eccbt Electronic [lassruom of Tomorrow October 6, 2014 Ms. Judy Storey, Audit Manager Auditor of State 88 E. Broad Street, 10"? Floor Columbus, Ohio 43215 VIA E-maii Re: Allegations of Fraud Dear Ms. Storey: As you are aware, we will be meeting on October 7, 2014to discuss the allegations of fraud alluded to by Mr. Andrew Brush, President, Board of Directors. In order to facilitate our discussion, i thought it might be helpful foryou to have some background. On June 9, 2014 an attorney representing Ms. Dana Comparetto, Director of Social Services, sent a letter to Mr. Scott Kern, CEO of Altair Learning Management Company, alleging fraudulent activities at ECOT. The specific allegations are as follows: From 2005 to 2013, Ms. Comparetto was a Truancy Ojjicer in Truancy and Engagement departments. As the Director of these departments, Ms. Comporetto was approached . . . during the GET and 0AA testing cycles about prematurely removing students ?-orn ECOT. Although Ms. Comparetto denied this request, ECOTsuccasfully?but lmproperly-remo ved several students from school. Similarly, Ms. Comparetto has personal knowledge of employees forging signatures on student applications to bolster enrollment. in 2010, Ms. Comparetto worked on 5607's initiative to obtain grants pursuant to the American Reinvestment Recovery Act of 2009?s Race to the Top Program Pursuant to her job responsibilities in this role, Ms. Comparetto discovered substantial misuse funds by ECOT. Upon information and belief, created sham employment positions to obtain ARRA ?rnds; ECOT than misused these funds for illegitimate purposes. On April 30, 2014 the same attorney made similar allegations regarding improper use funds. This time the attorney was representing a to rrner employee named Elizabeth McPherson. The allegation is as follows: As is evident by the Single Audit conducted by the State. Auditor for the year ending June 30, 2013, ECOT receives millions of dollars in federal funding appropriated by AREA. As such, COT is a qualb?led employer subject to ARRA, and is precluded from retaliating against an employee for raising concerns related to the use of covered ?lnds. Shortly after beginning her employment at ?601; Ms. McPherson made several reports to her supervisors and other members of leadership concerning what she reasonable believed to be the improper use of ECOT resources. . . . 3700 South High Sir-cl. Solid 95 Columbia. Ohio 43207 858.326.8395 6IM923884 FAX: 61 4.4913894 As indicated previously, the allegations cited to above were containeduin demand letters from Mr. James Mowery, Jr., counsel to Ms. Comparetto and Ms. McPherson. ECOT retained the law ?rm of Mendeison in Cleveland to represent us in connection with these demand letters and any litigation that may ensue. At our request, Littler Mendelson contracted with the independent, outside audit firm of Whalen and Company to investigate the allegations that we improperly withdrew students and forged signatures on enrollment applications. Regarding the alleged misuse of ARRA funds, we can certainly discuss what we assumed they were referring to and how we responded to these allegations. i hope this information is helpful. 22322. WW Kathy A. Ferguson General Counsel Dave Yost - Auditor of State MEMORANDUM TO: Dave Yost, Auditor of State FROM: Mark Long, Chief Auditor Randy Turner, Assistant Chief Auditor Stacie Scholl, Assistant Chief Auditor Judy Storey, Audit Manager Central Region DATE: October 10, 2014 RE: Electronic Classroom of Tomorrow Allegations 1. Action Date: June 9, 2014 and April 30, 2014 ll. Basic Facts A letter dated October 6, 2014 from in house legal counsel, Kathy Ferguson was presented to the audit team. Please see the attached letter. On Tuesday, October 7, 2014 Judy Storey (Audit Manager) and Jonathan Wagner met with Kathy Ferguson and Superintendent, Rick Teeters. In the meeting, Iudy Storey and Jonathan Wagner learned detailed information or speci?c occurrences has not been provided to ECOT to support these allegations. However, the following information was obtained during the meeting regarding the two individuals who made the allegations: 0 Ms. Dana Comparetto, is still employed at ECOT and has pending litigation existing against ECOT for operating an intolerable work place. Per Kathy Ferguson, the allegations noted in the attached letter were not included in the litigation. 0 In discussion of Ms. Comparetto's ?rst allegation, Mr. Teeters indicated in prior years, (before he came to ECOT -worked for ECOT approximately 2 years now), ECOT employees would assist parents in completing enrollment applications over the phone. He stated some employees did sign the parents name to the application rather than indicating the signature was approved by phone conversation with the parent. Mr. Teeters indicated since he started with ECOT, employees are required to document the application was completed by phone. I While at ECOT, Ms. Comparetto has served as the Truancy Officer and Director of Social Services. As Director of Social Services, she was a member on the Race to the Electronic Classroom of Tomorrow Franklin County Noteworthy October 10, 2014 Top Committee E, which was the same committee the Superintendent served on. He indicated the committee received no