Runaway Credit Cards; One Person Over the Money: Open Doors to Charter School Fraud
According to its “about” description on its blog, Procurify is “a cloud based procurement management solution. Our purchasing software is used by leading enterprises around the world to manage their procurement spending more effectively and efficiently.”
In other words, Procurify sells a cloud-based means for organizations to manage their purchases.
Several charter schools are part of the Procurify customer base.
On August 05, 2015, the Procurify blog carried a post entitled, “6 Reasons Why Charter Schools Fail.” The author is Jeannette Montroy, who is described on the Procurify site as “a content marketing professional with a wide ranging background including investment banking, natural health product distribution and tech start-ups.”
(Montroy has only written 3 posts for Procurify: 2 in July 2015, and the charter post, in August 2015.)
In her post, Montroy opens with a statement about the value of charter schools to American education (why tell potential customers anything other than their business is valuable?) and even that “in some jurisdictions, charter schools have been shown to out perform public schools – all while operating on smaller budgets.” (Word choice “some” is a safe bet, but Montroy offers no links to support her assertion.)
And yet, many charter schools fail – leaving students in a precarious situation, and igniting politics that cause some to question the entire charter school system.
We have moved from “some” to “many.”
Montroy states that sure, scandals take down charter schools (Montroy offers two links: one from NPR in 2011, and another from Philly.com in 2012), but “many”— “many”— go bust for a more “mundane” reason: “Poorly controlled spending.”
Montroy then offers her 6 reasons that charter schools fail. What is interesting is that the 6 reasons illustrate a mammoth gateway for that rampant charter school fraud. (“Rampant” is my word, with a link to a major study released in the months prior to Montroy’s post, April 2015, and featured in the Washington Post.)
What I find interesting in Montroy’s 6 reasons is that they present a business insider’s perceptions of the problems with how charter schools are managed, presumably based on the “several” charter schools linked to as Procurify customers (Intrinsic Schools, Peak to Peak Charter School, Legacy Traditional School, and AltSchool).
What is even more interesting is that Montroy openly acknowledges the fraud gateway in 4 out of 6 of her reasons.
Here they are, with some abbreviation:
6 Reasons Why Charter Schools Fail
1. Rampant Credit Card Spending
We’ve come across many schools that hand out credit cards like candy directly to their teachers. Crazy? Yes.
The Fantasy: School administrators say that they trust their teachers to make smart decisions with the best interests of the school in mind. …
Sure, schools might say that they monitor expenditures, but it’s doubtful that they are going through credit card statements line item by line item…. A more likely reality is that the statements and receipts are unloaded on a poor bookkeeper who only brings issues up to administrators if they see red flags.
Best case scenario is that teachers are not procurement experts who end up wasting money needlessly. Worst case scenario is credit card statements are a great way to hide illegitimate, personal purchases that may otherwise look allowable on the cc statement.
2. Invoice Only Systems. No PO No Pay!
Some schools don’t have any purchase or expensing approval process in place, period. As in, anyone can purchase or expense anything, at anytime, without getting approval from management or school administration. …
Without a Purchase Order, there’s no way to know if the invoice is actually even legit. …
3. Expensing EVERYTHING.
With no approval system in place, staff can very quickly get the notion that it’s ok to purchase anything. New books? No problem. New computer? Go ahead! Free lunch for the entire class? Party! …
Aside from the fact that this can very quickly drain working capital from operating budgets, it also promotes rogue spending. Rogue spending is spending money on unapproved products from unapproved vendors.
[Schneider’s note: Rogue spending is an open door for fraud.]
4. Unplanned Buying & Lack of Vendor Control
Spending on the fly gives power to teachers that can seem beneficial… at first. It allows them to make last minute purchases on their way to school in the morning or their way home after work, or to go with their personally preferred brand of pens and pencils, or to support their sister-in-law’s computer store… wait, is that allowed? And what happens if the sister-in-law offers the teacher a kick back as a thank you for the valuable charter school business?
Unplanned and uncoordinated buying from a wide range of vendors prevents the school from taking advantage of bulk/volume discounts, wholesale prices, or group buying power. It also means that teachers may be duplicating what they purchase across several individual classrooms, instead of making coordinated orders that suit everyone’s needs. And that kick-back from the sister-in-law? It may seem innocent but is a slippery slope to additional unnecessary purchases to increase the kickback, and brings the school’s spending few steps closer to full on fraud.
5. Several Spending Data Sources
Without POs, approval systems, heck, even basic paperwork [getting a grip on your organization’s spending] may be a difficult task. …
Without the power of spend visibility that can be provided by having all of your purchasing data in one place, it’s hard to get a grip on where your money is going. Are you ordering too much paper? Is one department hoarding resources that other departments might need? How will you know where you can trim the fat if you can’t see everything on the plate?
[Schneider’s note: Lack of organized spending and absence of spending visibility also beg fraudulent spending.]
6. One Person Handles All
Is one person handling all your ordering, paying for, and receiving of items? Do they have complete control over expense reports, bill payments, and purchase approvals? Sounds efficient right? Give one person the responsibility so that no one else has to deal with it? Sure – if you want to open yourself up to fraud.
With no checks in place, giving one person the power to control all spending can lead to fraud. Finding ways to hide theft of company funds through making personal purchases that look legitimate, paying invoices for items that were never ordered or received, and splitting a large purchases amongst multiple smaller expenses are all ways to cover up fraudulent spending while keeping up appearances. …
Regarding the numerous stories of charter fraud regularly featured in national news: A neat game to play would be to see how many of the above 6 “charter failure” reasons fueled each fraud. Two that are increasingly familiar to me are unbridled use of credit cards and a single individual being in charge of finances.
Coming July 08, 2016, from TC Press (revised release date):