Report 2022-110R Recommendation 5 Responses

Report 2022-110R: Charter School Facility Grant Program and Conduit Financing Program: The Programs Are Generally Achieving Their Purpose of Increasing Charter Schools' Access to Facility Funding (Release Date: February 2023)

Recommendation #5 To: Treasurer, State

To ensure that charter schools are appropriately disclosing information about related parties as part of the Facility Grant Program application process, CSFA should annually review a sample of applications to determine whether charter schools correctly reported that their lessors were not related.

Annual Follow-Up Agency Response From February 2026

(5) To ensure that charter schools are appropriately disclosing information about related parties as part of the Facility Grant Program application process, CSFA should annually review a sample of applications to determine whether charter schools correctly reported that their lessors were not related.

To ensure that charter schools accurately disclose related-party information in their applications to the Charter School Facility Grant Program (Program), the California School Finance Authority will review a sample of leases submitted for reimbursement through the Program.

Given the volume of applications, staff recommend randomly sampling three percent (3%) of applicants with lease agreements that have not already triggered a conflict-of-interest review, as outlined in Recommendation #4. For the selected sample, staff will request and review the Form 700 filings associated with those applicants to confirm that charter schools have accurately reported that their lessors are not related parties.

Any costs associated with a conflict identified through the Form 700 review will be deemed ineligible for funding. The Authority will begin this process during the True-Up review of the 2025-26 funding round in August.

California State Auditor's Assessment of Annual Follow-Up Status: Resolved

CSFA resolved this recommendation by amending its Facility Grant Program regulations and application process (as indicated in the response and our evaluation of recommendation 4). As a result, we agree that it addressed the concern we noted in the audit.

1-Year Agency Response

Given the pendency of recommendation #4, the California School Finance Authority (CSFA) is unable to implement a review of applications to determine whether charter schools correctly reported that their lessors were not related parties. Once guidance is received from Office of Administrative Law (OAL), CSFA will confer with its counsel to take appropriate action on recommendation #4 which will allow CSFA to determine its implementation strategy of recommendation #5.

California State Auditor's Assessment of 1-Year Status: Pending

Although we appreciate CSFA's efforts regarding the steps it has taken to implement recommendation 4, CSFA should take steps to implement this recommendation in the meantime. Specifically, CSFA is not precluded from reviewing a sample of applications to determine whether the applicants correctly reported that they were not related to their lessors.

6-Month Agency Response

As stated above, if AB 1604 is enacted, CSFA will move forward accordingly with any changes to the definition of related party. How that definition impacts our review of a sample of applications to determine whether charter schools correctly reported that their lessors were not related will be determined at that time.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

Under current program regulations, applicants are required to provide all information requested for CSFA to determine eligibility, including related party certification. Schools are not awarded until they provide all necessary information. The aforementioned FPPC guidance will potentially have effects on, or information related to, this suggested review as it correlates with conflict-of-interest laws. Pending the FPPC guidance, CSFA expects any changes related to audit procedures to be made during the 2023-24 funding round and become effective for the 2024-25 funding round. CSFA will also work with the Office of Administrative Law on any needed regulatory guidance.

California State Auditor's Assessment of 60-Day Status: Pending

CSFA's response suggests a holistic approach to addressing this recommendation, which may in part benefit from guidance about potential conflicts of interest or changes to its regulations. However, we believe that CSFA should take steps to implement this recommendation now to ensure that charter schools correctly reported that they were not related to their lessors.

All Recommendations in 2022-110R

Agency responses received are posted verbatim.