The Arizona Auditor General found that Apache Elementary School District (AESD) improperly received state funding for out-of-state students and more than $27,500 in excess transportation funding, while raising concerns about employee benefits, technology controls, and the future viability of the eight-student district.
The Auditor General’s Office also reported that one audit finding was omitted from the public report because of its “sensitive nature” and was communicated directly to the district’s governing board and management.
According to the audit highlights, AESD, located on the Arizona-New Mexico state border, served just eight students during fiscal year 2024, with four of those students residing in neighboring New Mexico. Auditors found the district failed to comply with state requirements governing the admission and reporting of out-of-state students and improperly received state funding for those students. The report recommended that the district evaluate operational alternatives given the small number of Arizona students it serves.
The audit found that the district improperly claimed funding for out-of-state students and failed to charge tuition as required by state law. Auditors also concluded that the district improperly reported transportation miles associated with transporting out-of-state students to and from their homes in New Mexico, along with other reporting errors.
The report stated that the district “paid parents to transport students but did not ensure that all reported mileage and transported students were eligible for State funding and reported data was accurate.”
According to the report, those errors resulted in the district receiving more than $27,500 in excess transportation funding during fiscal year 2025 that it will likely be required to repay to the state.
The Auditor General recommended that the district work with the Arizona Department of Education to correct its student enrollment and transportation reporting errors and ensure future compliance with state requirements. Auditors also recommended that if the district continues admitting out-of-state students, it should charge tuition in accordance with state law.
In addition to the funding issues, auditors found that the district may have violated the Arizona Constitution’s Gift Clause by providing unauthorized fringe benefits to two employees. According to the report, the benefits were not included in employee contracts and were not approved by the district’s governing board prior to being provided. Auditors recommended that the district consult legal counsel to determine whether a Gift Clause violation occurred and, if so, report its determination to the Arizona Attorney General’s Office.
The audit also identified deficiencies in the district’s cash-handling procedures. Auditors reported that the district did not consistently prepare receipts when cash was collected and did not always make deposits in accordance with required timelines, increasing the risk of loss or theft.
The report further found weaknesses in the district’s information technology controls. According to auditors, employees and external users had excessive access to sensitive computerized data, while the district lacked comprehensive system monitoring, security awareness training, and an IT contingency plan. The Auditor General concluded that these deficiencies increased the risk of unauthorized access to sensitive information, data loss, errors, and fraud.
Auditors also recommended that the district work with the Cochise County School Superintendent’s Office to evaluate alternative operational structures. Potential options identified in the report include consolidating with another school district, operating as a transportation school district, or dissolving the district and requiring students to attend a nearby district.
The report noted that the majority of the district’s administrative spending was “for superintendent and business manager salaries and benefits.”
According to the Auditor General, the district’s governing board had three filled positions during fiscal year 2024, though one board member later resigned and only two of the three positions were filled when the report was issued in May 2026. The district’s small enrollment prevented the Arizona Department of Education from assigning a school letter grade or publicly reporting student achievement data in order to protect student privacy.
In its formal response to Arizona Auditor General Lindsey Perry, AESD agreed with the audit findings and stated it has already begun implementing corrective actions. Superintendent Loy Ann Guzman wrote, “While some recommendations already have been implemented, the district will continue to work diligently to complete administration of the remaining items and will work to improve the processes and procedures moving forward.”
The district reported that it has instituted procedures requiring proof of residency for enrolled students, worked with the Arizona Department of Education to correct enrollment reporting errors, and does not currently plan to admit out-of-state students. The district also agreed to evaluate operational alternatives with the Cochise County School Superintendent’s Office, review potential Gift Clause issues with legal counsel, improve cash-handling procedures, and implement additional information technology safeguards.
The Joint Legislative Audit Committee (JLAC) voted June 1st to direct the Arizona Auditor General to conduct two targeted special audits examining student safety in schools and the administration of federal childcare assistance funds.
One audit will focus on school safety practices statewide, marking the fourth special review of the issue. It will specifically include the Phoenix Union High School District following recent serious incidents of campus violence, including the August 2025 stabbing of a student at Maryvale High School.
The Auditor General will assess whether Arizona schools have properly adopted and implemented emergency response policies, thoroughly investigated student safety allegations, and complied with the state’s mandatory reporting laws.
In a separate action, the JLAC approved a special audit of Arizona’s administration and oversight of the federal Child Care and Development Fund (CCDF). The program, primarily administered by the Arizona Department of Economic Security, provides childcare assistance to qualifying families.
