Judge recommends state revoke Outreach Word Academy's charter; school plans to appeal

July 15, 2011 at 2:15 a.m.

An administrative law judge recommended Friday afternoon the Texas Education Agency revoke Outreach Word Academy's charter school status.

The decision comes after what the TEA alleged was nearly a decade-long mismanagement of state and federal funds.

The school maintains no wrong-doing, blaming their financial problems on faulty software, lack of assistance from TEA and its conservator and issues with auditors.

"Do we have fault in anything? Yeah, trusting people to do what they're supposed to do, especially when we're paying them," Outreach's business manager and founder, Elaine Phillips said after being told of the judge's decision.

She founded the charter school in 2002 with her husband, Samuel Phillips.

Phillips said she believes the push to revoke Outreach Academy's charter is something of a "little political battle," in which she and her husband are being overpowered by those with more political clout.

"Because they don't want a charter school in this area ... some people feel like we're a threat to some school districts," she said.

The court documents speak little politics and mostly numbers, though.


Administrative Court Judge Pratibha Shenoy wrote the following, among other things, in her 37-page findings of fact:

The academy withheld payments from employee paychecks for federal taxes, but those payments were never sent as required by the IRS.

The school was routinely late on submitting required financial reports to various agencies

In 2006, the IRS issued a Notice of Levy against the school for $184,719.37 in unpaid payroll taxes, interest and penalties. That number now reaches more than $200,000.

A month later, Outreach Academy filed Chapter 11 bankruptcy

For six years, the school reported a deficit of net assets. The latest audit in 2010 showed the school to have a deficit of net assets of $996,942

Outreach Academy was unable to adequately document how federal funds were spent, which led to the school being required to pay back $783,093. The school has not paid or reduced the debt.

The judge did find the school had difficulties with its software system from 2002 to 2007 and perhaps with an auditor, but said the problems were not the root of Outreach Academy's financial mismanagement.

"We can agree to disagree. We are the practitioners. We know the impact that software had on our school. It crippled us," said Outreach Superintendent and Principal Lorrine Hernandez.

Hernandez joined the Outreach staff in 2007 as a teacher and became superintendent and principal in 2008.


As business manager, Phillips was responsible for the school's financial operations, so much of the hearing on May 23 and 24 centered around her responsibilities.

The TEA, led by attorney Chris Jones, several times accused Phillips of providing deceptive or misleading statements during the hearing.

In his 28-page closing statement, Jones said Phillips' testimony was inconsistent with her depositions.

Phillips "gave testimony that was deceptive and contained material misrepresentations with the intent to mislead the Administrative Law Judge about her personal responsibility for the charter school's poor financial performance," the statement read.

Phillips disagreed with that characterization. She and Hernandez several times said they thought the TEA was spinning its information.

"In a very highly political situation, everything that comes out of TEA has spins. You can take sentence by sentence, which we know has some fact and some bias," Hernandez said.


Emett Alvarez, who for two years served on Outreach Academy's school board, said he's submitted his resignation as treasurer after becoming increasingly aware of the school's financial problems, most of which came out during the hearing.

"When the light was shed on a lot of the issues ... I became very, very uncomfortable about whether or not the board was being properly informed and kept current on all financial matters," Alvarez said.

He said he never signed checks, except for payroll, and he and the board were not provided correct information that detailed just how much the school owed the IRS.

"I can't take away from the function of the school itself. I think it's doing admirable work as far as educating the children, but unfortunately, that will not offset the financial difficulties the school has had for so many years," Alvarez said.


Phillips has no plans to stop educating children, though. She plans to appeal the judge's ruling.

"Until the charter is no longer with us, we will continue to have school," she said. "We're fighting for our staff, and we're fighting for our students."

Phillips submitted to the Advocate a "Release of Property from Levy" from the IRS that was sent after the school's hearing. The IRS will recommend an installment agreement when the school continuously makes its payments, according to the release.

Still, the judge found that closing the charter school would be in the best interest of students. The amount of debt Outreach Academy owes hinders the amount of money the school would be able to spend on educating students, the TEA argued.

The judge's ruling now goes to the TEA commissioner, who will make a final decision about the school's charter status based on any exceptions filed by Outreach Academy.

That date has not been set.



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