During his first meeting with state audit inspectors in October 2019, Ben Harris, the co-founder of the state’s largest virtual charter school, was determined to reveal as little as possible about the private management company he had created to run the operations of Epic charter school.
He refused to reveal how the private company Epic Youth Services had spent millions of dollars in taxpayer money for student activities or even say how many people it employed.
Epic Youth Services, owned by Harris and his business partner David Chaney, had collected $45.9 million in management fees from the school over six years, as well as another $80 million to pay for extra curricular activities and technology for students. As part of its governor-ordered audit, investigators with the Oklahoma State Auditor and Inspector’s office wanted to see how that money was being spent.
But Harris said revealing that information would be a threat to his business.
“That is being done to destroy our business model and we are foolish if we don’t see that,” Harris told investigators during an Oct. 17, 2019, interview in the auditor’s office at the Oklahoma State Capitol, according to a recording of the meeting obtained by The Frontier through an open records request.
Harris said he could not reveal the number of employees his company had because it would lead to further scrutiny from lawmakers if they believed he didn’t have enough employees to justify the amount of state funding the company received.
For years, Harris promoted himself as an education pioneer whose revolutionary approach helped students who struggled in a traditional school setting. But during multiple meetings with state auditors, Harris and his attorneys were focused on protecting the financial empire he had built and stifling auditors attempts to access information, according to The Frontier’s review of more than 5,000 documents and more than 50 hours of recorded interviews obtained from the Oklahoma State Auditor and Inspector’s office.
Epic Charter Schools has come under increased scrutiny for alleged financial irregularities and its refusal to disclose more about Harris and Chaney’s business dealings. The Oklahoma State Bureau of Investigations has alleged Epic embezzled funds through inflated enrollment counts; the school has been considered a “high risk” site resulting in annual financial monitoring by the state Department of Education, rather than the traditional every three years; and the state’s multicounty grand jury issued a report earlier this month criticizing the school’s board for creating a system “ripe for fraud.”
The state auditor published a report in October 2020 that accused Epic schools of financial mismanagement and has sued Epic Youth Services, the school’s management company, in an effort to review its financial records.
The published report made it clear auditors had concerns about the operations of the virtual school, which serves nearly 60,000 students. But state auditors grew frustrated as attorneys refused to hand over any records pertaining to Epic Youth Services and also delayed answers to questions about how the public school spent its money.
“It is very unusual that every time that I seem to go to request for something it’s not there, it’s not tangible, it’s not immediate, it’s got to go through layer after layer of review by someone,” Salesha Wilken, a state auditor assigned to the Epic case, told Epic attorneys during a Feb. 11, 2020, meeting. “We should literally be able to go into any room wherever someone works in this building and put our hands on those records or access those files where they are stored digitally … and we can’t.”
Attorneys for Epic Youth Services argued their client was nothing more than a vendor doing business with the school but those same attorneys — different from the school’s own legal representation — would often sit in on auditor interviews with school staff.
During a meeting with both sets of attorneys, Brenda Holt, director of the special investigative unit in the auditor’s office, said if Epic Youth Services truly were just another vendor for the school, it should operate no differently than if a school district made purchases from Walmart. If an auditor were to ask a school district for its invoices and purchase orders with Walmart, it wouldn’t expect the retailer’s attorneys to show up, Holt said.
“It’s exhausting,” Holt told the attorneys.
But in its October report, the state auditor argued Epic Youth Services was more than just a vendor because Harris and Chaney made decisions about the school’s operations without board approval, blurring the lines between the school and company.
“Many decisions effecting (sic) Epic Charter Schools are made by EYS without Board approval or knowledge and, more often than not, those decisions benefit EYS,” the auditor’s report stated.
Epic schools, which denied any wrongdoing, claimed it fully cooperated with the auditor’s investigation and answered any questions “as thoroughly as possible.”
“The school fully cooperated with the Auditor, providing all public documents requested and school and board member interviews requested,” Shelly Hickman, the school’s assistant superintendent, said in a statement to The Frontier. “Records that were denied were denied by the private management company on the grounds by that company that they were private records. That matter is the subject of litigation between the Auditor and the company, to which the school is not a party.
“While we disputed some of the audit’s calculations and conclusions, it did recommend several operational improvements that we have implemented during the last seven months. Of note, the private management company on which the audit applied significant focus no longer controls the school, its finances, or any of its employees. Moreover, we are taking control of our Learning Fund and making it wholly public on a go-forward basis by July 1. We are focused on the future and will continue to make improvements and strengthen our school for the betterment of our students, families and staff.”
In 2019, Gov. Kevin Stitt ordered an audit of Epic by the Oklahoma State Auditor and Inspector.
Epic officials said they welcomed the scrutiny.
“We welcome this as an opportunity to once again prove to the public that our school follows the law in our service to the Oklahoma public school children and Oklahoma families we serve,” Hickman said at the time.
But Harris told auditors the same level of transparency from his business would hurt his profit margins.
“Perfect information is the destruction of economics. Businesses make money off of inefficiency,” Harris said. “If I said to all my customers here is my cost they are going to say I need a price decrease.”
Harris would not tell auditors what other customers Epic Youth Services had, but Harris and Chaney also founded a California charter school that the state auditor said had been funneled money from Epic schools in Oklahoma, a violation of state law.
The California charter school was able to access the funds because Epic schools, Epic Youth Services and the California charter school all shared the same chief financial officer, the audit found.
