When Discovery Creemos Academy, formerly known as the Bradley Academy of Excellence, closed unexpectedly late last month, hundreds of Goodyear students, and their teachers, were left without a school.
Now, allegations are being raised of fraud and self-dealing. Attorney Quacy L. Smith represents some of those affected by this sudden closure.
“Because we represent such a large number of folks impacted, we are in the process of formulating the necessary civil complaint, state and federal court, to pursue the interests of these teachers and some of the students,” Smith said.
It is, however, still early, and decisions have yet to be made on the parties involved in the suit.
Among the allegations of fraud and self-dealing, Smith predicts embezzlement as a possibility. School CEO Daniel Hughes has been accused of using school funds for personal interests. Grand Canyon Institute (GCI) alleges Hughes created his own private companies and directly contracted with them through the school, something technically legal under Arizona state charter school law.
When Hughes took control of Discovery Creemos Academy in 2014, school costs increased exponentially. From 2012 through 2017, school enrollment ranged from 380 to 522, according to Arizonans for Charter School Accountability (AZCSA). Despite minimal growth, spending on supplies increased vastly. Supplies averaged approximately $90,000 between 2012 and 2014, sharply increasing on average to $310,000 from 2015 to 2017.
Administrative costs also jumped, while spending on teacher salaries declined nearly $200,000 over those five years. Supplies and administration expenditures rose $3.6 million in the last three years versus the prior three.
According to GCI, the school hit negative $500,000 in net assets in fiscal year 2014, surpassing negative $1 million in 2015 and negative $3.3 million in 2016.
While spending was rising and, in turn, financials were failing, performance dropped from a C to D rating in fiscal year 2014, and to an F in 2017. AZCSA also reported only 13 percent of students passed English and 7 percent passed math on the 2017 AzMERIT test.
“There is a lot of misappropriation of funds,” Smith said. “For example, the janitors at the school were used to clean his personal house, used as personal maids. The cooks at the school were used to cater his parties, his daughter’s first birthday party. Things like that are clearly outside of the pale of what public funding should have been for.”
While the reports show spending rising, Smith said it went elsewhere when asked about supplies.
“They didn’t even have schoolbooks,” he said. “They had to buy their own supplies sometimes. So, the money wasn’t being spent at the school; the money was being spent on him living a luxurious lifestyle. The school was well within shambles.”
The AZCSA notes numerous other large expenditures in 2016. First, Hughes reportedly spent $575,000 on supplies and services from four for-profit companies he founded. He also paid off $101,795 in loans from former CEO Tanya Burston, her husband and her now-deceased mother. Additionally, two board members were paid $58,975 while nonprofit board member salary payments increased by $100,000. AZSCA also notes he was reimbursed for purchases totaling $477,108. Food expenditures totaling $101,880 were also listed on Creemos’ IRS 2016 990 submission.
Despite falling academics and financial instability, the Arizona State Board for Charter Schools (ASBCS) unanimously approved a 20-year renewal of Discovery Creemos’ charter in June 2017. Concerns were raised in a fiscal year 2016 audit, and the Charter Board reportedly referred to the Attorney General last October.
“The state charter school board knew,” Smith said. “When you see a school is failing and there’s questionable behavior going on financially, an increase of income going to the CEO but the school’s financial status is going down, it should have been looked into then. So, there could be some failure on the part of the charter school board to do its job.”
Hughes reportedly packed up and left when the school closed. Citing him having fled to somewhere in the northwest region, Smith described Hughes as, “very heartless and very cowardly,” saying he “has adversely impacted a lot of folks.”
Some teachers have even been evicted out of homes or had cars repossessed, Smith said, while the poor timing makes it difficult to find new teaching jobs or to enroll students in new schools. The suit will seek damages, as well as cite issues like breach of contract and failure to pay wages. As for the ASBCS, Smith doesn’t eliminate potential involvement.
“They’re not off the hook as far as we’re concerned with the suit by any means until we look more and find out what they did not do and should have done,” he said, noting it has yet to be determined if the board is complicit or has failed to act.
According to Smith, decisions still stand as for the next steps. The Attorney General is now involved, with Smith and the former’s office recently coordinating.
With over $1 billion allocated annually to charter schools, it has been noted that cases like that of Discovery Creemos could be part of a larger problem. Last September, GCI found that three-fourths had taken part in questionable self-dealing. This involves nearly nearly half a billion dollars annually. In a yet-to-be-released report, GCI will show one-third of charter schools that involve in this self-dealing have repeatedly shown net losses, and even some negative net assets.
“Last year, GCI produced a policy report, Following the Money: Twenty Years of Charter School Finances in Arizona, that revealed up to 77 percent of Arizona’s charter school holders use their state taxpayer funds for potentially questionable related-party financial transactions,” said Dave Wells, GCI research director. “Unlike public district schools, nearly all charter schools in Arizona operate outside the rules of the public procurement process, freeing them from the need to conduct competitive bidding.”
Additionally, 2014-15 audit info reported by GCI reveals 45 charter organizations have over $500,000 of negative net assets, whereas 29 of those surpass $1 million, and one with over $25 million.
In a similar case, Scottsdale Unified School District’s CFO recently resigned following allegations of fraud and self-dealing.