Charter schools have come to be an important part of the educational system in many parts of America. They provide unique and innovative approaches to learning that traditional schools are unable to offer. In some jurisdictions, charter schools have been shown to out perform public schools – all while operating on smaller budgets. And yet, many charter schools fail – leaving students in a precarious situation, and igniting politics that cause some to question the entire charter school system.
A little known fact about charter schools however, is the number one reason why they fail: Financial mismanagement. While scandalous stories of charter school fraud make the news, the reality for many shuttered charter schools is more mundane. Poorly controlled spending.
At Procurify, we’ve helped several charter schools across America gain control over their spending, and we’ve encountered the same stories, problems, and stumbling blocks again and again. The bad news is, failure to address these issues could have grave consequences. The good news is, each and everyone of them is easily fixable.
6 Reasons Why Charter Schools Fail
1. Rampant Credit Card Spending
We’ve come across many schools that hand out credit cards like candy directly to their teachers. Crazy? Yes.
The Fantasy: School administrators say that they trust their teachers to make smart decisions with the best interests of the school in mind. The reality: It’s passive spending that allows the teacher to purchase items before any administrator has the chance to see it.
Sure, schools might say that they monitor expenditures, but it’s doubtful that they are going through credit card statements line item by line item, ensuring that each item was genuinely needed and purchased with best practices in mind, and then counselling teachers on better purchasing practices each month. A more likely reality is that the statements and receipts are unloaded on a poor bookkeeper who only brings issues up to administrators if they see red flags.
Best case scenario is that teachers are not procurement experts who end up wasting money needlessly. Worst case scenario is credit card statements are a great way to hide illegitimate, personal purchases that may otherwise look allowable on the cc statement.
2. Invoice Only Systems. No PO No Pay!
Some schools don’t have any purchase or expensing approval process in place, period. As in, anyone can purchase or expense anything, at anytime, without getting approval from management or school administration. Freeeee-dom! … yeah right! More like head-aaaache!
So this is what happens. A teacher orders something, maybe books or a new computer. Sometime later, an invoice comes in, and the AP clerk, business manager, or administrator is then left trying to solve the mystery. Who ordered the item? Was it received as described? We don’t want to accrue interest on our bills so we better pay up anyways…
Without a Purchase Order, there’s no way to know if the invoice is actually even legit. Is the supplier over charging the school? Should this reoccurring invoice be cancelled? Without a system that enforces PO generation, there’s no way to guarantee that what was ordered in the first place matches the prices and line items stated on the PO.
Our motto? No PO, No Pay. Require your teachers to use POs and require your vendors to provide proof of PO with every invoice. An even better system? 3 Way Match.
3. Expensing EVERYTHING.
With no approval system in place, staff can very quickly get the notion that it’s ok to purchase anything. New books? No problem. New computer? Go ahead! Free lunch for the entire class? Party! A culture that doesn’t monitor spending can very quickly turns into a culture that promotes spending. A lack of check and balances sends the message to teachers that spending money is no big deal.
Aside from the fact that this can very quickly drain working capital from operating budgets, it also promotes rogue spending. Rogue spending is spending money on unapproved products from unapproved vendors. As in, buying craft supplies from 5 different vendors, willy nilly. Sure, your teacher may think that by going to several different stores they are “shopping around” and getting the best price – but in reality, even the best retail sale prices can’t compete with pre-negotiated bulk buying discounts.
Which brings us to…
4. Unplanned Buying & Lack of Vendor Control
Spending on the fly gives power to teachers that can seem beneficial… at first. It allows them to make last minute purchases on their way to school in the morning or their way home after work, or to go with their personally preferred brand of pens and pencils, or to support their sister-in-law’s computer store… wait, is that allowed? And what happens if the sister-in-law offers the teacher a kick back as a thank you for the valuable charter school business?
Unplanned and uncoordinated buying from a wide range of vendors prevents the school from taking advantage of bulk/volume discounts, wholesale prices, or group buying power. It also means that teachers may be duplicating what they purchase across several individual classrooms, instead of making coordinated orders that suit everyone’s needs. And that kick-back from the sister-in-law? It may seem innocent but is a slippery slope to additional unnecessary purchases to increase the kickback, and brings the school’s spending few steps closer to full on fraud.
5. Several Spending Data Sources
So maybe your a school administrator who is trying to get a grip on your organization’s spending. It’s summer break and you are determined to start the next school year on the right foot. You want to dig deep and analyze spending beyond what you can see on your profit in loss statement. Great! But… where do you find the information you are looking for?
Without POs, approval systems, heck, even basic paperwork this may be a difficult task. It’s likely that each teacher or department has their own way of tracking their budget. How many different excel spreadsheets are being used in to track budgets and expenses? And spread out among how many different computers? How many different people will you have to ask in order to find the data you need, how much of that data is complete, and how much time will be spent consolidating and making sense of it all? Maybe it’s better to just talk to your department heads about spending and leave it at that…
Without the power of spend visibility that can be provided by having all of your purchasing data in one place, it’s hard to get a grip on where your money is going. Are you ordering too much paper? Is one department hoarding resources that other departments might need? How will you know where you can trim the fat if you can’t see everything on the plate?
6. One Person Handles All
Is one person handling all your ordering, paying for, and receiving of items? Do they have complete control over expense reports, bill payments, and purchase approvals? Sounds efficient right? Give one person the responsibility so that no one else has to deal with it? Sure – if you want to open yourself up to fraud.
With no checks in place, giving one person the power to control all spending can lead to fraud. Finding ways to hide theft of company funds through making personal purchases that look legitimate, paying invoices for items that were never ordered or received, and splitting a large purchases amongst multiple smaller expenses are all ways to cover up fraudulent spending while keeping up appearances. Sure, your books might look “clean” and orderly when they are handed to your accountant for year end financing – but looking clean and orderly doesn’t help your organization if you’ve gone over budget and blown through your operating capital.
So Now What? Is My School Doomed to Fail?
If the above list sounds like a day in the life of your charter school you are already waist deep in the waters of financial mis-management. But there’s hope: you don’t have to drown.
E-procurement software like Procurify eliminates all of these issues, while also reducing the amount of time it takes to fulfill the request to approval to order process by 80% AND reducing a school’s yearly purchasing spend by 30%. But don’t take our word for it – check out this testimonial from Legacy Traditional Schools and learn about how Procurify saved them thousands of dollars within their first couple of months.
We’ve created a Report Card for Charter Schools for you – download it now to see where you stand. If you find you aren’t going to make the honour roll, let us know. Send us an email at Contact@Procurify.com and we’ll be happy to have a chat about how to implement best practices in your organization so you can better track your financial management and start your journey on the road to lasting success.