The Oklahoma multicounty grand jury’s report on Epic earlier this month claims Harris and Chaney “sought to create a school from which they could financially benefit” by creating an “incestuous relationship” between the school and private company.
The grand jury also said in its report that it was troubled by the Epic school board’s lack of oversight. Harris and Chaney created the school board and had stacked it with many of their childhood friends and business associates, the report found.
Investigators with the auditor’s office interviewed Epic school board members last year and found a lack of understanding of how the large virtual charter school was handling its finances.
In recordings of those interviews obtained by The Frontier through an open records request, the board members who are tasked with oversight of Epic consistently said they were unaware of questionable transactions, did not understand the budgeting process or were unaware of significant violations by the school.
Epic board chairman and Tulsa attorney Doug Scott told auditors in a March 2020 interview that he grew up in the same small Oklahoma town as Harris and Chaney.
“I’ve known David Chaney since we were very small children,” Scott said.
When the auditors asked if he had any experience in education or schools, Scott joked, “Just going to school a lot,” referring to his time in law school.
When board members did provide answers, audit investigators questioned its legitimacy.
After an April 20, 2020, interview with Epic board member Betsy Brown, auditors typed a memo that said, “It appeared she had been potentially coached or informed about the questions the auditor would ask.”
Four months into its investigation, state auditors were growing frustrated with Epic officials and attorneys.
“As far as patience goes we have been much more patient with the process of Epic than anywhere we have been,” Holt, the director of the special investigative unit, told attorneys for the school and management company.
Bill Hickman, the school’s attorney and spouse of Shelly Hickman, said any hesitation on Epic’s part was because “we have been through the ringer in the public realm.”
Epic’s attorneys, superintendent and other school officials complained to auditors they had seen too many negative news reports in recent years and had grown leery of outsiders.
“We are under a microscope with the media,” said Bart Banfield, Epic’s superintendent, meeting with auditors in March 2020. “When you are consistently questioned and sometimes it’s fair and sometimes it’s unfair, it makes you cautious.”
At times, attorneys for Epic virtual charter schools and Epic Youth Services argued that if they had violated state funding laws it was on the state Department of Education to seek a correction.
State auditors agreed that state education officials had dropped the ball.
In its report, state auditors flagged Epic for exceeding Oklahoma’s 5 percent limit on school administrative spending in 2016 by more than $2.65 million when the school entered its figures into the state reporting system.
At the time, state Department of Education officials asked Epic about the violation and Epic officials resubmitted data that brought the administration costs under the cap.
“Their last submission was ridiculous,” Nancy Hughes, the Department of Education’s director of finance, wrote in a Jan. 18, 2017, email to her boss. “Everything that was coding to administrative costs is now coded to rental agreements in the last submission.”
But Hughes told state auditors in an interview last year that her attempt to investigate the matter further was halted by David Kinney, the Department of Education’s senior attorney. On Feb. 8, 2017, Kinney instructed her to accept Epic’s reporting and move on, she told the auditors.
Kinney told state auditors he told Hughes to stand down after instructed to do so by State Supt. Joy Hofmeister and Matt Holder, the former state deputy state superintendent of finance and federal programs.
Hofmeister and Holder denied making a decision to accept Epic’s report, according to interviews with auditors.
“I just find it disturbing that everybody thinks (Epic is) not telling the truth and nobody is willing to hold their feet to the coals; I have a little problem with that,” said Rainer Stachowitz, a senior investigative auditor, in a Jan. 16, 2020, interview with Kinney, according to a recording of the meeting.
Internal memos and recorded interviews reveal auditors found the accounts from some state education employees to contradict each other.
The recent multicounty grand jury report also criticized the state Department of Education, along with the state Legislature and Rose State College, the sponsor of Epic’s virtual charter school, for not providing enough oversight.
The state Department of Education is now taking a more aggressive stance, including a recent fine against Epic charter schools of more than $10 million for exceeding a 5 percent cap on administrative expenses, a penalty that it garnished from the school’s April appropriations.
In a letter sent to Epic last month, the Department of Education said payments made to the private management company are considered “an administrative services cost.”
The state claimed Epic One-on-One, a completely virtual school, exceeded its administration spending cap by $6,961,119. Epic Blended, a dual virtual and in-person charter school, exceeded its cap by $3,263,927, according to letters sent to the two schools obtained by The Frontier through an open records request.
Weeks before the state auditor’s office published its findings, investigators held an “exit interview” with attorneys for Epic schools and Epic Youth Services, a customary step that allows the subject of an audit a chance to express final concerns.
Among several issues Epic officials had with the proposed audit was a claim that Epic Youth Services overspent “learning funds,” which are state funds the school funneled to the company to be used on student curriculum, technology or other support.
While auditors hadn’t been able to see how the company spent those learning funds because Harris and Chaney would not turn over their records, they could determine how much money the school gave the company. Auditors believed it was more money than needed when cross referencing student enrollment numbers with the $800 to $1,000 in learning funds awarded to each student.
But the fact that auditors were unable to see how the money was spent should mean auditors couldn’t claim an overspending of funds, Hickman, the school’s attorney, told auditors.
“It’s speculative what those funds were used for,” said Hickman, implying that the company’s privacy should have successfully prevented auditors from making a determination.
Hickman also argued the word “overpayment” should be removed because it would fuel negative stories in the media.
“How you guys word that is really very important in how it comes across in the media and ultimately it’s accuracy … we are just very sensitive to that,” Hickman said.
“What we anticipate the press doing just can’t be in our purview at all,” Holt said in response.
The final auditor’s report used the word “overpayment.”