“JLAC took bipartisan action to get answers on two issues that matter to Arizona families,” said Chairman Matt Gress (R-LD4). “Parents deserve to know whether schools are prepared to respond to credible threats and whether serious safety concerns are being handled properly. Taxpayers deserve to know whether hundreds of millions of federal childcare dollars are being managed responsibly. These important audits will establish the facts, identify gaps, and help us determine what needs to change.”
Arizona spent around $573 million in federal CCDF funding during fiscal year 2024. The audit follows previous State Single Audit findings that identified deficiencies in provider oversight, questioned costs, and reporting.
The review arrives amid growing national concerns about fraud and abuse in publicly funded assistance programs. Federal officials have highlighted risks across the country, including recent charges announced by the U.S. Department of Justice in Minnesota against 15 defendants in alleged fraud schemes involving more than $90 million, some tied to childcare assistance programs.
The Auditor General’s examination of the CCDF will cover the approval and monitoring of childcare providers, inter-agency oversight responsibilities, and the accuracy and propriety of program expenditures from fiscal years 2021-25. The review may also extend to participation providers and other areas deemed necessary by the Auditor General, with particular attention to higher-risk periods during and after COVID.
“The fraud scandals unfolding in other states are a warning sign,” added Gress. “Arizona should not wait for a crisis before asking hard questions. When hundreds of millions of dollars flow through a program, strong oversight is not optional. This audit will help determine whether taxpayer dollars are protected, safeguards are working, and childcare assistance is reaching the families it is meant to serve.”
The school safety audit, which received unanimous approval, will begin following completion of the third school safety special audit now underway. It is scheduled to be completed on or before December 31, 2027. The Child Care and Development Fund audit will require cooperation from relevant state agencies and entities involved in federal childcare funding.
Ethan Faverino is a reporter for AZ Free News. You can send him news tips using this link.
On May 12, the Scottsdale Unified School District (SUSD) Governing Board voted 5-0 to place a $375 million capital bond on the November 2026 ballot. Five months earlier, the same body voted 3-2 to close Pima Elementary and Echo Canyon K-8 over declining enrollment and its poor fiscal management.
SUSD has lost roughly 6,250 students since 2010-11, a 24% decline. Applied Economics, the district’s own demographer, projects another 2,400-student loss by 2035-36. Six additional campuses sit on the Phase II repurposing list and are likely the next to close. Yet, the district wants a bond 64% larger than the last one approved by voters to renovate buildings it is in the process of closing.
In 2019, Pima was rebuilt with funds from the last school bond approved in 2016 to boost the school’s enrollment. Seven years later, the Pima renovations are a startling example of hubris that comes at a colossal cost to taxpayers.
State-funded enrollment is down7.19% over four years, which directly reduces the per-pupil dollars the district receives.
The day-to-day operating reserve lost nearly half its value in a single year, falling from $18.86 million to $10.60 million.
SUSD spent more than it took in two years running, by 4.14% in FY25 and 8.52% in FY24.
The General Fund savings account fell 25% in FY25 and 31% in FY24, a combined $28 million drawdown.
SUSD pulled $4.2 million of its state capital aid, money meant for buildings, technology, and buses, and used it to cover payroll and operations instead.
In other words, SUSD is so operationally distressed that it is cannibalizing its capital fund to make payroll. A bond cannot fix that. By law, bond proceeds can only be spent on capital projects, not on salaries or classroom costs.
If this bond is approved, SUSD will still have to make cuts, most likely to staff while throwing away money to maintain spaces it cannot afford to operate.
This pattern is statewide. Chandler Unified has similarly delayed school closures and narrowly forced through a bond in 2025 after a 2024 bond request led to the district’s first school bond rejection in 30 years. Kyrene passed a $161 million bond in 2023 and is still closing six schools. Bonds do not solve enrollment declines, nor do they save jobs. Scottsdale Governing Board member Pittinsky put it plainly in the December 2025 closure vote: “SUSD is nearly 25% smaller than we were 15 years ago, yet we have closed only one program in that timeframe.”
The political machinery behind school bonds runs on the profit motives of vendors and not on the genuine needs of students, families, or the school district. The Arizona Center for Investigative Reporting documented that three architects, three construction firms, and three subcontractors captured more than half of Arizona K-12 contracts from 2013 to 2016, doing so through hundreds of thousands in political contributions to pro-bond PACs statewide.
SUSD voters have seen the worst side of school bonds co-opted by the greed and financial interests of vendors. In 2018, former Superintendent Denise Birdwell steered architectural work to Hunt and Caraway without competitive bidding, accepted $30,000 in payments during contract negotiations, and appointed an unlicensed architect with a prior felony theft conviction on the contractor selection committee. She was later indicted on 18 felony counts. Yet, the same conditions that enabled this malfeasance still remain in place with no real guardrails to protect taxpayers from the too cozy relationship between district leaders and vendors.
