Hard lesson learned

If you’ve been paying attention to local news reports lately, you know that Chico’s Blue Oak Charter School was the subject of a blistering outside audit documenting extensive financial filching.

To read the report—which alleges that top school administrators misused school credit cards to pay for all kinds of personal stuff, including weapons, clothing and booze, as well as beekeeping lessons and much more—is to marvel at the extent of the alleged pilfering.

As Tim Taylor, superintendent of the Butte County Office of Education, told a meeting of the Blue Oak Charter Council on Monday (Dec. 18), “It’s disturbing what we saw in this report. It turned my stomach.”

What the five members of the Charter Council—which functions as a board of directors—want the community to understand, however, is that they’ve known about the questionable activities for at least 18 months, since certain staff members quietly suggested to them that things weren’t quite right.

Since then they’ve been working hard to upgrade their financial systems and build in an array of checks and balances. They also brought in Linda Hovey, who was the school’s trusted financial manager during its formative years more than a decade ago, as a consultant. (Hovey also sits on the Chico Unified School District board.)

Council members took another important step when they sought help from the school’s authorizing agency, the CUSD, and the BCOE. On Monday, Taylor lauded them for doing so, stating that it showed their good faith and determination to rid the school of the faulty systems that allowed corruption to occur.

It was Taylor’s decision to call in the Fiscal Crisis and Management Assistance Team (FCMAT), a statewide organization created in 1992 to help local educational agencies meet and sustain their financial obligations. In what is referred to as an “extraordinary audit”—that is, one done by an outside agency in response to a financial crisis—a FCMAT team quickly set about poring over Blue Oak’s books and ferreting out dozens of what it considered questionable financial transactions over a two-year span (2014-15). It released its report on Nov. 16.

One example of potential fraud (among many): Membership at Costco for then-Executive Director Nathan Rose and his wife, membership fee paid by the school. According to FCMAT, “More than $3,990 in unsubstantiated expenditures to Costco were charged to the charter school credit card. There was no supporting documentation for purchases, including advance approval and receipts.”

This was the case with many credit card purchases: There was nothing that indicated the expenditures were for the school, but there was substantial evidence that they were made to benefit Rose and the school’s business manager, Cyd Orneallas.

Soon after FCMAT began examining the school’s books, the council fired Rose. Orneallas quit before she could be let go. Both left town, and nobody at the school knows where they are.

Blue Oak’s website (blueoakcharterschool.org) describes the school as “a community of families and educators … that blends Waldorf-inspired education with California Common Core State Standards.”

The Waldorf method emphasizes the use of music, art and movement to engage students in enriching ways. Conceived in 1998, Blue Oak received its charter from the BCOE in 2001 and opened in 2002 with a single kindergarten class, taught by Susan Whittlesey. Each year after that it added another grade, beginning with first, then second, and so on. By the time those first kindergarteners had completed eighth grade and were ready for high school, the school had grown proportionately. It now has nearly 400 students in grades K-8 and operates out of a spacious modern facility in north Chico.

Discovery of the financial perfidy came at a bad time for Blue Oak. Its charter is up for renewal in early 2018, and administrators and council members found themselves scrambling to fix its troubled financial systems—or at least have a solid plan in place for doing so.

Leading that effort is Susan Domenighini, the school’s executive director, who has been in office for about a year. Assisted by a small group of staff members and parents, she began making positive changes long before FCMAT released its report, beginning with paying off the credit cards and canceling them.

Since then, she and others have drafted a response to the report that addresses the problems raised. The school is treating the report as a valuable wake-up call and intends to implement its recommended changes. Domenighini presented the draft response to Taylor at Monday’s council meeting, after which the council voted formally to accept the FCMAT report and called for a criminal investigation of the potentially fraudulent financial activities it documents.

In an earlier phone interview, Butte County District Attorney Mike Ramsey said he had assigned the case to his Financial Crimes Investigation Unit. Its report will be even more comprehensive than the FCMAT report, he noted. FCMAT’s audit was based on a kind of sampling of data that works for an audit but is insufficient for a criminal case. It may be several months until the unit’s work is done, at which time Ramsey will decide what charges to bring, if any.

In the meantime, Domenighini and her crew are gearing up for the three-month charter renewal process buoyed by a sense that they have made significant progress in strengthening their financial systems. The word being heard around the school these days is “phoenix,” said Kate Holmes, Domenighini’s executive assistant. “It’s like we’re rising from the ashes.”