Audit Sparks Concerns Over Sequoia Pathway’s Future Amid $10M Financial Shortfall

Edkey, a prominent operator of charter schools in Arizona, is facing significant financial challenges, as highlighted by recent audit findings. The organization, which serves around 6,000 students statewide, including those at Maricopa’s Sequoia Pathway, is under scrutiny for its financial practices and overall sustainability.

A thorough audit by Baker Tilly US, dated April 22 and released this week, raises “substantial doubt” regarding Edkey’s future, pointing to ongoing losses, a decline in student enrollment, and violations of debt covenants.

For the fiscal year, Edkey reported a staggering $15.9 million reduction in net assets. This decline was attributed to total expenses of $90.4 million, overshadowing revenues of $75.2 million.

Furthermore, Edkey concluded the year with a net asset deficit surpassing $10.1 million, putting the charter school’s financial health in a precarious position.

Despite having over $11 million in cash and equivalents, Edkey carries liabilities exceeding $156 million, primarily stemming from more than $145 million in payable bonds.

The audit confirmed that Edkey is noncompliant with its debt covenants, contributing to doubts about its financial viability. Management acknowledged this in the financial statements, highlighting a lack of adjustments for potential operational interruptions.

Key issues identified in the audit include:

Edkey inaccurately recorded approximately $2.3 million in expected grant reimbursements as income, misleading stakeholders about its financial position.

For six to eight months, the board of directors failed to review monthly financial statements and audit bank reconciliations. This oversight infringes on their financial responsibilities and violates loan agreements.

Additionally, Edkey did not maintain adequate records to verify if large vendors could legally conduct business with federally funded organizations, risking compliance with federal regulations.

Edkey also overreported its eligibility for federal ESSER funds, claiming about $400,000 more than actually warranted due to an error.

Despite the troubling financial landscape, Edkey complies with various state-level operational requirements, as confirmed by a separate report. The organization adheres to employee fingerprint clearance, special education certifications, student attendance reporting, open meeting laws, and tax filing standards.

In response to the audit, Yovhane L. Metcalfe, Ph.D., representing Edkey, stated:

“The Edkey board submitted its audit to the Arizona State Board for Charter Schools, where findings are under review. We are actively collaborating with the State Board to create a corrective action plan addressing the audit’s findings and ensuring financial sustainability.”

Metcalfe reiterated the organization’s commitment to keeping its schools operational and maintaining academic standards despite current financial hardships.

“Our focus on recovery guarantees that Pathway teachers can continue achieving significant academic progress, including a 50% improvement in third-grade reading this year. We do not plan any further school closures,” she stated.

The Arizona State Board for Charter Schools did not provide comments regarding Edkey’s audit or ongoing oversight prior to publication.

The audit has been submitted to both Edkey and regulatory bodies, including the Arizona Office of the Auditor General.