Before SUSD asks taxpayers for $375 million, the Governing Board and Superintendent Scott Menzel owe the district three deliverables that address the Auditor General’s findings.
Complete Phase II closures before any new funding request.
Align capital planning to the 2035-36 enrollment projection of 17,340 students.
These actions would constitute rightsizing in earnest through fewer schools, a smaller operational footprint, and a proportionally smaller payroll.
A district carrying five high-risk flags from the Auditor General has not earned the right to ask voters for $375 million. Scottsdale voters would be well-advised to reject the request this fall.
Arman Sidhu is a lifelong Arizonan, a professional educator, and a doctoral candidate at Arizona State University, where his research focuses on school bonds and K-12 education funding. The opinions presented are solely his own.
This week’s erroneous attack on Arizona’s popular Empowerment Scholarship Accounts (ESAs) is another example of how biased reporting is misleading lawmakers and the public.
When the Arizona Auditor General last week released its Single Audit Report on the state for fiscal year 2024, Craig Harris of Channel 12 News had another fairy tale ready for viewers and readers. The ESA program, he claimed, is “plagued by weak controls, questionable spending, and internal management failures.”
No mention was made of the Arizona Department of Education’s recent finding that only 2% of ESA funds were spent on unallowed items (mostly innocent errors like backpacks and lunch boxes), and only 0.3% of ESA funds were spent fraudulently.
A new Arizona Auditor General report finds the the percentage of misspending in the state's Empowerment Scholarship program was a stunning 34 percent, based on a sample of transactions from July 23-October 25.
The report also is highly critical of @RealTomHorne management….
Both halves of that claim are false. And the falsehoods are not minor.
Start with “random.” The Auditor General’s report describes the relevant sample in unambiguous language: “we judgmentally selected 63 expenditure transactions for review occurring between July 2023 and October 2025 totaling $251,446.” [Emphasis added.]
A footnote on the same page adds, for the benefit of any reader who might be tempted to make the mistake that Harris did: “We selected our audit sample(s) to provide sufficient evidence to support our findings, conclusions, and recommendations. Unless otherwise noted, the results of our testing using these samples were not intended to be projected to the entire population.” [Emphasis added.]
Judgmental sampling and random sampling are not synonyms. They are distinct methodologies with distinct inferential properties. A random sample can be projected to a population; that is its entire purpose. A judgmental sample cannot, which is why auditors use it to probe suspected weaknesses rather than measure their prevalence.
In this case, the auditor general was testing the robustness of the Arizona Department of Education’s review process, not trying to determine the prevalence of misspending in the ESA program.
More responsible journalists, such as Garrett Archer of ABC 15, made sure to clarify that the auditor general’s findings were not generalizable to the entire program.
Note: This is not a program transaction error rate. The Auditor General's focus was on the review process itself.
— The AZ – abc15 – Data Guru (@Garrett_Archer) May 12, 2026
In other words, Harris completely misrepresented the auditor general’s methods and findings. That is sloppy at best, dishonest at worst.
Not only is the “34% misspending” figure not generalizable, it’s also not all misspending.
The 34.4% figure comes from dividing $86,599 in flagged transactions by the $251,446 sample. But Table 2 of Finding 2024-04 breaks those flagged transactions into five categories, and only two of them — “unallowable expense” ($2,155) and “overpayment” ($9,977) — involve money the program should not have disbursed.
The other three — missing documentation ($42,760), missing accreditation ($14,175), and “indicators of possible misuse” ($17,531) — are paperwork and compliance gaps. A tutor’s accreditation certificate that wasn’t uploaded is not the same thing as a misspent dollar. The actual confirmed misspending share within the sample (combining 0.9% unallowable expenses plus 4% overpayments) is about 4.9%, not 34%. Moreover, as the report concedes, even the 4.9% figure cannot be projected to the entire program.
In short, Harris conflates paperwork issues with misspending and treats a non-generalizable sample as generalizable, even though the auditor general warned readers not to do exactly that. Then Harris’s manufactured anti-ESA talking points are repeated ad nauseum by politicians and political activists.
Harris built an entire investigative series on a Department of Education internal review that supposedly reported a 20% misuse rate — except the internal review, like the auditors’ sample, was not designed to be projected. Harris projected it anyway.
When the same Department then produced a separate analysis suggesting misuse was minimal, Harris turned around and faulted that study for over-generalizing from its sample. For Harris, non-generalizable findings become generalizable when they damage ESA. Generalizable findings become non-generalizable when they don’t.
