A provision slipped into the budget directs state officials to contract with a private company to help administer Arizona’s school voucher program.
No problem, says Superintendent of Public Instruction Kathy Hoffman – that was already in the works.
In March, the state Treasurer’s Office, which is responsible for banking services for the Empowerment Scholarship Accounts, issued a request for proposals for “alternative banking solutions” for the voucher program.
Essentially, the state is looking for a service that can provide real-time oversight of how parents spend public monies provided to them via scholarship accounts.
Such a program may even be able to prevent parents from illegally spending those ESA dollars in the first place.
Lorraine Jones, deputy state treasurer for operations, said, “We are looking for other processing payment solutions that might allow for better, more timely oversight that would prevent purchases from being made that would then, ultimately, [be] deemed to be inappropriate.”
Stefan Swiat, a spokesman for the Arizona Department of Education, said the idea arose in conversations among Hoffman’s ESA task force.
“As a group, they all said that there’s a couple of places the program is failing. One is that there’s just an administrative burden that needs to be relieved… And then the other piece was being able to monitor fraud, because basically, we’re playing a reactionary game,” Swiat said. “Other than Venmo or cash withdrawals, which we can detect immediately, everything else we’re waiting for an expense report. Who conducts business like that?”
That late detection garnered headlines at the end of the legislative session amid reports that Navajo families in Window Rock were illegally spending their ESA dollars to send their children to school across the state border in New Mexico.
The illegitimate expense was only discovered long after the fact during a routine audit.
“There’s a perfect example where a family is being advised or not understanding the law, so they’re going to spend something, innocently even, on an expense that is illegal. And so we have to catch that retroactively, and now we’re asking a family that’s already spent the money to reconcile that,” Swiat said. “And it’s not an efficient way to run the program.”
Fraud and misuse of ESA funds has been an ongoing problem, with nearly annual reports of parents using the money illegally, including a 2014 case where an ESA was allegedly used for an abortion.
Hoffman’s task force unanimously agreed that a third party vendor could help monitor ESA expenditures in real time, and the Treasurer’s Office issued an RFP for the program more than a month ago.
Now that agreement is enshrined in law.
An amendment to the budget, sponsored by House Speaker Rusty Bowers, directs the Department of Education to contract with a third-party vendor to assist with financial administration and oversight of the ESA program.
Hoffman said she wasn’t fazed by the Legislature’s mandate.
“We were already so far into the process and it didn’t matter to me whether it was in statute,” she said. “The current system is inherently broken and set up for failure. With prepaid debit cards there is a high risk for fraud and misspending whether families mean to or not, so moving to this closed payment system will be more on the preventative side and more proactive to make sure ESA dollars are going where they are allowed to go “
Hoffman said the vendor won’t have access to student data – only account numbers and expense reports. Student data is still under the exclusive purview of the Department of Education.
It’s unclear how the new vendor will be paid. The Department of Education was granted no new funds in the budget. Perhaps there will be savings realized by replacing the current vendor, Bank of America, which provides the debit cards that families use to spend ESA dollars.
Swiat said the vendor may take a cut of the sale of educational materials when parents shop through a vendor’s digital marketplace.
“The way they make their money is, it would be like a walled garden. So any products within there, you can buy. And within that marketplace, the vendor would take a percentage off the product’s price,” Swiat said.
More to the point, this marketplace – kind of like an online shopping portal – will prevent parents from buying items that are unapproved, since all the items available for purchase in the marketplace are pre-approved under state law, Swiat said.
The Treasurer’s Office missed its June 3 deadline to award a new financial services contract. Jones said it took longer than expected to evaluate various bids and proposals, but that a decision could be made in the next week or two.
Dillon Rosenblatt contributed to this report.