While Carolyn Carter was superintendent of the Dreamland Academy of Performing and Communication Arts in Little Rock, she incorporated a for-profit company that received $173,000 in school funds.
And after Carter left, the kindergarten-to-fifth-grade school on Geyer Springs Road paid the company, Access Educational Management Corp., another $286,579, according to state auditors.
Both actions violated state law, auditors said in a report to lawmakers Friday.
"Of course, this has been referred to the prosecutor," said Sen. Jimmy Hickey, R-Texarkana, co-chairman of the Legislative Joint Auditing Committee.
He added that no one from Dreamland, which is no longer operating, was available to comment.
The matter kicked off a discussion among lawmakers about how schools are audited and the role of Arkansas Legislative Audit.
"My concern with a number of charter schools is who is ultimately responsible for the auditing," said Sen. Linda Chesterfield, D-Little Rock.
Kendra Clay, general counsel for the Arkansas Department of Education, said charter schools are public schools and audits are required.
However, schools can choose whether to use Legislative Audit, at no cost to them, or pay a private firm to check their books. Dreamland was most recently audited by a private firm.
"It has been the department's practice that if a charter school is closed, that the [education] commissioner asks Legislative Audit to do the final audit, which is how you got this audit today," Clay said.
In response, Chesterfield said, "That's a little late in the game."
Legislative auditor Roger Norman said roughly 200 school districts use Legislative Audit and 40 use private auditing firms for routine audits.
"These schools are paying for audits when they could get that service done free of charge?" said Sen. Gary Stubblefield, R-Branch. "Doesn't make sense."
After the meeting, Education Department spokesman Kimberly Friedman said in an email that the department did not know when or why the policy to ask Legislative Audit to review closed charter schools was created.
Staff members "who would have that historical knowledge have left the agency," she said.
In total, Dreamland paid $459,579 to Access Educational Management Corp.
In fiscal 2012, the payments covered "management consulting services," "professional development," "charter renewal costs," "video graphic services" and other items, auditors said.
Additionally, Access Educational Management Corp. did not pay its franchise tax in 2011, said Chris Powell, a spokesman for the Arkansas secretary of state.
Filings show the charter school's address was used for both the company and school.
Dreamland also paid a $5,000 bonus to Carter's spouse, who appeared to be a school employee, and $8,000 to Carter for "management support" on top of a $95,080 salary and $20,000 bonus in 2012, according to the Legislative Audit report.
The school had a budget of about $2 million.
Employee contracts, salary schedules, leave records, two receipt books and deposit books were not provided for audit inspection.
In a statement to auditors, the Department of Education said it was not responsible for the school, and because it had closed, "corrective actions relating to the audit findings are not necessary."
The Education Department "did not have management responsibility for the operation of the Charter School during or after its closure and, therefore, was not responsible for the design and implementation of programs and controls to prevent and detect fraud and to ensure compliance with applicable laws, regulations, contracts, agreements, and grants," the department said.
The Arkansas Board of Education voted unanimously in 2012 against renewing the school's charter for reasons unrelated to the Access Educational Management Corp.
The school had been on the state's school improvement list for low test scores for at least three years. It was the subject of a scholastic audit and an accreditation standards review -- both of which were critical of the school.
The scholastic audit found "a culture of low expectations," little evidence of parent involvement and a student tardiness rate of about 50 percent. The audit said the lowest-performing pupils were receiving instruction in core academic areas from people not licensed to teach.
The audit also reported confusion among staff members about who the decision-makers and instructional leaders were at the school.
A Section on 03/05/2016