The state commission governing charter schools has launched a second investigation into First Place Scholars, the state’s first charter school.

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The state commission governing charter schools has launched a new investigation into First Place Scholars, the state’s first charter school, raising questions about possible financial misconduct as well as academic and organizational shortcomings.

It also has asked the state auditor’s office to dig into the Seattle school’s finances.

One issue is how the school spent part of its startup funds, and one consultant has questioned whether the school has assumed debt from when First Place was a private school. By law, public money can only be used for the newly opened charter school.

In its latest inquiry, the commission also is examining whether the school is providing the educational program it promised when applying to become a publicly funded charter school, and whether teachers are adequately tracking student progress. It also has raised concerns about the fact that enrollment has dropped from nearly 100 students in November to about 80.

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The school’s board has until Feb. 17 to turn over a long list of documents to prove it is financially and academically capable of running the school. If First Place can’t do so, it may be forced to close.

This is the latest bad news for First Place, which operated as a private school for homeless students for 25 years before reopening last fall as a charter — a type of publicly funded, independently run school now allowed in Washington under an initiative passed in 2012.

The school was already on probation for a host of issues, including inadequate special-education services, incomplete staff background checks and out-of-date emergency plans.

The situation raises questions about how well the state’s year-old charter commission is doing its job, given that the first charter it approved has run into so many problems so quickly. To date, the commission has approved seven other charters, but they have yet to open.

Although a lot of the problems plaguing First Place didn’t emerge until after school started last fall, the school’s shaky finances could have been spotted sooner, if the commission had looked.

Audits from the 2012 and 2013 fiscal years show expenses outpacing revenue at the nonprofit that runs the school and a low-income-housing facility. The group recently maxed out a line of credit and borrowed from its own endowment to keep its doors open.

That debt didn’t directly cause the problems that led the state commission to put the school on probation in December.

But some say the audits could have been an important sign that problems simmered under the surface.

John Kerr, one of First Place’s new board members and chairman of its finance and audit committee, said he was surprised the commission didn’t ask for any of the group’s past audits, documents which he said private donors routinely request.

And while some defend the commission, saying no one could have foreseen the difficulties, the state charter commission now says it will ask for three years of financial audits, when available, from any group wanting to open a charter.

That didn’t happen with First Place because the commission originally decided not to dig into applicants’ finances unless they were already operating a charter school elsewhere, on the assumption that startup charter schools have no records to review.

That just wasn’t true for First Place, which had years of audits and other financial records available.

Seeking financial stability

First Place’s leaders saw becoming a charter as a way to bring financial stability to the school. As a tuition-free institution serving almost exclusively low-income students, First Place had long relied on private donations. But those gifts had decreased in the past few years after longtime leader Doreen Cato retired, said Sheri Day, who led the school on an interim basis and helped it apply to become a charter.

Day and others who helped with the charter application proposed increasing the size of the school, going from about 40 students to 100.

But the school ran into problems almost immediately, including not hiring a principal until late summer, months after originally planned.

Planning a charter without a permanent school leader is not advisable, said Nina Rees, president and CEO of the National Alliance for Public Charter Schools.

Neither is opening a school as quickly as First Place did.

Washington state’s charter commissioners didn’t think it would be a problem for the school to convert into a charter in seven months.

But Rees said anything less than a year between authorizing a charter and opening its doors to students “would be a recipe for disaster.”

By October, the wheels at First Place had come off.

Five board members quit. The principal resigned a month later. Then the state charter commission issued its first critical report, outlining more than a dozen areas where it said the school appeared to be out of compliance with its charter, the document that dictates how the school should operate.

The school has since fixed most of those issues.

But now it faces a whole new set of requirements outlined in the commission’s latest letter.

In that letter, dated Feb. 2, Joshua Halsey, the commission’s executive director, told First Place’s board of directors that the commission is concerned whether the school has enough money to keep its doors open for the rest of the year.

The letter also says that board President Dawn Mason has alleged financial malfeasance, although Mason now denies that.

Halsey says Mason told him she “believed that gross financial mismanagement occurred” at the school before she joined the board around November. Halsey said Monday that Mason expressed concern that money received from the Washington State Charter Schools Association, a private charter advocacy group, was unaccounted for, and that people associated with the school may have committed fraud.

Mason now says she never alleged financial mismanagement — she only asked for invoices to account for several payments to consultants who helped First Place make the transition from a private school to a charter.

Still, Halsey intends to pursue the matter.

“It doesn’t change my obligation, in that I have to report that to the state auditor’s office when such an accusation comes to me,” he said Monday.

The commission’s notice also refers to a November report by an independent consultant that found a few strengths — teacher commitment in particular — but also a lot of problems at First Place. The report not only questioned the school’s lack of services for special-education students, but how well it was teaching students learning English, whether struggling students were getting the help they need, and even reported that classrooms were cold due to a faulty boiler.

It also said no one on the school’s board at the time truly understood the school’s financial state, including whether the charter school had inappropriately assumed the private school’s debt.

And, it pointed out that the board overseeing the school is the same one overseeing its parent nonprofit even though the organizations are supposed to have two separate governing bodies.

Principal lists progress

Linda Whitehead, the school’s new principal, says the school has come a long way since that report was conducted in November.

Two new boilers were installed over Christmas break, she said. The school hired an outside group to help with its financial reporting, and a new special-education teacher started last month.

But enrollment has dipped to about 80 students, which could further jeopardize the school’s budget. If enrollment stays below 98 students, First Place may have to pay back some of the $988,000 in state money it is slated to get this school year, or face a smaller state stipend next year, Halsey said.

Stephen Nielsen, an assistant superintendent with the Puget Sound Educational Service District who is helping First Place with its financial reporting and payroll, said the school needs to raise money soon to be able to cover its day-to-day expenses.

Still, the school’s leaders are hopeful.

“We have a lot of work to do,” said Mason, a former state legislator who is now the First Place Board president. “People keep calling and saying, ‘How can I help?’

“We’re feeling really supported; we just need time.”