Epic Charter Schools will seek reimbursement from their former management company, Epic Youth Services, for the $9.1 million in state funding that will be withheld by the Oklahoma State Department of Education over the next 12 months. The OSDE governing board formalized its decision to withhold the money Thursday owing to Epic’s prior over-expenditures on administrative costs identified in the the State Auditor & Inspector’s Office investigative audit last year.
The chairman of Epic’s board, Paul Campbell, discussed the state board’s decision during Friday’s meeting of Community Strategies, the charter schools’ governing body.
“We anticipated that our audit was wrong and that the state auditor was correct,” Campbell said. “I want staff and parents to know that while this stinks and feels extremely unfair. It’s the ethical thing to do to accept it and move on. I think the ethical thing to do is to look at all our options on recouping it.”
State Department of Education general counsel Brad Clark attended Epic’s board meeting to discuss the state board’s decision. While the state board initially voted to demand that Epic return about $11.2 million to the State Department of Education in October 2020, Epic officials offered to pay back only $307,148. OSDE conducted a secondary review of Epic’s administrative costs over and readjusted the amount owed to the $9.1 million.
“At the time, in October of 2020, the Epic response was, ‘This is a farce, this is inaccurate,'” Clark said during Friday’s meeting. “The department started engaging in our own review, and it wasn’t a farce. The department ended up agreeing with the state auditor 95 percent of the time.”
Epic Charter Schools are proposing the Epic Youth Services reimbursement after cutting ties with their former management company in May. Epic Youth Services is owned by Ben Harris and David Chaney, the co-founders of the charter schools.
During Friday’s meeting, Clark said the tone of communications with Epic Charter Schools’ current leadership has improved. Epic’s board has new membership and bylaws, and a host of other recommendations from state agencies have been adopted.
“All along, the district itself has been responsive, but the tone has been different,” Clark said. “I don’t want to characterize it as there was unwillingness to talk, because that was there. But, the disagreeable nature has been different.”
Epic Superintendent Bart Banfield expressed gratitude to the entities involved in the audit process.
“I want to thank Superintendent (Joy) Hofmeister for her leadership and willingness to advocate for all public schools. I want to thank the State Board of Education for their support and willingness to make tough decisions that are right for the public schools and taxpayers,” Banfield said. “The last person I want to thank is our State Auditor Cindy Byrd. We would not be here today if it weren’t for her and the incredible team.”
State recovery from Epic nears $20 million
The State Auditor & Inspector’s Office released a statement Thursday afternoon following the state board’s vote to withhold the $9.1 million in state funding. Combined with more than $10 million in penalties assessed by OSDE in April and a handful of other fines, Thursday’s vote means about $20 million will be recovered from Epic by the state.
“I want to commend SDE for its work to determine Epic’s administrative costs,” Byrd said in her release. “Because of our audit, Epic will return approximately $20 million in total to the State.”
Byrd’s press release also discussed the operating agreement between Epic and Epic Youth Services. Chaney and Harris, the EYS owners and Epic founders, were taking 10 percent of every dollar Epic received to provide administration and management for the school. However, the 10 percent EYS took exceeds the 5 percent cap on administrative spending for public schools specified in state law.
As co-owner of Epic Youth Services and superintendent of Epic Charter Schools until 2019, Chaney was able to submit false information to the OSDE, according to Byrd.
Earlier this month, EYS filed a breach of contract lawsuit against the schools for about $7 million. The lawsuit coincided with a resignation letter from board member Kathren Stehno, who made allegations of misconduct against Campbell and encouraged state authorities to investigate the schools’ current leadership. (The letter’s digital footprint lists its author as William Hickman, Epic’s longtime attorney whose spouse was also a longtime Epic employee under the schools’ prior leadership. Stehno told Jennifer Palmer of Oklahoma Watch that Bill Hickman reviewed the letter before she distributed it.)
Byrd has said the criminal investigation of Epic Youth Services and former Epic leadership remains ongoing.
“Harris and Chaney attempted to discredit our audit findings based on the work of their hired ‘internal auditor’ who, it turns out, is a relative of the company’s CFO Josh Brock,” Byrd said in her statement. “Who is protecting the school and its students? Why should the new Epic board be responsible to pay for the abuse and malfeasance of the terminated management company? The new board at Epic Charter Schools has taken great steps towards transparency and have been very cooperative in providing [our agency] needed documentation: now they are under attack.”
Hofmeister said in a statement Thursday that the state aid withheld from Epic will be redistributed through the statewide school funding formula to other districts.
“The road to today has been long, challenging and frustrating,” Hofmeister said. “State education dollars should support student learning, not corporate profits. The state board’s vote is a huge step forward for the students and families of Epic, as well as all Oklahoma taxpayers.”
Epic Charter Schools released a statement on their Facebook page Thursday stating that they will continue to cooperate with the State Board of Education and state auditors.
“It is our responsibility to right the wrongs that occurred during the tenure of EYS,” the statement read. “Our duty is to the students and parents that chose Epic. EYS is responsible for this penalty and Epic will pursue reimbursement on behalf of our school. Though this penalty is substantial these monies will be returned to Oklahoma public schools. Epic is strong and supports public education statewide.”