomings revealed in the case to develop better oversight, according to the controller’s office.

“The dedication and hard work of the district attorney and the successor receiver cannot be overlooked, and those offices are to be commended for bringing this matter to justice,” Cohen said.