A series of independent audits made public at the end of 2018 by the Indiana State Board of Accounts warned of financial stress in three Lake County charter schools.
The three schools — Thea Bowman Leadership Academy in Gary, the Higher Institute of Arts and Technology in Merrillville and East Chicago Urban Enterprise Academy — were all found "likely to continue as a going concern," despite the schools' recent negative cash flows and declines in enrollment.
The financial audits, compiled by Indianapolis-based Donovan CPAs, analyzed net assets, functional expenses and cash flows for the schools' financial years ending in June 2017 and June 2018.
The audits enumerated likely factors contributing to each school's current financial state, as well as steps reported back to the auditing firm that each school is taking for a better 2018-19 report.
Thea Bowman Leadership Academy
Donovan’s audit found Thea Bowman, sponsored by Trine University, increased expenses by about $1.4 million last year despite losing about 70 students. The K-12 charter also saw its cash and certificate of deposit balances drop $1.1 million within the year and its expenses were found to exceed revenues by $995,000, according to the audit.
However, according to the Donovan report, Thea Bowman’s management team has planned four focus points for the current school year: increasing enrollment; reducing expenses; aligning staff to enrollment; and building philanthropic support.
Higher Institute of Arts and Technology
In its audit of HIAT, Donovan found the school likely only met cash obligations needed to operate because of proceeds received from a $1 million note payable to the Indiana State Board of Education. At the end of June 2017, HIAT had a $571,936 deficiency in net assets and a $456,575 negative cash flow balance.
HIAT’s board of directors has hired an external management company, according to Donovan, to help control school expenses and improve academic operations. The charter is also looking to take advantage of previously unused grant fund resources.
The HIAT and Thea Bowman schools are both operated by Phalen Leadership Academies, which declined to comment in greater detail on steps being taken to improve the schools' finances.
East Chicago Urban Enterprise Academy
East Chicago Urban Enterprise Academy, chartered by Ball State University and operated by The Leona Group, accumulated about $158,000 in net cash outflow by June 2018, according to the Donovan audit. Of that, $88,000 went to capital expenditures designated for instructional technology use and improving the school grounds.
The K-8 charter’s undesignated net assets were found to be in a $44,000 deficit and its liabilities outweighed its assets by about $276,000, according to Donovan.
Donovan’s East Chicago Urban Enterprise Academy audit was the only report to cast doubt on a charter’s future as a going concern. The report found school management was aware of its financial challenges and has focused efforts on seeking grant opportunities and developing a 2019 budget that strengthens the school’s net asset position.
The school reported a slight increase in enrollment for the coming fall semester, according to the audit. Melinda Benkovsky, director of budget and finance for The Leona Group, said school management is aware of these challenges and is working with East Chicago Urban Enterprise Academy to strengthen the school's financial position while providing a quality program for students.