training on ARRA requirements and Ms. Comparetto complained of the creation of one position (Ms. Brittny Pierson?s] from the ?rst day of being on the committee. Mr. Teeters indicated Brittany?s title at the time was Linkage Coordinator. Ms. Elizabeth McPherson, was terminated from ECOT in January 2014 due to insubordination from her position in the Video Lab. Mr. Teeters indicated Ms. McPherson had no interaction with grant monies and received no training on the subject. He indicated he believed the claim stimulated from tour guides introducing ECOT to potential families. He stated the Video Lab was commonly introduced as being provided by ARRA funds. However, he stated while SFSF were considered to be used to purchase video equipment, no ARRA funds were used to purchase the equipment. Instead the equipment was purchased from the General fund. ECOT was included in the data scrubbing investigation, where 30 student ?les were tested and no errors were noted. [see w/p H20 in the related teammate In review of Race to the T0p payroll testing performed in the 2012 and 2013 audit, Brittny Pierson?s payroll was tested in each audit. The position description on the testing indicated she worked as the Director of Outreach Services and Intake Systems. Based on the testing completed the salary paid was an allowable cost for the Race to the Top grant. lssues/ Recommendations Audit staff has already performed or will be performing the following steps in regards to these allegations: Based on control narratives and knowledge of ECOT, ECOT does not receive funding for a student until after the student logs into their account with ECOT. Audit staff will inquire with ECOT personnel and with the Auditor of State department on possible controls in place to monitor the legitimacy of student log ins as there is a risk that other people could log into the student's account to simulate student participation in ECOT's educational services. The audit team will recommend that all student applications ?lled out verbally over the phone be followed by a form request to obtain a written signature of the guardian as veri?cation of the accuracy of the ?led application and to ensure maintenance of the written signature in the student?s ?le. Extended testing of FTE calculation has been completed during the current audit compliance testing where 40 active students and 20 withdrawals to determine if FTEs were accurately reported. This extended testing has been performed as part of audit since 2009. No signi?cant errors have been found or reported in those audit reports. This testing has already been completed for ?scal year 2014 and no errors were noted. The Race to the Top federal grant was tested as a major program in the 2012 and 2013 audit periods. No instances of non-compliance or questioned costs or control weakness were identi?ed in either audit. The audit team requested the job .coumv 4- - I ?pl-n? upon PROCEDURES - .. .. - . 3335}: . - .A'Il?rl- . Dave Yost - Auditor of State ELECTRONIC CLASSROOM OF TOMORROW FRANKLIN COUNTY TABLE OF CONTENTS TITLE PAGE Independent Accountants? Report on Applying Agreed-Upon Procedures 1 THIS PAGE INTENTIONALLY LEFT BLANK Dave Yost - Auditor of State INDEPENDENT REPORT ON APPLYING AGREED-UPON PROCEDURES Electronic Classroom of Tomorrow Franklin County 3700 S. High Street Columbus. OH 43207 We performed the procedures enumerated below. with which the Board of Directors and the management of Electronic Classroom of Tomorrow (the School) agreed Solely to assist the Hoard In evaluating the admission. enrollment. and withdrawal of students and the calculation of full time equivalency (FTE), which is the basis of the School's state foundation funding for the school year July 1 2013 through June 30 2014. Management and the Board are responsible for the calculation of full time equivalency In accordance with the Ohio Revised Code and ODE guidelines. This agreed-upon procedures engagement was conducted in accordance with the American Institute of Certi?ed Public Accountants? attestation standards and applicable attestation engagement standards included in the Comptroller General of the United States? Government Auditing Standards. The suf?ciency of the procedures is solely the responsibility of the parties speci?ed in this report. Consequently, we made no representation regarding the suf?ciency of the procedures described below either for the purpose for which this report has been requested or for any otherpurpose. School Options Enrollment System (SOES) The School Options Enrollment System (SOES) is an application the School uses to report FTE to the Ohio Department of Education (ODE) in order to determine the funding of the School. We footed the FTE reported on the year-end student list from the SOES application. We impeded the FY 2014 Resident District List Report for Community School/STEM School Payment for June 2014 at ODE ?3 website Funding/State- Repon?s). We compared the FTE reported on the year-end student list from the SOES application to the FTE reported on the FY 2014 Resident District List Report for Community School/STEM School Payment for June 2014 to ensure the amount of FTE reported for funding in June of 2014 is reasonable. We found no exceptions. Withdrawn Students 1. Ohio Rev. Code provides that a student's enrollment shall be considered to cease on the date on which any of the following occur: The community school receives documentation from a parent terminating enrollment of the student; The community school is provided documentation of a student's enrollment in another public or private school; The community school ceases to offer learning Opportunities to the student. Ohio Rev. Code further provides a requirement that the governing authority adopt an attendance policy that includes a procedure for automatically withdrawing a student from the school if the student without a legitimate excuse fails to participate in one hundred ?ve consecutive hours of the learning opportunities offered to thestudent. 