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What Do Trump And Charter Schools Have In Common?

Independent auditors are meant to be gatekeepers of financial systems. Sham audit mills used by charter schools leave taxpayers unprotected.

By Carl J. PetersenPublished 21 days ago 4 min read
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Photo by Brad Switzer on Unsplash

“For five years [NVMI doesn’t] even have audit findings”

– LACOE Board Member Yvonne Chan

With Trump’s Truth Social barely staying afloat in a sea of red ink, the former President needed to quickly take the company public if he wanted to have any chance at pulling cash out of the rapidly failing endeavor. After doing so, the social platform’s parent company, Trump Media, specified that its audits would be conducted by BF Borgers, a “small” firm that served mostly “small companies [that] traded over-the-counter.” This seemed an odd fit for Trump’s company which the market had valued at $11 billion on its first day of trading under the stock symbol DJT.

It is now clear why the ethically challenged former President chose BF Borgers; the auditing firm had no real intention of ensuring that investors could rely on Trump Media’s financial reports. From 2019 to 2021 the accounting firm had doubled the number of clients it served but had not hired additional staff to handle the increased workload. There were 147 audits assigned to “just one person”. A review of audits performed in 2021 and 2022 by the Public Company Accounting Oversight Board (PCAOB) found “a 100% deficiency rate”.

In shutting down BF Borgers, and forcing Trump Media to hire another accounting firm, the Securities and Exchange Commission (SEC) cited failures “to abide by accounting rules, [fabrication of] documentation to cover up its shortcomings, and [false statements] in audit reports that its work met audit standards.” The regulators found that the firm copied “audit documentation from a previous year, [changed] relevant dates, and then [passed] it off as current documentation.

Regulators found 1,500 deficient reports. This suggests that investors and lenders to these companies could have made decisions based on inaccurate, or even fraudulent, data. If auditors are “gatekeepers” of the financial system, BF Borgers’s “sham audit mill” left that gate wide open. The same can be said for the Charter School Industry in California.

The laws “regulating” charter schools in California require these publicly financed private schools to have their financials audited yearly. However, a lack of oversight leaves taxpayers unprotected from the theft and misuse of public funds. The auditors are supposed to be independent, but “they are hired and fired at will by the schools they are auditing” allowing the schools to shop for the firm that will do the most shallow dig into their financial practices. The accountants performing the audits require no special training or vetting by the state.

One of the few rules these firms have to follow is that “it is unlawful for a public accounting firm to provide audit services to a local educational agency if the lead audit partner, or coordinating audit partner, having primary responsibility for the audit, or the audit partner responsible for reviewing the audit, has performed audit services for that local educational agency in each of the six previous fiscal years.” However, this limitation is frequently ignored by the charter school industry and those who are supposed to regulate them.

One of the few times that a violation of this law was cited was during a 2015 review of an audit conducted by Hill, Morgan and Associates, LLP of the Magnolia Science Academy (MSA) charter school. In addition to finding that “the firm’s audit was not performed in accordance with the standards and requirements set forth in Government Auditing Standards”, the State Controller's office noted that it “was the eighth year the firm had performed the audit of MSA.” In response, auditors admitted they had “applied for a waiver, which was denied.” They were, therefore, forced to cease their “audit relationships where applicable.”

Despite being caught red-handed, Hill continued auditing other charter schools beyond the six-year limit. Pasadena Rosebud used the accounting firm for 15 years through the 2021 to 2022 school year. According to a comment at a Los Angeles Office of Education (LACOE) meeting on August 8, 2023, the disgraced North Valley Military Institute started using the firm “as their ‘independent’ auditor starting at least in 2007.” It only stopped using Hill after “Jeffrey Hill was pilloried by a San Diego Grand Jury for failing to conduct an appropriate audit on the infamous A3 Charter Schools.”

The A3 Education online charter school hired Hill after a previous auditor questioned payments that violated California law. Hill then stood by as A3 continued to engage in a massive fraud that included inaccurate student counts and an illegal funneling of $80 million of state education funds to companies controlled by the charter school’s Directors.

Another notable client of Hill was Green Dot Charter Schools. LAUSD candidate Dan Chang served as the chain’s Vice President of School Development from May 2003 to November 2009. His involvement in what he calls the “turnaround” of Locke High School is a central plank in his platform even though the data shows that Chang’s chain failed to achieve results. The fact that they were using an “audit mill” to verify their financials confirms Green Dot was never interested in proven results.

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Carl Petersen is a parent advocate for public education, particularly for students with special education needs, who serves as the Education Chair for the Northridge East Neighborhood Council. As a Green Party candidate in LAUSD’s District 2 School Board race, he was endorsed by Network for Public Education (NPE) Action. Dr. Diane Ravitch has called him “a valiant fighter for public schools in Los Angeles.” For links to his blogs, please visit www.ChangeTheLAUSD.com. Opinions are his own.

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About the Creator

Carl J. Petersen

Carl Petersen is a parent advocate for students with SpEd needs and public education. As a Green Party candidate in LAUSD’s District 2 School Board race, he was endorsed by Network for Public Education (NPE) Action. Opinions are his own.

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