California Charter School Files for Bankruptcy Amid Audit Scandal

Highlands Community and Technical Schools, a California charter system serving adult students, has filed for Chapter 11 bankruptcy protection. The filing comes as the school system fights a state audit alleging it improperly received over $180 million in K-12 funding and engaged in millions of dollars of questionable spending.

The bankruptcy filing, submitted Sunday in federal court, seeks to allow the schools to continue operating while addressing the disputed financial claims through a court-supervised process. Executive Director Jonathan Raymond stated that the reorganization aims to protect students and preserve the future of the schools, emphasizing that campuses will remain open and classes will continue. The school also plans to rebrand.

A California State Auditor report released more than a year ago identified significant concerns regarding Highlands' finances. Auditors found that the school had received $180 million for which it was not eligible. The report also detailed millions in alleged wasteful spending, conflicts of interest, hiring irregularities, and a lack of oversight.

Among the expenditures highlighted by auditors were a nearly $2 million three-day professional development event at the Manchester Grand Hyatt San Diego in August 2023. Highlands described this as providing training in an innovative setting. The audit also noted an $80,000 expense for seven employees and a consultant to attend an Independent Voter Project conference in Maui, which the school stated was to understand legislative concerns and better support constituents. Additionally, $2,600 was spent on a flight to Paris for an employee to attend a technology conference, whose mother was a member of the Highlands board. Highlands indicated this trip was to promote the school's internal technology.

The audit also detailed a lease arrangement for a professional baseball stadium, which auditors found to have no classes or students present. Highlands reported terminating the lease but continued to make monthly payments exceeding $33,000 through April 2026, which included VIP game tickets. Auditors classified this arrangement as part of their concerns over spending and oversight.

Further questionable expenses noted in the audit include $1,900 for an employee's hotel stay at the Hilton Waterfront Beach Resort in Huntington Beach for a conference in Long Beach, approximately 15 miles away, with the school citing sold-out on-site hotel rooms. The school also spent $137,900 on 6,000 beanies, scarves, and gloves as holiday gifts for students, which Highlands stated was to increase student engagement and show appreciation. Another $8,750 was spent on holiday blankets from a vendor whose spouse was a director-level employee at Highlands.

Conflicts of interest were also identified, including a director-level employee contracting his wife for mentor services at $1,500 per month for two months, an arrangement the employee reportedly claimed ignorance of violating the law. In one instance, an executive director indicated that an employee may have been hired partly because their mother served on the school's board. Overall, the audit found 11 employees with at least one relative hired by Highlands during their tenure.

Beyond specific expenditures, the audit raised concerns about Highlands' financial eligibility for state funding, estimating overpayments of $5 million due to issues with attendance calculations, some of which lacked supporting documentation and were of "undetermined reliability." The report also flagged $147,500 for an internal education game with unclear deliverables, a $60,000 student recruitment contract, and $25,860 for high school athletics sponsorship without evidence of promised marketing. Highlands also donated $50,000 to a legislative caucus foundation.

Auditors also reported widespread issues with teacher credentials, a student-teacher ratio of 51-to-1, and a graduation rate of 2.8% in 2023-24, significantly lower than the statewide rate of 86.4%. The audit additionally found that approximately 200 employees donated about $101,000 to an affiliated foundation, with some reporting feeling pressured to donate.

Highlands asserts that it has since revised its leadership and addressed 18 of the 19 audit recommendations. Despite the bankruptcy filing and ongoing dispute with the state, the school system intends to continue its educational services.