88 East Broad Street, Tenth Floor, Columbus. Ohio 43215-3506 Phone: 614-466-3402 or 800-443-9275 Fax: 614-728-7199 1 Electronic Classroom of Tomorrow Franklin County Independent Accountants' Report on Applying Agreed-Upon Procedures Page 2 Withdrawn Students (Continued) Ohio Rev. Code 3314.08 states a community school shall offer not less than 920 hours of learning opportunities during a school year. The Ohio Department of Education (ODE) EMIS Manual, Section 2.1.1 Student Enrollment Overview provides guidance on preferred documentation to be obtained by the School and maintained in the student ?le for each withdrawal code reported in the SOES system. We haphazardly selected 60 identi?cation numbers for students that withdrew from the School between the dates of July 1, 2013 through June 2, 2014 from the SOES student list and completed the following: a. We con?rmed the timeliness of student withdrawals by comparing the withdrawal date on the SOES list to the Student Electronic Pro?le (SEP) Student Education Summary. 2013-2014 by reviewing the time stamp date of the School's staff determining the withdrawal status. We found no exceptions If student is documented by the School as truant in SOES, using the SEP Student Engagement History. Prior School Year Engagement report, we determined the date the student should have withdrawn based on the 105 hour rule and compared that date to the withdrawal date the school reported in the SOES system. We found no exceptions. We compared the withdrawal codes reported in the SOES student list to the codes outlined in ODE EMIS Manual, Section 2.1.1 and ensured the School maintained the appropriate documentation to support the withdrawal code reported on the SOES student list. We also compared the dates reported on the source documentation in the student ?le to the withdrawal dates the School reported in SOES and on the SEP Student Educational Summary, 2013-2014 and inspected the source documentation for requisite signatures. where applicable. We identi?ed two instances where the incorrect withdrawal code was input into SOES. In both instances, the school withdrew students for truancy when the student ?te contained documentation to support a transfer to another school. We obtained the Student Educational Summary. 2013-2014 for the students selected and veri?ed the student was offered the appropriate amount of learning opportunities for the time the student was enrolled. i. We verified the Student Educational Summary, 2013-2014 included a list of both electronic and non-electronic learning opportunities offered to students. We found no exceptions. ii. We veri?ed the total hours offered was certi?ed electronically by the teacherls) to be accurate. We found no exceptions. We compared the percentage of teaming opportunities provided to the percentage of FTE the school reported for each in SOES. We identi?ed the learning opportunities provided to four students were 1% higher than the FTE the school reported in SOES. We believe these differences are due to rounding. Student Admission and Re-enrollment 1. Ohio Rev. Code provides that a student is considered to enrolled in any internet- or computer-based community school unless both of the following conditions are satis?ed The student possesses or has been provided with all required hardware and software material and all such materials are operational so that the student is capable of fully participating in the teaming opportunities specified in the contract between the school and the school's sponsor and Electronic Classroom of Tomorrow Franklin County Independent Accountants' Report on Applying Agreed-Upon Procedures Page 3 Student Admission and Re-enrollment (Continued) The school is in compliance with Ohio Rev. Code which outlines the requirements of the contract between the sponsor and the governing board of a community school. Electronic Classroom of Tomorrow Board Policy de?nes engagement in teaming opportunities as educational opportunities that include but are not limited to direct instruction. opportunity to participate in class worklactivities either electronically or through other means. readings. ?eld trips. participation in curriculum related activities and events. tutoring. etc. We haphazardly selected 60 student SSID numbers for students that were admitted or reenrolled into the School between the dates of July 1. 2013 through June 30. 