New York Authorizes Charter Schools

Must Have Annual Audits and Submit Financial Statements

By Fong Chan

New York became the thirty-third state to authorize the creation of charter schools when the legislature passed, and the governor approved, the New York Charter School Act of 1998 in December.

Since charter schools are recipients of public funds, they are subject to financial audits. The act specifically mandates an annual report that must include "a certified financial statement setting forth, by appropriate categories, the revenues and expenditures for the preceding school year." A charter school must also undergo an independent fiscal audit at least once a year in accordance with generally accepted auditing standards.

A charter school is a cross between a public and a private school. In general terms, it is a publicly funded school operated by a governing body that is separate and apart from the local board of education. A charter school is granted freedom from certain state and local education laws and regulations, a freedom which provides opportunities for innovative teaching, spending, and hiring methods. In exchange for this freedom, the charter school must meet certain performance goals within a specified time. In essence, the successful applicant receives a "charter" to operate as an autonomous public school.

Based on the time frames specified in the act, it may be September 2000 before the first New York charter schools are operational. CPAs should be aware of the potential consulting opportunities to assist groups with the fiscal analyses needed to obtain a charter. Subsequently, CPAs can help approved schools meet the annual audit requirements and prepare the annual financial statements, which the schools must submit to the chartering entity and the Board of Regents.

Since the enactment of the first charter school law in Minnesota in 1991, the charter schools movement has become one of the fastest growing education reform initiatives, according to the U.S. Department of Education. Proponents believe that charter schools provide a new, effective means of improving the public education system by expanding the choices available to parents and students.

Under the new state law, teachers, parents, school administrators, and community residents may apply to establish a charter school. The application may be submitted jointly with a private for-profit or not-for-profit organization such as a college, museum, or other educational institution. An existing public school may request conversion to a charter school; however, the law prohibits an existing private school from applying.

Groups looking to organize a charter school submit applications for approval to regulatory bodies called chartering entities, which the act identifies as the New York State Board of Regents, the State University of New York's board of trustees, the local board of education and, in New York City's school district, the chancellor. A charter approved by the local board of education or the chancellor is subject to approval by the Board of Regents. The act limits the total number of new schools to 100, 50 chartered by the SUNY board of trustees and 50 by the other chartering entities combined.