Gary Reino, InDepthNH.org
CONCORD — Data used by the Department of Education to flag roughly 25 percent of Education Freedom Account student eligibility determinations in compliance reports will not be provided to the Legislative Budget Assistant’s Office for a lawfully required audit of the program’s performance.
The program has grown exponentially since it began three years ago, but it is nearly impossible to determine whether the nonprofit organizations that run the programs are properly checking the program’s eligibility requirements and differentiated state aid, or whether parents are using the grant money for eligible education expenses and the organizations are identifying misuse of funds, under limits set by the Department of Education and supported by the Attorney General’s office.
The department and attorney general say data from the program belongs to the New Hampshire Children’s Scholarship Program under the state’s “standard contract,” and is not owned by the state, even though the contract with the group states the data is state property.
While the organization does not want to share detailed data with the LBA, and DOE does not intend to require the organization to allow the LBA unfettered access, the Department is willing to share documents it holds about the program and DOE’s oversight of program implementation and policies.
The Joint Legislative Performance Audit Committee on Tuesday approved a scaled-back statement of what the audit will contain, given the constraints of targeting completion in the spring of 2025. This could affect how much money lawmakers are willing to allocate in the new state biennium budget for the EFA program.
Several members of the audit committee expressed frustration that little progress has been made in efforts to expand the scope of the audit beyond what Education Commissioner Frank Edelblut told the committee in March he would disclose to auditors.
Sen. Rebecca Whitley, a Democrat from Hopkinton, said not much has changed since some committee members expressed concerns last March that they might not be doing their job as lawmakers to ensure public funds are used appropriately.
“This is a situation where millions of dollars of public funds are being put into a program run by a private organization, and the Department of Education is unwilling to allow the LBA to directly audit this organization that is utilizing and distributing public funds,” Whitley said. “The public trusts us to make sure public funds are being used appropriately, and with the way this is going, are you concerned we won’t be able to do that?”
LBA audit manager Paige Lorenz said the office will fulfill its obligations and prepare the report, and if lawmakers have concerns about its scope after the report is issued, it is their right to make changes.
Lorenz said auditors should be able to report observations of problem areas and risks, but they cannot determine the severity of the risks.
Rep. Mary Jane Wallner, D-Concord, asked whether auditors could use a compliance report recently issued by the department, which reviewed data from the program’s first two years last fall.
Lorenz said he could review the report but had no way to independently verify the findings. He said if agencies kept the documents, they could be used in an audit of the agency’s oversight, which he said would be a good start.
Wallner asked if the auditors expected further discussions with the Children’s Scholarship Fund, but Lorenz said it was his understanding that the auditors would not have access to their data.
The department’s compliance report showed that in 12 of the 50 student applications submitted in the program’s first two years (the 2021-2022 and 2022-2023 school years), CSF’s New York City office, which processes the applications and determines eligibility, did not use required documentation, such as adjusted gross income, or valid documentation meeting special education and English as a second language requirements when approving the applications, according to an analysis by InDepthNH.org, which first reported the report’s findings.
In some cases, the group ignored adjusted income on tax returns that exceeded thresholds because of changes in a family’s economic circumstances, instead using check stubs to calculate net income, which is not the same as adjusted gross income.
Once a parent qualifies for the program, they do not need to meet income requirements to continue participating until their child graduates or drops out of school.
The questionable decision regarding the organization’s eligibility led the Department of Education to require the organization to revalidate all applications for the first two years of the program.
The compliance report did not indicate whether the organization had completed the revalidation.
During Tuesday’s performance audit meeting, LBA Audit Superintendent Jay Henry told the committee his office has audited the use of state and federal funds by third-party organizations such as the Community Action Program, but contracts can be different.
Sen. Cindy Rosenwald (D-Nashua), chairwoman of the Joint Legislative Performance Audit Committee, noted her committee has seen the contract with the Children’s Scholarship Fund and said it “pretty clearly states that the data is state property.”
She noted that the Executive Council approved a contract that includes a provision similar to one in the Medicaid managed care contract with the three providers that gives the department access to all data the three providers collect.
Henry said that wasn’t the Department of Education’s interpretation. His office’s original position was to request the data, look at it and do an audit, he said.
“(The Department of Education) thought that this program was set up away from the state, run by a scholarship program, and that there was kind of a separation from the state, and we’re following their interpretation,” Henry said. “You’ll still get a good audit, but it won’t be as thorough as normal.”
Whitley said it was unusual for the Department of Education to have so little involvement in the EFA program, instead handing almost all authority over it to the scholarship fund, and that this “creates a very worrying lack of transparency around large amounts of state money.”
The amount the organizations had to pay back to the state after the compliance reports was just $18,163 of the $103,507 the state found problematic in its compliance review, a relatively small amount compared with the $45 million the state spent on the program in its first three years.
But considering last school year’s enrollment of 4,875 students, the percentage of questionable applications is about $2 million, and the figure is much higher if you use the amount the state flagged as potential backlogs from 50 applications.
Republican Sen. Howard Pearl of Loudoun asked if the LBA had encountered similar problems with other performance audits, but Audit Director Christine Young said she couldn’t recall encountering anything of this magnitude.
“We have conducted audits of departments where we have contracted with third parties before, but this is different because the scholarship organization runs the majority of the programs,” she said. “We have worked through minor limitations in scope before and have always been able to reach an agreement and receive the records necessary for the audit.”
The law requiring the audit requires LBAs to review participant eligibility, controls for determining eligible expenditures, identification and recovery of ineligible expenditures, procedures and controls for the transfer of funds to scholarship organizations, procedures and controls for phase-out grants, participation, student outcomes, public reporting of expenditures, and demographics of eligible applicants for the first year of the program.
In a statement on the scope of the audit, the LBA said the audit will be limited to determining how effectively the ministry has overseen the programme so far by determining the initial and continuing eligibility of students in the EFA programme and their eligibility to receive differentiated aid, ensuring that the correct amount is credited to each student’s account and that funds are used only for eligible educational expenses, identifying, reporting and addressing suspected cases of misappropriation of funds, and ensuring that educational service providers are complying with the programme’s specifications.
Auditors will also evaluate whether the department had adequate controls over scholarship organizations’ compliance with program requirements, oversight of CSF and ClassWallet contracts, the adequacy of student grant funding, identification and recovery of ineligible grant funding, transfer of EFA funds to scholarship organizations, validation of administrative fees paid to CSF, validation of phase-out grant funding paid to school districts, and public reporting of participation, student outcomes, and expenditures.
The scope statement also describes limitations of the audit due to restrictions imposed on the data.
“According to the NHED Commissioner and Legal Counsel, NHED cannot be compelled to request this information from CSF for the purposes of the LBA audit as it would violate the separation of powers between the legislative and executive branches,” the scoping statement said.
The program was touted as helping low-income parents find alternative educational opportunities for their children when traditional public schools didn’t work out.
But about 75 percent of state funding goes to subsidies for students who attended religious or private schools before the program began, or who were homeschooled.
When the program began, the income limit was 300% of the federal poverty level but was raised to 350% last year, and Republican lawmakers tried unsuccessfully to raise the threshold again this session.
Garry Rayno can be contacted at garry.rayno@yahoo.com.