A popular Utah charter school could have to pay back more than $4 million in special education funding — which the state alleges was not properly documented and may have been misspent.

After months of examining the ledgers and books at American Preparatory Academy (APA), accountants for the Utah Board of Education say they were unable to find any system that showed the money was “being properly expended.” Without that accountability, the state assumes the funds were not spent on students with disabilities as they should have been. And it requires strict repayment.

“My hope is that we see this as an opportunity and not as a disparagement,” said Scott Jones, deputy superintendent for the board, in an emailed statement last week. “We hold all of our local education agencies, districts and charter schools, accountable to the same program and fiscal standards.”

A formal audit starting this month will try to determine how much of the $4 million in question the Draper-based school could owe — or if it owes any at all. APA, which has six campuses and 5,000 students, strongly disputes any fraud or misappropriation.

“We’re meticulously aware of and concerned about the spending of taxpayer dollars," said Clay Hatch, board chairman for the school.

Still, the investigation is the latest in what appears to be a statewide crackdown on spending by charters after the chaos that ensued after one shut its doors last year with millions of dollars of debt and displaced more than 1,300 students. Since then, some have questioned whether charters in the state are not being held properly accountable for spending taxpayer dollars.

Amid the growing discussion, a charter in Pleasant View was forced to close after losing $1 million in its first year of operation. And one more in Provo filed for bankruptcy.

The issues with APA first came up last spring, when the school requested its annual reimbursement from the Utah Board of Education for what it had spent on special education for the 2018-19 school year. At that point, according to an internal memo, monitors with the board say they discovered “several unallowable activities.”

That memo and other documents surrounding the investigation only became public last week after The Salt Lake Tribune fought for months for their release through a records request.

The concerns over APA’s accounting system are spelled out in the corresponding hundreds of pages of emails, letters and notices of noncompliance that started in March and ended this January, after mediation between APA and the Board of Education. Throughout most of the intense back-and-forth, the board raised serious questions about accounting systems and transparency.

The main allegation is that the academy did not properly track how it spent special education dollars, so there is no way for the state to know what that money was spent on.

Originally, the board said it couldn’t account for more than $4 million that that charter had spent in state special education funds for one year and more than $3 million in federal special education allocations for three years — amounting to nearly than $7.8 million in total.

The state dropped its concerns over the federal amount as part of a settlement with APA and is now focused on recouping only the $4 million in Utah funds.

“The parties agreed to focus on remediation of areas of concern while acknowledging the possibility that the U.S. Department of Education may still require repayment of federal funds,” Jones said.

For state funds, Utah requires all schools to use a set number of codes to record how they spend their special education money, which is awarded based on how many students they help and how many teachers are working with those kids. Those reports are subject to annual review.

The board wrote in a notice of noncompliance to APA in August that there was “system-wide non-compliance with both federal and state statutes” and that the school had no written financial policies and poor documentation.

“This also raises questions and concerns related to the services being provided to students with disabilities," the state wrote.

It then suspended any reimbursements until APA could provide documents that showed how it spent the money. The charter appealed the notice, which it called “baseless and incorrect,” and accused the state board of trying to shut down the school by “imposing sanctions that would put APA out of business."

The charter’s attorney wrote: “APA has used the same accounting system for many years and, despite having reviewed dozens of reimbursement submissions, the [board] had never previously expressed any concerns about APA’s accounting.”

Hatch, the board chairman for the academy, said during his 10 years working with the school, which opened its first campus in 2003, he’s never had any issues or “negative reviews.” In fact, he pointed to a 2017 grade by the state board where APA earned 50 out of 50 points for how it worked with students in special education.

“We were taken aback by what the board was now saying about us,” he told The Tribune last week about the financial disagreements.

The school sent out a letter to parents and state lawmakers defending itself and the unique way it runs its special education program. APA keeps all students with disabilities in the same classroom as their peers, instead of separating them out, like most other schools.

“The feeling is that these children will thrive without being singled out,” Hatch added.

But the dispute is not over how APA treats students with disabilities — but rather how it spent money meant to help them.

As part of the mediation agreement, the school has since overhauled its accounting system and paid for a new platform that allows it to include the necessary coding required by the state. It will also be required to hire a compliance mentor, and will undergo the formal audit to check for fraud and how much it might have to pay back.

“We’re feeling comfortable with the settlement agreement,” Hatch said, noting that it is not an admission of wrongdoing. “We believe as a board that it will pave the way for us to get into complete compliance with what the state office of education is requiring.”

Jones said he hopes APA can be a model for other schools in the state to update their systems, as well, and properly track what he sees as critical spending.