Local News

Audit: Failed Kinston charter school mismanaged taxpayer funds

Posted January 28, 2015

— A failed Kinston charter school that mismanaged money for years got $667,000 in taxpayer funds months before it shut down, then paid the couple who headed the school $11,000 while other employees were owed $370,000, state auditors said Wednesday.

The Office of State Auditors looked into the finances of Kinston Charter Academy after it closed in September 2013. The State Board of Education is considering suing to recover state funds the school got for the 2013-14 academic year before it was shuttered and to ask lawmakers for increased financial oversight, Chairman Bill Cobey said.

"We plan to seek legislation this year to strengthen our authority in situations where a charter school is on probation for financial difficulties," Cobey said in a prepared statement. "This would allow us to quickly cease expenditures if necessary."

There are nearly 150 charter schools statewide and 11 more are set to open in August. They are public schools operated by a nonprofit board of directors with much greater financial and academic flexibility than traditional schools.

The Kinston school opened in 2004 to serve kindergarten through eighth-grade children in Greene, Lenoir and Pitt counties. By the time it closed, nearly all of its 189 students qualified for free or reduced-price lunches. Just 5 percent of students were proficient in math and 18 percent read at grade level after the 2012-13 school year.

Financial shortfalls would have closed the school in 2007 if five of the school's eight board members hadn't taken personal loans to keep it operating, school CEO and principal Ozie Hall told auditors. Hall's wife Demyra, who chaired the school's board, was one of the three directors who didn't borrow to keep the school afloat, auditors said.

By July 2013, the school had been cited for financial deficiencies multiple times over six years but still received $666,818 in taxpayer funds as an initial installment for the upcoming academic year, the report said.

Some of the money went to pay off two loans totaling $230,000 borrowed in the preceding two months to keep the doors open. They carried interest rates of up to 515 percent, auditors said. Hall told auditors the loans were the only ones available because of the school's precarious finances.

Because charter school boards manage their own money and operations, they aren't required to inform state school officials when they take on additional debt, the report said.

School leaders also predicted almost twice as many students would enroll for the 2013-14 year than actually did, the report said. That inflated estimate meant the Kinston charter school received $300,000 more than it was due and spent it before the state Department of Public Instruction could recognize and recover the overpayment, the report said.

Demyra Hall, a former criminal defense lawyer, and their daughter, Khadijah, were paid $92,000 in the school's final year though they were "unqualified" because they lacked any education experience, auditors said.

Ozie and Demyra Hall where paid $11,000 for unused vacation time less than a month before the school closed while other employees were owed $370,000, the report said. The school was delinquent on employee health insurance and retirement plan payments, DPI school business administration director Alexis Schauss said.

Ozie Hall said his wife removed herself from the school's board decision to make the payments, which they were owed because they'd spent years working instead of taking time off.

"I had not had vacation in more than four years," Hall said. "I was entitled to it."

Still, state auditors said, "the report questions whether it was prudent and ethical to receive those payments when the school did not meet all of its payroll obligations for other employees."

Ozie Hall has filed a petition, saying the audit contains "multiple errors of fact (and) significant distortions of fact."


Emery Dalesio can be reached at http://twitter.com/emerydalesio.


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  • tmstubbs63 Jan 28, 2015

    Oh No...Ozzie....you told a big fat one to the people of easten NC when you said it wasn't your fault...

  • LetsBeFair Jan 28, 2015

    I'm sure the money has already gone to tattoos, cell phones, pizza, gifts for friends, and other 'free' stuff.

  • AnonyMouseLOL Jan 28, 2015

    IMO, we need far more auditors across the state/country to do surprise audits on entities that receive taxpayer dollars.

  • Mr. Middle of the Road Jan 28, 2015

    Big shock. The idea of Charter Schools is not by nature flawed but the way the for profit schools have paid legislators to have it set up in our state allows for gross abuse. Another example of how neither party is a good steward for our tax dollars.

  • wlbbjb Jan 28, 2015

    Ozzie Hall and his wife should face criminal charges for fraud. They knew they were taking money they should not have taken.

  • farm Jan 28, 2015

    View quoted thread

    oh ok... I thought The Office of Charter Schools wrote a letter to Kinston Charter Academy informing the school of its intent to initiate revocation of the school’s charter. The school received that letter late in the day on August 21, 2013 by certified mail. The school had no notice prior to the 21st of the intent to initiate revocation

  • btneast Jan 28, 2015

    Just to clarify. The school gave up it's charter, it was not shut down by a state agency. In this case, I would say it would be the equivalent to quitting a job because you knew you were about to be fired?

  • iopsyc Jan 28, 2015

    View quoted thread

    Just to clarify. The school gave up it's charter, it was not shut down by a state agency.

  • btneast Jan 28, 2015

    As you said, poor regulation and oversight over Charters is just asking for trouble...
    Not just charters, but everything. The state , like any giant bureaucracy, moves like molasses and most of the folks are afraid to take any decisive action.

  • farm Jan 28, 2015

    View quoted thread

    Eyebrows were raised. The school was shut down. An audit was performed. What else needs to be done?