Data from the Education Freedom Account program is taboo for auditors

By GARRY RAYNO, InDepthNH.org

CONCORD – Data used by the Department of Education to flag nearly 25 percent of eligibility decisions for Education Freedom Account students in a compliance report will not be made available to the Office of the Legislative Budget Assistant for a legally required performance audit of the program.

The program has grown exponentially since its inception three years ago. But whether the nonprofit that administers the program carefully monitors the program's eligibility requirements and differentiated state support, or whether parents spend the grants on qualified educational expenses and the organization finds the funds are being misused, will be difficult to determine given the restrictions set by the Department of Education and supported by the Attorney General's Office.

The department and the attorney general have stated that under the state's “standard contract,” the program's data belongs to the Children's Scholarship Program New Hampshire and not the state, even though the contract with the organization states that the data belongs to the state.

The organization was unwilling to share the detailed data with the LBA, and the DOE is unwilling to ask the organization for full access by the LBA. However, the Department is willing to share documents in its possession related to the program and its oversight of the program's practices and policies.

The Legislature's Joint Committee on Performance Audit on Tuesday adopted a scaled-back statement on the scope of the audit, with completion slated for spring 2025. That could impact how much lawmakers allocate to the EFA program in the state's new biennial budget.

Several members of the Audit Committee expressed disappointment that little progress had been made in expanding the scope of the audit beyond the information that Education Commissioner Frank Edelblut had shared with the Committee and that would be made available to auditors in March.

Senator Rebecca Whitley (D-Hopkinton) said not much has changed since last March, when some committee members expressed concern that they, as legislators, might not be able to do their job of ensuring public funds were being used appropriately.

“This is a situation where millions and millions of public funds are going into a program that is run by a private organization, and the Department of Education is not willing to allow the LBA to directly audit this organization that is using and spending public funds,” Whitley said. “The public trusts us to make sure that public funds are being used appropriately. Are you concerned, because of the way this is going, that we will not be able to do that?”

Paige Lorenz, audit manager for the LBA, said her office will fulfill its obligation to produce a report, and if lawmakers have concerns about the scope after the report is released, it is her prerogative to make changes.

Lorenz said auditors would be allowed to report observations of problem areas and risks, but would not be able to determine the extent of the risks.

Democratic Rep. Mary Jane Wallner of Concord asked whether auditors could use the department's recent compliance report, which reviewed data from the program's first two years last fall.

Lorenz said they could review the report but had no way to independently verify the findings. She said if the department kept the documents, they could be available to the agency's oversight during the audit, noting that would be a good start.

Wallner asked if the auditors expected further discussions with the Children's Scholarship Fund, and Lorenz said that to their knowledge they did not have access to their data.

The department's compliance report found that 12 of 50 student applications for the first two years of the program – the 2021-2022 and 2022-2023 school years – indicated that the CSF's New York office, which processes applications and makes eligibility decisions, did not use required documentation, such as adjusted gross income or valid documentation of meeting special education and English as a second language requirements, when approving the applications, according to an analysis by InDepthNH.org, which first reported the report's findings.

In several cases, the organization ignored portions of adjusted income above the threshold in tax returns, arguing that the families' financial situation had changed. Instead, it used pay stubs to determine net income, which is not the same as adjusted gross income.

Once a parent is eligible to participate in the program, they no longer need to meet income requirements for their children to continue participating until they either graduate or drop out.

The organization's problematic eligibility decisions resulted in the Ministry of Education requiring the organization to re-examine all applications from the first two years of the program.

The compliance report did not indicate whether the organization had completed the re-assessment.

At Tuesday's performance review meeting, LBA Audit Director Jay Henry told the committee that his office had reviewed the use of state or federal funds by third-party organizations such as the Community Action Program, but noted that the contract may be different.

The chair of the Legislature's Joint Committee on Performance Audit, Senator Cindy Rosenwald (D-Nashua), pointed out that the committee had seen the contract with the Children's Scholarship Fund and that “it says pretty clearly that the data belongs to the state.”
She noted that the Executive Board approved the contract with this provision, which is similar to the provision for the Medicaid managed care contracts with three health care organizations that give the department access to all the data they collect.

Henry said that was not the Education Department's interpretation. His office initially assumed they would request the data, look at it and do the audit, he said.

“The DOE saw this as a program set up independently of the state and operated by the grant program, so there is some sort of separation. We're going to abide by their interpretation,” Henry said. “You'll still get a good audit, it's just not going to be as thorough as you would otherwise.”

Whitley noted that it is an unusual situation because the department has little involvement in the EFA program and instead delegates almost all of its authority to the scholarship fund, “which creates a very, very disturbing lack of transparency on a significant amount of government money.”

However, the amount the organization had to repay to the state following the compliance report was relatively small — $18,163 of the $103,507 the state found questionable in its compliance audit — compared to the $45 million the state spent on the program in its first three years.

However, based on the 4,875 students enrolled last school year, the percentage of problematic applications is about $2 million, and even higher if one uses the amount the state says is potentially owed for the 50 applications.

Senator Howard Pearl (R-Loudon) asked if the LBA had encountered similar problems in other performance audits, and Christine Young, director of the audit division, said she could not recall ever encountering a problem of this magnitude.

“We have done audits of departments with third-party contracts, but since the fellowship organization runs the majority of the program, this is different,” she said. “We have worked through minor scope restrictions before and have always been able to reach agreement and get the documentation we needed for the audit.”

The law requiring the audit requires the LBA to review the following: eligibility, controls to determine eligible expenditures, identification and recovery of ineligible disbursements, procedures and controls for transferring funds to the grant organization, procedures and controls for phase-out grants, public reporting of participation, study results and expenditures, and demographic data of eligible applicants for the first year of the program.

In the scoping statement, the LBA notes that its review will be limited to determining how effectively the department has overseen the program to date by determining students' initial and continued eligibility for the EFA program and their eligibility to receive differentiated assistance, crediting the correct amount of money to each student's account, using funds only for qualified educational expenses, identifying, reporting and addressing suspected cases of wasted funds, and ensuring that educational service providers are complying with program requirements.

Auditors will also assess whether the department had adequate controls over the scholarship organization's compliance with program requirements, whether CSF and ClassWallet contracts were monitored, whether grants to students are accurate, whether ineligible grants were identified and recovered, whether EFA funds were transferred to the scholarship organization, whether administrative fees paid to CSF ​​are accurate, whether phase-out grants paid to school districts are accurate, and whether public reporting of participation, student outcomes, and expenditures occurred.

The scope statement also notes the limitations of the test due to the limited amount of data.

“According to the NHED Commissioner and Legal Counsel, NHED cannot be compelled to request this information from CSF for LBA audit purposes because requiring NHED to request these items from CSF would violate the separation of powers between the legislative and executive branches,” the scope statement said.

The program was touted as a way to help low-income parents find alternative educational options for their children if they do not perform well in a traditional public school.

However, about 75 percent of the state funds go in the form of grants to students who attended religious or private schools or were home-schooled before the program began.

When the program began, the income cap was 300 percent of the federal poverty level. Last year, it was raised to 350 percent. This legislative session, Republican lawmakers tried to raise the threshold again, but the attempt failed.

Garry Rayno can be reached at [email protected].