Chapter 3: Charter School Financial Management and Oversight

Nearly three decades into the charter school movement, there remains a dearth of research into the financial management and oversight of the charter sector. This is significant because financial mismanagement has been the leading reason for charter school closures. Financial accountability structures have come under increasing scrutiny across the charter sector, with several state legislatures adopting laws to tighten charter school regulation.¹ Greater understanding for all stakeholders is vital for charter school financial oversight.

This chapter provides an overview of two case studies (Massachusetts and California); both reveal that charter school failures occur largely because of financial issues. While California now leads the nation in both the number of charter schools and the number of charter authorizers, the state has wrestled with the problem of charter school failures due to financial issues. In the other case, the record on the financial accountability of Massachusetts charter schools is strong and considered one of the strictest in the nation. These two state legislatures have taken divergent paths to charter school financial accountability. In the world of charter accountability, there are two kinds of financial issues: a lack of financial management capability, and fraud involving conflicts of interests. As shown in this chapter, part of the problem is a general lack of understanding of key financial metrics to track performance and future viability of schools. In contrast, corporate sector tracking financial metrics used to identify financial weaknesses of a business and take corrective measures are commonplace. Financial metrics also provide in-depth improvement tools in financial management. To strengthen the financial oversight of charter schools, this chapter examines best practices of corporate financial management and their use in charter school sector as exemplars for consideration.