The convenient feature of this method is that the error always points the same direction. A reporter who genuinely struggled with the statistics of audit sampling would make mistakes in both directions over time. Harris’s don’t. They cluster.
And they remain uncorrected. Harris’s original 20% claim has never been retracted. The “random sample” language and the 34% framing are now circulating through campaign statements, legislative press releases, and social media posts, citing Harris’s distorted reading of the Auditor General report.
One cannot help but notice that Harris’s manufactured anti-ESA talking points come at a moment when anti-ESA groups are gathering signatures for two ballot initiatives to curb and regulate the ESA program. One also cannot help but wonder whether the downstream political effect is more than incidental to the reporting.
The Auditor General’s findings on ESA are real and worth engaging on their own terms. The program’s risk-based audit methodology is likely better than any other program in the state, but it could still be improved. The auditor has some substantive criticisms, and ADE will have to answer them.
Arizonans deserve honest reporting on those findings, not statistical fictions dressed up as “journalism.”
Jason Bedrick is a Senior Research Fellow and Corey DeAngelis is a Research Fellow at The Heritage Foundation’s Center for Education Policy.
Emerson famously noted that “a foolish consistency is the hobgoblin of little minds.” Opponents of Arizona’s school choice program seem determined to field legions of such monsters.
Exhibit A: the reporting of Craig Harris. Harris has over the years repeatedly filed anti-school choice stories which were riddled with errors. His latest salvo against Arizona’s popular Empowerment Scholarship Accounts (ESA) program is no exception.
In 2018 and 2019, Harris published articles in the Arizona Republic claiming charter schools underperformed district schools and faced mass closures, but both stories relied on flawed research—including counting schools that only went through 9th grade or had already closed as having 0% graduation rates and relying on “research” by anti-charter school activists that misunderstood basic accounting concepts.
More than six years later, the predicted mass closures have never materialized, and National Assessment of Educational Progress data actually showed Arizona charter students outscoring district peers by roughly two grade levels.
But Harris, unlike the students, doesn’t seem to have learned his lesson. These days he has fixated his efforts against Arizona’s ESA program—and the results are just as edifying.
With an ESA, parents can purchase a wide variety of educational goods and services using 90% of the state money that their child would have received at their local district school. The parent-managed accounts have state oversight to keep transactions focused on allowable education expenses. The program is wildly popular with Arizona families, with over 100,000 students participating.
However, the ESA program is not so popular with special interest groups tied to school districts and their allies in the press.
Now at Channel 12, Harris has produced misleading stories about Arizona’s ESA program, including claims that parents use accounts for “babysitting“—based on a since-corrected error by the Treasurer’s Office—and that families are “subsidizing vacations,” when in reality they’re purchasing tickets to museums, zoos, and aquariums, which are allowable educational expenses also used by public schools. The program uses risk-based auditing to detect fraud, the same widely accepted method used by the IRS and recommended by Arizona’s Auditor General.
In his latest salvo against ESAs, Harris has produced a so-called “analysis” claiming that 20% of ESA purchases constituted a misuse of funds—a huge jump from the less than 1% rate of misuse previously detected by the Arizona Auditor General.
Misuse of funds in publicly funded programs is a serious problem which the Arizona Department of Education has taken great pains to minimize in the ESA program. Harris, however, is once again playing games and tricks with the data.
First, Harris’s claim of that 20% misuse is based upon an examination only of a small portion of total ESA purchases—384,478 of the 1.8 million total ESA transactions since December 2024, or about 20% of the total. This smaller group of purchases had been selected by the Arizona Department of Education for additional scrutiny via risk-based auditing, so it’s not a random sample that one could use to extrapolate about rates of misuse in the ESA program generally.
In other words, among the 20% of ESA purchases flagged for additional scrutiny, 20% were found to be misspending. But 20% of 20% amounts to only 4% of total purchases. Harris’s claim that 20% of ESA purchases were misspending is a gross exaggeration.
In fact, even the supposed 4% misuse rate itself is an exaggeration, as it is 4% of total transactions, not 4% of total spending. The most recent data from the Arizona Department of Education show more than half of ESA funds are spent on private school tuition, so the rate of misspending is likely less than 2% of total spending—a rate of improper payments that is well below a variety of programs found in programs which ESA opponents support, such as Medicaid (7.4%), food stamps (9.3%), and unemployment insurance (14.4%).
Tears for Fears’s hit song “Everybody Wants to Rule the World” includes the line, “One headline—why believe it?” If the headline is followed by a Craig Harris byline, be very careful before you believe it as you are not getting the whole story—maybe even a false story.
Matthew Ladner is a Senior Advisor for education policy implementation and Jason Bedrick is a Research Fellow at the Heritage Foundation’s Center for Education Policy.