2014 from the SOES student list submitted by the School to ODE and complete thefollowing: a. For ?rst time admissions. we determined the original source of enrollment is located in the student?s ?le. including birth certi?cates. proof of residency. etc. We found no exceptions. b. We inspected original supporting documents maintained in the student ?le for completeness and proper authorization. We found no exceptions. c. For re-enrollees. we con?rmed that a valid and signed re-enrollment agreement in addition to the documents noted in above are located in the student's ?le. We found no exceptions. d. We con?rmed the school delivered a computer to the student by examining supporting documentation signed by the parent indicating delivery and set up dates or a signed waiver if the student has a computer in the student ?le. We found no exceptions. e. We compared the student's ?rst log in and learning engagement date reported on the SEP Student Engagement History. Prior School Year Engagements Report to the student's start date reported in SOES. We found no exceptions. f. We obtained the Student Educational Summary. 2013-2014 for the students selected and veri?ed the student was offered the appropriate amount of learning opportunities for the time the student was enrolled. i. We veri?ed the Student Educational Summary. 2013-2014 included a list of both electronic and non-electronic learning opportunities offered to students. We found no exceptions ii. We veri?ed the total hours offered was certi?ed electronically by the teacher(s) to be accurate. We found no exceptions. We compared the percentage of learning opportunities provided to the percentage of FTE the school reported for each in SOES. We identi?ed learning opportunities provided to four students were 1% lower than the amount of FTE reported in SOES. We also identi?ed learning opportunities provided to eight students were 1% higher than the FTE the school reported in SOES. We believe these differences are due to rounding. We were not engaged to. and did not conduct an examination. the objective of which would be the expression of an opinion on the School's admission. enrollment. and withdrawal processes and calculation of the full time equivalency which is the basis of the School's state foundation funding. Accordingly. we did not express an opinion. If we were to perform additional procedures. other matters might come to our attention that would be reported toyou. Electronic Classroom of Tomorrow Franklin County Independent Accounta nts' Report on Applying Agreed-Upon Procedures Page 4 This report is intended solely for the information and use of management. those charged with governance. and others within the School, and is not intended to be, and should not he used by anyone other than these speci?ed parties. 2m Dave Yost Auditor of State Columbus. Ohio January 22, 2015 Dave Yost - Auditor of State ELECTRONIC CLASSROOM OF TOMORROW FRANKLIN COUNTY CERTIFICATION This is a true and correct copy of the report which is required to be ?led in the Of?ce of the Auditor of State pursuant to Section 117.26, Revised Code. and which is ?led in Columbus, Ohio. MW CLERK OF THE BUREAU CERTIFIED MARCH 10, 201 5 88 East Broad Street. Fourth Floor. Columbus, Ohio 43215-3506 Phone: 614-466-4514 or 800-282-0370 Fax: 614-466-4490 'Electronic Classroom of Tomorrow Franklin County Noteworthy October 10, 2014 description for Brittny Pierson as the Director of Outreach Services, and Intake Systems to ensure allowability with the Race to the Top Grant. Per review of the job description the payroll paid for this position is an allowable expenditure from the Race to the Top grant. Judy Storey reviewed the for the SFSF grant fund in ?scal year 2011 and 2012 noted that all of the SFSF grant monies were used to pay salaries. AM also performed a search for video equipment in the detailed check registers for both ?scal years. No instances were identi?ed in ?scal year 2011 and all instances identi?ed in ?scal year 2012 were paid from the general fund. We recommend that SIU or AOS legal contact the attorney of Ms. Dana Comparetto and Ms. Elizabeth McPherson to interview them in order to get additional detail regarding the claims they have ?led. Once contact has been made, staff will add, if necessary, additional steps to the procedures to address any additional risk that may be identi?ed during the interview We believe these procedures listed above successfully mitigate the risk brought on from these allegations. Please let us know if you believe any additional procedures need to be performed. IV. Reason Why Noteworthy Electronic Classroom of Tomorrow is the largest on?line community school in the State of Ohio, serving 14,561 students in ?scal year 2014. ECOT received $83,643,884 of foundation monies in 2014 plus an additional $11,391,500 in federal funding. Therefore, ECOT has a heighten public interest. CC: Brenda Rinehart, Chief of Staff Robert Cupp, Chief Legal Counsel Robert Hinkle, Chief Deputy Auditor Leanna Abele, Assistant Chief Deputy Auditor Marnie Carlisle, Assistant Chief Deputy Auditor Unice Smith, Director of Local Government Services Kevin Saionzkowski, Chief Auditor, Special Audit Section Tony Tanner, Deputy Chief of Staff Carrie Bartunek, Director of Communications Samantha Hartley, Executive Assistant Michael Spiert, Chief of Investigations Robert Smith, Assistant Chief Legal Counsel Tim Kraft, Regional Liaison